June 7, 2005 | By Kurt Opsahl

Websites Invade Your Privacy to Charge You More

CNN has a report detailing an unsavory practice euphemistically called "price customization." In short, websites examine the web data you automatically shed (cookies, IP address, etc.) so they can charge you a different price for a product or service depending on your "identity" and shopping habits.

The article cites "a retail photography Web site charging different prices for the same digital cameras and related equipment depending on whether shoppers had previously visited popular price-comparison sites" and "one [Amazon] buyer [who] deleted the electronic tags on his computer that identified him as a regular customer and noticed the price of a DVD changed from $26.24 to $22.74."

Yep -- it's good old-fashioned price discrimination, the inevitable result of an increasingly "personalized" Internet.

With price discrimination, a business can capitalize on the elasticity of demand and the subjective value of, say, an airplane ticket, by finding out how much you're willing or likely to pay. A business traveler likely wouldn't choke on a $50 price-hike on a ticket to Florida; a college student would. So if a business can distinguish between the traveler and the student in a given transcation, it generally will, and charge accordingly. It's not "fair" and it isn't meant to be. And yes, it's legal, though the Federal Trade Commission has some concerns.

Are there ways of outsmarting online price discrimination? Sure, but there are challenges:

  • Price discrimination will still work even if log/cookie data is "anonymized" -- the site does not need to know your specific identity, just that you are the consumer who is willing to pay X for Y.
  • A critical part of effective price discrimination is market
    segmentation. This is achieved in some instances by DRM technologies to
    prevent resale between consumers.
  • For unrestricted items, price discriminators need to limit consumer
    access to pricing information. In some instances you may not have bothered to do the homework (that is, compare prices) -- but in other cases, you may be prevented from doing it.

Tor software can provide part of a solution, thwarting some forms of price discrimination -- for example, discrimination based on your unique computer address or your geographical location. But you also need to manage the cookies your web browser receives from advertisers and vendors. A complementary tool like Privoxy can help a lot here.

Supporting the preservation of online anonymity isn't only good for protecting your privacy and free speech -- it can also help you protect your wallet. That's something to bear in mind as the pressure grows to create an Internet that knows who you are and what you do.


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