7 Ways to Protect Yourself from Price Discrimination

 In Personal Finance, Spending

T he first time I saw price discrimination in action, it was 2013 and we were redeeming Capital One rewards points from our respective accounts for an NYC-LA flight. Just to be clear lest there be any misunderstanding: we were flying on the same exact plane at the same exact time and on the same exact day. All aspects of our itinerary were identical. Imagine the shock when we saw that the hubby was being charged 15,000 more rewards points than I was. I’m not surprised that hubby was charged more because he is less price sensitive than I am and is an impatient shopper. But from that moment on, seeds of doubt and mistrust were planted in the back of my head.

A s a salaried employee, I am already a wage-taker and subject to the whims of biased promotion processes which dilutes my buying power. For my purchasing power to be diluted further with variable pricing is a whole other ballgame. I’m all for companies charging fair prices – we are all better off when we can procure goods/services where we don’t have a comparative advantage. I’m not ok with pricing that changes based on a consumer’s known or projected income level. In an extreme case, you can imagine a scenario where aspirin costs a destitute person $1, but costs Bill Gates $1,000. Even though Bill Gates may lead a charmed life, I would be upset for him because iniquity is a cancer that brings down society. Today’s post looks at what we can do to protect ourselves from price discrimination. Financial independence is a function of our ability to leverage as much of our income as possible, so it’s critical that we prevent budget leaks at the point of sale.

Congress, Congress, Wherefore Art Thou Congress?

C ongress recently voted to repeal internet privacy protections which puts all of us financial independence lovers at risk. Our Cheetoh-in-Chief just signed the bill which means that internet providers don’t need to get consumer consent before using information such as your location or web browsing history. Did you know that gas is more expensive in New York City than in the rest of New York State even though the cost of procuring that gas remains constant? The reason for this is because companies assume that people who live in the city make more money and charge them accordingly. This form of price discrimination isn’t the worst offender, but it’s still unfair.

D ata is a valuable tool for targeting customers, particularly for platforms competing for ad dollars. Personalized pricing means that over the course of your lifetime, you may end up paying thousands more for goods and services that others pay much less for because you didn’t secure your browsing history. In a world where we speak up against racial discrimination, gender discrimination, socioeconomic discrimination, and all other forms of biased behavior, it’s interesting to me that we don’t do more about price discrimination when we can actually do something about it and have tools at our disposal.

All the Price Discrimination

P rice discrimination has been around for centuries with the railways in the 1800s providing one of the most compelling case studies of what happens when firms don’t have the ability to accurately target their consumers. An example of crazy pricing: Rates between Chicago and New York were higher than those from Milwaukee, even though trains from Milwaukee went through Chicago. The insane pricing differntials led to a pricing counterrevolution and undermined the moral legitimacy of capitalism. The US responded by enacting the Interstate Commerce Act of 1887 to restore the damage wrought by price discrimination run amok. Under the demands of the act, rates must be “just and reasonable” and personal discrimination was forbidden.

T he Conversable Economist lays out a few ways to think about price discrimination. Easy examples to consider include the fact that hardcover books come out first but are more expensive than the paperback editions that come out for those willing to wait. Happy hours and early bird specials are a way to lure in customers who aren’t committed to eating dinner out. Generally, there are three types of personalized pricing:

  • First Degree: buyer is able to individually negotiate prices with seller. Think of car dealerships and the process of acquiring a vehicle.
  • Second Degree: quantity discounts – per-unit price of a good falls with the amount purchased. A Costco membership to access quantity discounts is an interesting twist on this type of price discrimination.
  • Third Degree: sellers charge different prices to different groups. Think of senior citizen discounts.

T he growing incentive to price discriminate coupled with more sophisticated abilities for price discrimination are leading to a change in the way that pricing is set today. Big data has lowered the costs of collecting consumer information, so not only can they target you individually with discounts or preferential pricing, but they can also deliberately obfuscate pricing. For example: companies can charge a low price but then tack on warranties, insurance plans, and shipping fees. They can also bury details in complex contracts or bundle services together so that a consumer pays more for what he or she had originally intended to purchase.

Fighting Back Against Price Discrimination

W hile disciplined shoppers may benefit from personalized pricing, price discrimination is likely to work against most consumers irrespective of experience and education levels. I think of hubby and know that he’s a marked man because his online purchasing history shows that he’s not willing to hunt for deals or wait to make a purchase. So what’s a mainstream consumer to do?

  • Browse incognito: Google Chrome’s browser has an incognito mode where private data components are not left behind at the end of the current session. Browsing history is deleted, and when the ‘Incognito’ window is closed, all the cookies that have been created during that session are also deleted.
  • Choose a smaller Internet Service Provider: the Electronic Frontier Foundation reported on small ISPs that believe in data privacy. If they serve your market and you want to vote with your dollar, support those companies.
  • Don’t buy on impulse: The tips and tricks savvy online shoppers utilize to save money also train the companies you do business with to back off with aggressive pricing. I always get my Christmas cards from Minted for example and do a song and dance routine with them in which I start creating the card as early as September sometimes, but never purchase any until a specific offer appears around the Veteran’s Day holiday (it is usually emailed to me instead of advertised). It helps that I know they will rarely offer more than 30% off an order, so I hold out for percentages that get close. It’s really rare that you’ll need something immediately, so train yourself to delay gratification and hold out for a higher percentage discount, free shipping, free gifts, or all three.
  • Set up a private VPN network: Especially for travelers who utilize open Wi-Fi networks on the road, having a private VPN service is a first line of defense act that is necessary for you to be able to check your bank accounts. According to EFF, “When using a VPN, you’re making your Internet traffic pass through the VPN provider’s servers before reaching your destination on the Internet. Your ISP will see that you’re connecting to a VPN provider, but won’t be able to see what you’re ultimately connecting to. This is important to understand because you’re exposing your entire Internet activity to the VPN provider and shifting your trust from the ISP to the VPN.” EFF goes on to share questions you should ponder when choosing a VPN service. We personally just signed up for Private Internet Access on account of recommendations from techie friends who use it and the recent NYT write-up.
    • Bonus: With private VPN, you can access content that is restricted to a specific country by changing your ISP address to reflect the country that you’re trying to access content in. This is particularly helpful when trying to buy train tickets from the French SNCF as I’ve just realized. If you’re not from Europe, the SNCF website routes you through Rail Europe who jacks up the train prices by as much as 3x. Using a private VPN, I can pretend I’m in any European country and buy tickets through the SNCF site instead of Rail Europe.
  • Use a Tor browser: Your ISP will only see that you’re connecting to a Tor network which can improve your anonymity relative to a VPN. However, some websites don’t work with Tor because of built-in protections, so this strategy may be more hassle than it’s worth.
  • Share less information: Lawyering up when it comes to likes, posts, and shares is a pain but does limit the ecosystem of data points that any one business can build to pinpoint you. As a millennial, the thought of going dark online is unthinkable and of course I’m still going to like pictures of loved ones that show them having a good time, but I myself will be volunteering less about my preferences and my life.
  • Compare prices on different devices: Our 2013 tickets to LA were purchased on two different devices: a PC and a Mac. The Mac had the cheaper redemption option, and I would go so far as to say that you should also check prices for an item on both an Android and an Apple phone. It’s a lot of work, but training companies to understand that you’ll only take the lowest price is worth it in the long run so they don’t lock you into a certain demographic that gets charged higher prices.

O f these tips, setting up the VPN network, while not a panacea, was the most actionable and logical next step. The next action I’m investigating is a switch in ISPs. A quick search revealed Brooklyn Fiber, which just serves parts of Brooklyn in its network. As we plan to move later this summer, we have some time to evaluate our options and hope that Google Fiber will make its way to this coast.

The Future of Online Commerce

I t is a shame that we have a government willing to literally sell us out to corporate interests. Of course it’s not like we ever really had online privacy, but still, this blatant in-your-face move is galling. Don’t be a luddite of course – online shopping has much going for it, the greatest of which is convenience and access to a broader set of specialized retailers. I buy less and certainly less of the non-sustainable stuff because with the exception of Amazon, the mass discounters have yet to provide a frictionless shopping experience for me. I can’t remember the last time I actually bought something from Zara and H&M…definitely not in the last six years. This is great insofar as it has forced me to up my game and really consider why I’m adding something to my household which has the added benefit of being gentler on the environment and my sanity (KonMari is a serious emotional and mental time-suck).

P rice discrimination and weaker privacy rights are here to stay for the long run, so we have to be ever more vigilant about what we’re willing to pay and who we give our money to. Luckily, we have tools we can use that while imperfect, go a long ways towards giving us some ammunition against forces who don’t have our best interests at heart.

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