Online Price Discrimination and EU Data Privacy Law

Abstract

Online shops could offer each website customer a different price. Such personalised pricing can lead to advanced forms of price discrimination based on individual characteristics of consumers, which may be provided, obtained, or assumed. An online shop can recognise customers, for instance through cookies, and categorise them as price-sensitive or price-insensitive. Subsequently, it can charge (presumed) price-insensitive people higher prices. This paper explores personalised pricing from a legal and an economic perspective. From an economic perspective, there are valid arguments in favour of price discrimination but its effect on total consumer welfare is ambiguous. Irrespectively, many people regard personalised pricing as unfair or manipulative. The paper analyses how this dislike of personalised pricing may be linked to economic analysis, and to other norms or values.

Next, the paper examines whether European data protection law applies to personalised pricing. Data protection law applies if personal data are processed, and this paper argues that that is generally the case when prices are personalised. Data protection law requires companies to be transparent about the purpose of personal data processing, which implies they must inform customers if they personalises prices. Subsequently, consumers have to give consent. If enforced, data protection law could thereby play a significant role in mitigating any adverse effects of personalised pricing. It could help to unearth how prevalent personalised pricing is, and how people respond to transparency about it.

Keywords: price discrimination, cookie, data protection law, General Data Protection Regulation, behavioural targeting, personalised communication

JEL Classification: K12, K00, D10, D11, D20, D30, D40, D60, D70, L00, L11, L20, L51