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Comment by 001sky | Hacker News Reader

The price descrimination that the airlines do is so opaque and manipulative, this is exactly why one needs to be cognizant of the technicals. We are really only a single logical step removed from a pretty bad place (read: racist/sexist/elitist, etc) with this teqnique to dynamic pricing and (essentially) ... front-running.[1] For example, we can charge black people more (based on zip-code demographics) to discourage them from flying first class. We could, if we wanted to, require PII prior to bidding on tickets. Imagine if the NYSE priced publicly traded equities in this manner? The irony of cutting out the middle man to reduce costs, is that at some stage, we may be paying an intermediary (broker/marketmaker) to anonymize our order flow to get "fair" prices.

[1] This is what it really is, lets be honest.

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    For example, we can charge black people more (based on
    zip-code demographics) to discourage them from flying
    first class.

A middleman like Kayak has no incentive to keep black people out of first-class. They do have an incentive to price discriminate: charge people more who would be willing to pay more. Likely outcome: lower fares for economically disadvantaged groups. Except the middlemen are all required to charge the fare the airline sets, and can't compete on price.

The airlines currently price discriminate primarily by separating the relatively price-insensitive business travelers from highly price-sensitive leisure travelers. This is why you'll generally see lower fares for round trips that span a weekend: if you're traveling for work you generally don't want to spend your weekend off away from your family.

No incentive to keep black people out of first-class. They do have an incentive to price discriminate: charge people more who would be willing to pay more. Likely outcome: lower fares for economically disadvantaged groups.

This is insanely naive. Do you really think that rich people don't pay a premium for "exclusivity"? And who, pray tell, do you imagine they are trying to exclude?

[0] http://www.wired.com/design/2013/08/how-segregated-is-your-c...

[1] http://jezebel.com/5985110/new-york-fashion-weeks-models-are...

[2] http://www.nydailynews.com/new-york/macy-hit-class-action-sh...

[3] http://valleywag.gawker.com/harvard-study-black-people-get-s...

[4] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1934432

[5] http://valleywag.gawker.com/racial-profiling-newest-trend-in...

[6] http://qz.com/149342/the-uncomfortable-racial-preferences-re...

[7] see p. 4, http://ccrjustice.org/files/Report-CCR-NYPD-Stop-and-Frisk.p...

His point was that Kayak, who is simply a lead generator has no incentive to do so, not that discrimination doesn't exist in the world.

who is simply a lead generator

The busines model of lead gen is $/per Y. Y is typical a matrix, with quality as the main variation. In plain english, high quality leads are worth a premium. The business of assessing quality, at scale, is through indirect statistical techniques (ie, loose correlations of observed characteristics to perceived quality). "Not Black" is a piece of observed data that loosely correlates with higher quality for many high-net worth customers in the following market segments: ebay, air-bnb, fashion, dating, and real estate. The nexus of {fashion, dating, real-estate} is pretty strong if you consider the perspective of evolutionary psychology. Alternatively, you are talking the more important parts of a hierarchy of needs pyramid. Or put another way, this is the stuff rich people are most likely to "irrationally" throw money at. Expensive clubs, fancy cars, and flashy homes. Precisely the target market for 1st class travel, which is not business class (obviously).

This is a devils advocate position, but its worth thinking through. It (was) not meant to be just a "shock and awe" type of analysis just to get a rise out of people.

Half of your citations are Gawker. Do you work for them or something? Why would you link to Internet equivalent of the trashiest British tabloid?

Half of your citations are Gawker

The links to original research are trivially available.

But if this type of comment makes you feel special, no worries.

http://www.hbs.edu/faculty/Publication%20Files/14-054_e3c04a...

http://kentbrew.github.io/profiling-atherton/

>Imagine if the NYSE priced publicly traded equities in this manner?

Actually, stock exchanges like NYSE are accused of front-running, the SEC has been investigating for a few years already.

http://online.wsj.com/news/articles/SB1000087239639044398920... Or if you prefer a 50 minute documentary: http://www.youtube.com/watch?v=kFQJNeQDDHA

Airlines are masters of dynamic pricing via algorithms which they constantly tune. I've written some AirAsia scraping code in Java + Selenium web driver that runs every hour on a VPS - I use it just to discover the best time to buy holiday flights. Have noticed that prices for a particular route often change several times a day.

How is there front running when there are only two parties in the transaction?

Not front running the traditional sense, what I believe they are referring to is when you search for a flight, then come back and search it again and its gone up by $80 since they know you are interested in that destination but didnt book it last time.

This technique goes back long before the Internet. I recall working in a computer store where it was a standard practice to give someone a quote with an expiry date, and if they missed the time limit extra money would be tacked on with some made-up BS excuse (We sold out of Foobars and the new shipment came in at a higher price).

It was the exact same reasoning: The customer walked away, shopped around, and came back because we have everyone else beat. So now we need to raise our price as much as possible without making it worth their while to go back to someone else.

And in fact, they probably are in our place because someone else raised their price on them, or disclosed hidden gotchas, so we have leverage.

Pull that trick on me and I'd go a mile out of my way not to give you business any more. And I wouldn't be alone. Punishment of cheaters and exploiters is a human social instinct.

Is there cheating going on here?

There is if you lie to the customer. There isn't if you say "Tough bananas, the written quote expired, we both get to renegotiate."

Fair enough.

Your outrage is noted. I feel exactly the same way about the way highly admired companies around here behave, only they have nicer names for exploitation like "price discrimination" and "market segmentation" and "monetizing customers."

The universities have that one won hands-down: they call it "financial aid."

So it's okay to lie to your customers and be an asshole as long as other people are doing it too.

No, that's not what I said. What I said was, I understand his outrage, and here's an example of where I feel it too. Empathy.

A market maker can front-run you with 3rd party inventory (just like Kayak).

Huh. I didn't know Kayak dealt with 3rd party inventory. Interesting.

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