Price Conspiracies

A believable conspiracy theory:

Airlines and online travel agencies surreptitiously use computer “cookies” they’ve implanted on your Web browser to track your activity on their sites and then raise prices when it appears that you’re interested in a fare. That’s the rumor, at least. … For years … the industry … has vehemently denied any tampering with prices. …

A United Kingdom-based hotel site called VivaStay reportedly dinged customers by way of a special link from an affiliated Web site that showed slightly higher prices than those quoted to customers who clicked directly on the VivaStay site. VivaStay apologized, but said it was unaware that the price variation was frowned upon.  …

A teacher … says … she recently tried to buy a ticket to Vietnam … through the Delta Air Line Web site. … But when she was actually ready to buy her flights, the airline informed her that the ticket she wanted was $300 more than the original price quote. … “I returned to Delta’s home page and began the process again. … The same lower fare was still displayed, so I worked my way through the process again only to be informed once again that the fare was no longer available. Over the course of a half hour I repeated this process two more times. Same result.” …

“If there is no bias in a process, there are about as many negative outcomes as positive outcomes. The process of posting the lower airfares — that is, making them initially available — should result in as many surprisingly lower prices at booking as it does surprisingly higher ones because they have all been taken.”  [This physicist] makes a good point. I’ve heard of only one or two cases where the fare dropped.

Given a room full of computers, such as in a school or library, it shouldn’t take more than a few hours to test this price-jump conspiracy theory.  Just try to book random flights and record the initial and final prices offered.  If the non-random pattern is strong, it shouldn’t take long to see clearly.

Price discrimination, i.e., charging different prices for the same thing (that costs the same), has long been a wide-spread business practice.  Firms are reluctant to admit they do it not only because customers get mad, but also because it has been illegal in the US since the 1914 Clayton Antitrust Act, at least if “the effect … may be substantially to lessen competition.”  Mark this as another bendable rule authorities rarely enforce, letting them selectively punish whomever they wish.

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  • http://www.bthomson.com Brandon Thomson

    This sort of thing is not uncommon; often when an affiliate link is used for a purchase the company making the sale owes some money to the affiliate, and the easy way to make back that money is just to add it to the price charged to the consumer.

    Going to the selling company’s website directly does not remove the cookie, nor does it free the selling company from the contractual obligation to pay the affiliate if the sale is made (after all, the person still found out about the deal through the affiliate). However, due to difficulty in covering every base the price shown on the company’s home page might not reflect the increase that will go to the affiliate.

    Does that mean you can sometimes get lower prices by clearing your cookies? Yes.

    Isn’t price discrimination ok as long as universities do it and it’s called “Financial Aid”?

  • Bill

    I am an antitrust lawyer and also teach antitrust law.

    This is not an antitrust conspiracy. There is no agreement between airlines.

    This is simply a vendor/customer matter. The only issue is one of consent or deception. Consent–did I consent to the use of personally identifiable information. Yeah, probably, just as you do when you go face to face with a salesperson. How about data from a different site being sold to the airline so it can raise the price…probably something in the website’s fine print there as well.

    Second, this is not really price discrimination either, unless you want to define price discrimination in a non-antitrust sense–selling to someone based on their maximum willingness to pay.

    By the way, airlines do do this, but also, with dynamic pricing, prices do change due to supply and demand as well. Other websites do dynamic pricing as well, but, if you and everyone gets to know of it, there may be adverse reputational effects.

    Oh, you might also want to work this information game in your favor. Go to a website, put the product in the shopping basket BUT do not finish the transaction or put the product back. A lot of times, if you wait, the vendor will send you a coupon for buying the item, or inform you it is on sale.

  • Bill

    I might expand a bit on why this is not illegal price discrimination.
    The Robinson-Patman act forbids price discrimination between “two competing” customers typically also engaged in the resale of the product. The discrimination must adversely affect competition–that is, the discriminated customer must lose business as a result of the discrimination to the other customer. Consumer end users do not lose business. Sorry.

    Most customers are not competitors either, they are end user customers, and not resellers.

    • JGWeissman

      I don’t care that it is not illegal. As a consumer, I do not want to be treated in this way, and I am happy to be aware of it, so I know I should pay special attention to price increases as I go through the purchasing process, so that I can try such remedies as clearing browser cookies, and finding more competitive offerings.

      • Bill

        Go to websites anonymously. I am not saying that I like this either, but it is not illegal. Think of it as a small town: everyone knows your name.

  • William Meyer

    Many great posts from Robin lately!!!

    May not be illegal, but I see cynical business practices so often that my perception is that virtually *all* companies are engaging in them.

    It’s always been bad, but I think there’s been creep in that direction and I would like to see a movement for targeted boycotting to attempt to change that trend.

  • Aron

    This paper looks apropos, coming after Amazon got some bad PR for trying this circa 2000: http://www.vjolt.net/vol6/issue2/v6i2-a11-Weiss.html#legality

  • Houghton

    Commercial prices on anything… are variable and generally negotiable from customer to customer — been that way for thousands of years.

    What exactly is the horrible ethical ‘problem’ here ?

    Perhaps ticket prices are more easily manipulated by airlines online– but there are also more discount options for alert buyers thru 3rd Party ticket consolidators/resellers and fare information websites.

    And the “watchdog” government itself has no ethical problem demanding vastly different fees for the same services to different citizens (e.g., progressive income taxes & property taxes).

  • Sigivald

    If they’re using cookies to do that, it’s easy enough to find out.

    Delete them (during the process, in fact, for testing). Or use a browser with cookies turned off.

    Look at the page and local script source, look at access to the cookies.

    It’s not like they’re secret magic nobody can investigate or watch…

    I guess the Post couldn’t bother to ask a computer security professional to actually check (or even check themselves, to at least get a baseline), preferring to state it as “rumor” and offering only anecdotes…

    (I mean, “It may be impossible to prove conclusively that travel companies use cookies to raise their fares, or to bait us with low fares.”?

    Impossible? Trivial, since cookie access is “open” and we can see when it’s done. Rather than relying on ancedotes, they should have actually tried it, deleting and testing multiple times, to show a clear pattern or its absence.)

    • JGWeissman

      If I wanted to implement this price raising strategy in a way your tests would not detect, I could use server side processing to track behavior from IP addresses. At the cost of a little inaccuracy from people sharing IP addresses, no cookies are needed.

      That said, yes, it would be good to investigate if the sites in question use the easily detectable strategies. And you could test for my strategy as well, provided you use multiple computers with different IP addresses, a much less convenient test.

      • mmc

        And you could test for my strategy as well, provided you use multiple computers with different IP addresses, a much less convenient test.

        You can use proxies to access from different IPs. It’s useful to check for geographic discrimination too.

  • http://entitledtoanopinion.wordpress.com TGGP
  • http://hanson.gmu.edu Robin Hanson

    All, I’m not saying price discrimination is inefficient or morally bad. But it is something that offends most people, and elites do seem to conspire to hide the fact that it is ubiquitous.

  • http://robertwiblin.wordpress.com Robert Wiblin

    I wonder how much price discrimination based on wealth acts as a disincentive to work hard and get rich.

    • Carl Shulman

      My bet would be that the biggest ‘bite’ of private price discrimination for the rich would be in higher education, where customers have to fork over their tax returns or equivalent information and the sums of money (and discounts/”financial aid”) are very large.

  • Lo Statuz

    A room full of computers may all use a common NAT box or proxy, so they may share one IP address. Before doing the experiment, it would be best to make sure this is not the case, just in case the web site is using IP address.

    SSL also maintains a session, even without cookies. I just did a test on delta.com, which tried to create an SSL connection to estara.com.

    But on delta.com, I got to the final price without giving out any personal information, not even a zip code. They could geolocate my source IP address and get a vague idea of where I am, but if they want to price discriminate, they need some kind of proxy for my wealth or income. I don’t see that they have much to go on.

  • http://www.wasabiburger.com Ken

    Amazon uses this tactic on an ongoing basis to find their price ceiling. Try putting books/electronics/clothes/etc into your shopping cart, and come back to it a week or two later and you’ll find that the prices have fluctuated. (FYI: Amazon does let you know that the prices have changed.)