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Tuesday, April 25, 2017

How Online Shopping Makes Suckers of Us All (theatlantic.com)

The Atlantic, describes how price discrimination is used in online shopping and how businesses like Amazon try to extract consumer surplus:  

Will you pay more for those shoes before 7 p.m.? 

Would the price tag be different if you lived in the suburbs?

 Standard prices and simple discounts are giving way to far more exotic strategies, designed to
extract every last dollar from the consumer. 

We live in the age of the variable airfare, the surge-priced ride, the pay-what-you-want Radiohead album, and other novel price developments. 

 But what was this? Some weird computer glitch?

 More like a deliberate glitch, it seems. "It's most likely a strategy to get more data and test the right price," Guru Hariharan explained, after I had sketched the pattern on a whiteboard. 

The right price -- the one that will extract the most profit from consumers' wallets -- has become the fixation of a large and growing number of quantitative types, many of them economists who have left academia for Silicon Valley.

 It's also the preoccupation of Boomerang Commerce, a five-year-old start-up founded by Hariharan, an Amazon alum.

 He says these sorts of price experiments have become a routine part of finding that right price -- and refinding it, because the right price can change by the day or even by the hour. (Amazon says its price changes are not attempts to gather data on customers' spending habits, but rather to give shoppers the lowest price out there.)

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