Perhaps the millennials are enjoying their version of the ‘best generation’: They live in a ‘cash-free society’, no need to wait for taxis, no need to take a phone call to order take-outs. With various popular mobile applications covering these essential needs for younger generations, a mobile phone is all it takes to complete all those tasks.
It was a win-win situation for all: Users can enjoy more convenient services. Business owners may expand their businesses to additional users gathered by the application platforms. And the applications, of course, are the biggest winners by attracting huge potentials in revenue earning and business prospects.
Yet the fantasies all the sudden came into a dramatic stop after various news reports uncovering the negative impacts that tech firms and their applications bring to their mass number of users: Privacy hack is no longer a freshly new thing. And with the applications getting to know you better through your privacy and spending habits, the applications may eventually start to betray your trust. All the sudden, you realize that you end up paying more for the service that you once enjoyed. News stories have shown that for some applications, new users tend to get better deals than loyal users. IOS users are often charged a higher price than Android users for the same services.
It starts to contradict with our common sense: Those who are loyal to a business are becoming the group that actually got hurt the most.
Unfortunately, they have the Incentives to do so
Apparently, the privacy hacks and the price discriminations that many applications engage on their users are obviously unethical. Yet from an economic point of view, these application platforms have all the incentives to do so.
Tech companies are seeking profits with their products. And unfortunately, one of the most valuable items within their respective products are the massive data ‘voluntarily’ given by users from their in-app activities. They not only help the tech companies better understand their users, but also help to figure out their spending habits and their willingness to pay for respective services.
For instance, a ride-sharing application can reasonably guess their users’ daily routine by analyzing their travel routes and transportation selections. An online shopping application can figure out the users’ shopping budget based on their purchasing history and viewing history. These are simple in-app activities that users do when using the applications, yet collectively, the usage history of many users offer the firms an almost accurate prediction of consumer behaviors to selected goods and services.
One of the key factors for firms to successfully engage price discrimination (or more precisely, first degree price discrimination) is to predict the individual’s willingness to pay. And with the help of massive data and spending history, it makes the service provider’s job easier to figure out the consumers’ willingness to spend on given goods and services. And to obtain more revenues for these profit-seeking firms, there are huge incentives for these technological hegemons to engage in these unethical activities.
To understand the concept of first degree price discrimination, most instructors will use a fictional figure: the almighty mind-telling witch. The witch knows exactly how much these consumers are willing to pay for a given item and will charge them exactly the same amount. By exploiting all the consumers’ surplus, producers and service providers will earn a higher revenue and leads to more profits. Now, with the help of data analysis and algorithm models, tech firms are able to create that mind-telling witch with the resources they have in their hands.
Yet for many users, the ironic part is their voluntary actions in offering their information to the application developers. It is just that simple: Sign on a user agreement that they never bother to read.
This whole exploitation is nothing new: Price discrimination is a concept in traditional micro-economics. That mind-telling witch is there for perhaps more than a century. Yet the tech firms are able to summon the witch back to this real world: By feeding her sufficient historical data, these firms can have that witch offering them enormous cash in return.
Don’t Count on the Authorities, count on YOU!
With the tech firms having a rather monopolistic power against their users, many application users are calling the government to regulate and ensure a fair price.
Perhaps these petitioners have a point, yet relying on governments’ efforts to stop tech firms’ predatory actions may be an unwise bet. Tech firms always have a first-mover advantage. Regulatory authorities will always react one step behind the new features developed by tech firms. In addition, the lobbying power and legal power of these wealthy tech firms should never be underestimated. A potential regulation could lead to a case all the way up to the supreme courts in many countries. And as expected, the government may not always win these cases.
As the users of these data-collecting applications, it is really about one’s individual effort to stop becoming the victims of exploitation. It is a trade-off that we all need to make: Do we want to enjoy the conveniences that these applications can offer, or do we want to protect our privacies on specific occasions.
It would be hard to completely refrain from using any applications: Doing so makes our own life difficult. But there are many things we could do to prevent stepping into a price discriminating trap.
- Always read the user agreement: It could be boring. It could be troublesome. It is certainly not the most pleasant thing to do on a Friday night. Yet reading these agreements are essential. Perhaps as you are reading it, you realize that you do not have to consent to all clauses to user the application. And by selecting the minimum level of consent, you can legally protect part of your privacies from exploitation.
- 2. Try their competitors’ product: Competition is always good for us, the application users. Not only would it lower the market price to a point that maximizes social efficiency, but also would it prevent price discrimination from taking place. It could make you spend more time comparing the prices that different platforms offer. But it is certainly worthwhile to do. No one wants to live in a monopolistic market, where prices are higher and the services are often worse.
- Cash is not that bad: Not everyone is a cash person. Some people may find it risky to pay in cash. Some people feel that holding cash can make one become victims of robbery. Yet despite all these risks that cash can bring, it is in fact the best way to protect one’s privacy. It is relatively difficult to track, comparing to credit card records and e-payment records. It leaves these firms little or no trace of your habits: They would have no knowledge about what you did and how you did it, not to mention the price you paid. To them, you become a consumer with no history. And that witch they summoned, will never win that pricing game against you.
Chauncey Jung works with a unicorn Internet firm based out of Beijing. His professional experience pays him off an insider perspective over China’s internet industry. Completed his bachelor and master education in Canada, Chauncey is obsessed with trending technologies and economic developments across Asia. He can be reached at [email protected]
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