Big Data, Price Discrimination, and Antitrust

Ramsi A. Woodcock

Volume 68, Issue 6, 1371-1420

Antitrust law today guarantees a particular distribution of wealth between consumers and firms by promoting competition in some markets, but allowing firms to retain pricing power in other markets, such as those in which a firm has achieved power through oligopoly or by fielding a superior product. By giving firms the power to identify individual consumers at the point of sale and determine the maximum price that each consumer can be made to pay for a product, big data will soon allow firms with pricing power to charge each consumer the highest price that the consumer is able to pay, upending the current distribution of wealth. Current antitrust rules cannot respond because those rules determine the distribution of wealth only indirectly, through regulation of competition, instead of directly through the regulation of prices, leaving firms with pricing power free to use their data to raise prices. As a political matter, a response will be necessary, however, because consumers will rebel against attempts to diminish their wealth.

Two options preserve the current distribution of wealth. One is to change antitrust rules to require more competition in markets that are exempt from antitrust scrutiny today. The traditional objection to such a deconcentration campaign, that it might reduce rewards to firms for innovation, would not apply because the purpose of deconcentration here would be to restore the current, presumably sufficiently rewarding, distribution of wealth. The other option is use by government of big data to set prices designed to maintain the current distribution of wealth. Big data would make price regulation of this kind possible by allowing regulators to calculate precisely how much wealth a given pricing policy lets consumers retain in a given market. One advantage of price regulation over deconcentration is that regulators would be able to use big data to tailor prices to achieve social justice ends, such as ensuring that the neediest consumers obtain the most value from their purchases.

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