Andrew Odlyzko who has the annoying tendency to be right and, worse, fact-based about it has posted a paper called “Privacy, Economics, and Price Discrimination on the Internet.” It is to appear in the Proceedings of the Fifth International Conference on eCommerce. From the abstract:

The rapid erosion of privacy poses numerous puzzles. Why is it occurring, and why do people care about it? This paper proposes an explanation for many of these puzzles in terms of the increasing importance of price discrimination.

From the beginning section of the paper:

The key point is that price discrimination offers a much higher payoff to sellers than any targeted marketing campaign. Adjacent seats on an airplane flight can bring in revenues of $200 or $2,000, depending on conditions under which tickets were purchased. It is the potential of extending such practices to other areas that is likely to be the “Holy Grail” of ecommerce and the inspiration for the privacy erosion we see. For it is the privacy intrusion represented by airplane tickets being non-transferable contracts with named individuals that enables airlines to practice yield management in the extreme form it has reached.

In an email to a mailing list Andrew writes: “If you consider the main questions in communications, namely how open or closed networks should be, should the end-to-end principle prevail, etc., they are really questions about price discrimination, as in ‘Should your cable TV company be able to charge you more for a bit of voice traffic than for a bit of video?'”

PS: Fun Fact from the paper:

Coca Cola was discovered
in 2000 to be experimenting with soda vending machines that would raise prices when temperatures were
high.

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