Price discrimination have been around for years. It is seen as a benefit for both companies and buyers, but there is a line that price discrimination can cross to become illegal and harmful for our digital life.

Price discrimination term have been around for years and the first hard price discrimination evidence appeared in 2012, when it was noticed that new buyers at Amazon were offered lower prices than the returning customers.

Price discrimination happens when companies offer different prices based on consumers characteristics, such as level of income, location and other factors. It is particularly easy to use price discrimination on online users (in e-commerce) since with the help of cookies, IP addresses or just asking customer to sign in in order to purchase, businesses can collect loads of data and personal information about the buyer and create customised profiles of them. And then of course offer different prices, for example higher prices for people whose income is bigger or they are less price sensitive.

Who benefits from Price Discrimination?

Price discrimination can both benefit the buyer and the sellers. For unprofitable services such as train companies, price discrimination helps to avoid going bankrupt. Cost of train services varies on peak and off peak times and helps them keep their business running. This is also beneficial for consumers since it gives them a wider choice of products and services.

Second benefit is that some groups can enjoy lower prices, groups that are price sensitive. A great example is students and elderly people discounts. But this is also a minus for other people who might face bigger prices, then it would be if there were no price discrimination.

Another benefit is that price discrimination makes demand more stable. Let’s take an example with trains again. If the train would cost the same on rush and no rush hours, everyone will be able to go with it during rush hours and the train would be crowded and not everybody could get in. When the price differs, those who cannot buy the rush hour ticket (more expensive one) will choose another time to go with the train and the train won’t be crowded.

And the last benefit is that price discrimination helps companies increase their investments. For example it is known that aircrafts uses price discrimination based on your location and your browsing activities, they do so to maximise profits and gain extra money to invest in aircrafts. This sounds like a benefit, but what about the customers?

Is it actually ethical?

The first question that comes into mind talking about ethics — is price discrimination legal? Yes it is legal to some extent. It becomes illegal if price discrimination is used differently on people based on their religion or other demographics. Sadly, we can see cases where this law has been broken.

Digital Quality of Life report gives us one example: “The American company Home Depot was proven to charge visitors of its online shop different prices depending on their postcode (Howe, 2017), which reveals the level of economic affluence of the area they live in, and in turn, whether they are willing to pay higher prices.’’

So basically price varies for people who presumably have bigger income. And this is where another ethical issue arises. How sure can companies be that a buyer has a specific income? How sure a seller can be to assume that a person from for example Ukraine has less money compared to a person from the UK and change prices by location? They cannot be.

Another huge issue, especially in this digitalization age is data collection. Companies follow our digital footprint online, they follow our purchase behavior, sites we visit, where are we from, how old we are, what are out occupations and many uncountable characteristics are included in the digital consumer profiles they built on us in order to target us with the right price. In addition, they do not only use our data to target us the right prices, some of the companies have been caught selling this data to others, and in the time when data is more precious than oil, it is making them rich and us poorer.

How can we fool prices?

There are simple ways to check if you are targeted with lower or higher prices and to bypass these price discriminations. Not eliminate it, but for example get something you need for a lower price. Just don’t think that now you will get everything cheaper online, not all companies use price discrimination, but you can always check it.

Check the same products on different electronic devices, since the price can increase or decrease based on the device you are using, both smartphone or laptop and both mac or windows. Also just ask your friend to check the price on the same product on his devices, to see if it is different or not.

If you find out that company is using price discrimination there are things you can do:

Disable third party cookiesTry changing you zip codesTry logging from different devicesClean all search history and cookiesChange your IP address with the help of a VPN. This will help get cheaper plane tickets, car rentals and other services that change prices based on location.

An Example: Getting Cheaper Plane Tickets

In the Digital Quality of Life research mentioned above, an example is provided to show how you can get different price of plane tickets from different location with the help of a VPN.

You can see how the prices changes while connected to three different countries:

Usually the price of plane tickets, hotel bookings, even car rentals change based on the location. This is because companies take into account factors such as average income, countries wealth, purchase behavior and others and change prices.

There are many people who are still not aware that such thing as price discrimination exists and shop with no worries. But for those who knows this, it’s kind of an annoying and sometimes makes us mad. Why should we pay higher prices than others, and how can companies know that I actually can pay that much of money. And of course why should we give up our data and let them profiling us.