Here’s Kevin Drum on trading personal information for discounts—at the supermarket and the newsstand:
Today, overall supermarket prices are still the same as they’ve always been, they’re just tiered differently: those with cards pay less and those without cards pay more. So on average, consumers haven’t benefited. What’s more, competition is generally fierce in the supermarket biz, which means that overall profit margins are also the same as they’ve always been. So supermarkets haven’t benefited.
So who has benefited? Well, as near as I can tell, the answer is: marketing firms. Loyalty cards generate mountains of purchasing data that allow third parties to target advertising more effectively. This is great news for marketing companies and their clients. Whether it’s great news for the rest of us is a little harder to determine.
But this might be the news model of the future. Basically, you’ll be able to get access to the Times two ways: either by paying for a subscription or by registering with your Facebook/Twitter/LinkedIn ID and agreeing to give the Times access to your online life. This is roughly the same trade that we’ve made in the supermarket biz: pay more and maintain your privacy, or pay less in return for giving it up.
So, I’m going to admit up front that I’m not at all familiar with the empirical literature on loyalty cards or their effects in various sectors. But two things occur to me offhand. First, the spread of grocery loyalty cards has coincided with the rise of high-end mass market options like Whole Foods and Wegmans. Depending on how that price comparison is calculated, static average real prices could very plausibly reflect a variety of trends pushing price in opposite directions, so one can hardly infer that the cards haven’t reduced prices on net without controlling for a bunch of other factors. But I’m willing to assume Kevin would have thought of this as well, and knows of some studies that have done this.
The more important point, though is that price discrimination can make consumers better off on net even if the average price is constant. I assume, after all, that Kevin thinks a move from flat to progressive taxation (bracketing incentive effects for the moment) is welfare improving because of the declining marginal utility of money, even if tax revenues are constant. So a world where the least price elastic or most privacy sensitive consumers pay a little more and the others get a discount could certainly be a net benefit to consumers, even if it’s not of uniform benefit to every consumer. It is, of course, perfectly legitimate to ask whether there are discomfiting unforseen externalities accompanying that sort of shift, but that’s a separate question.