Personalizing Prices to Redistribute Wealth in Antitrust and Public Utility Rate Regulation

Abstract

The information age is enabling firms with even small amounts of market power to personalize the prices they charge to each consumer in the market. Left to their own devices, firms will use this new power to increase profits by charging prices personalized to the maximum that each consumer is willing to pay. But government can also use the new power to personalize prices to equalize wealth—by insisting that firms personalize high prices to the rich and low prices to the poor—and most of the legal rules needed to do so are already in place. Both the antitrust laws and state and federal rate regulatory regimes already require enforcers to take the distribution of wealth into account in condemning anticompetitive practices or approving prices. Before the information age made personalized pricing possible, enforcers hesitated aggressively to use their powers to achieve wealth-equalizing prices because they worried that doing so would harm efficiency. But personalized prices are always efficient, whether set high by firms to maximize profits or adjusted by regulators to equalize wealth, creating an unprecedented opportunity for government to do distributive justice.

Keywords: antitrust, public utility, rate regulation, income tax, tax, tax and transfer, personalized pricing, price discrimination, big data, algorithms, chicago school, indirect tax, direct tax, progressive movement

JEL Classification: L12, L40, L43, L50, P11, P48, K20, K21, K23, K34, H21