Comment by AnthonyMouse | Hacker News Reader

Comment by AnthonyMouse | Hacker News Reader

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> I am interested in whether, if you turned the questions around and asked questions like "I want to give up my grocery store discount in exchange for the company running the store not collecting information about me", you would get the same results.

That isn't the same question at all. The amount of the penalty for not using the loyalty card is chosen by the merchant and the merchant naturally chooses an amount that induces a majority of their customers to use it. That doesn't mean the customers like it.

The interesting question is to what extent the customer benefits from providing the merchant with the information outside of the artificial penalty. But in all likelihood providing the information has negative value to the customer, because the merchant can use the information against the customer, e.g. to better determine when they can get away with charging higher prices.

The trouble is that it's a collective action problem. Paying the penalty to opt out doesn't prevent the merchant from figuring out how to get more of your money without providing you with any additional value, because they can do it with a statistical sample of people who are like you but didn't opt out. So everyone is collectively worse off when a critical mass of people use the loyalty cards, but taking the "discount" is in the selfish interest of each person individually. Classic tragedy of the commons.

The way we solve problems like that is with legislation, e.g. by requiring merchants to charge the same price regardless of whether the customer uses a loyalty card.

It is of course not the same question: the article poses the question "would you like to have this nice thing?", and the reversed form I posed is "are you willing to pay for it?"

My immediate observation is that the majority of people will tend to say "yes" to the first and "no" to the second, and what we can learn from this is that mostly people tend to want.

I think you have rather casually tossed out the proposition that the status quo brings the customer negative value, without supplying any justification for that claim. I also think that your proposal of passing legislation to force all merchants to raise their lowest prices is unlikely to prove popular. (This proposal is commonly referred to as "increasing sales tax", and seems like it would be regressive in nature)

> It is of course not the same question: the article poses the question "would you like to have this nice thing?", and the reversed form I posed is "are you willing to pay for it?"

It isn't a matter of willingness to pay. If the seller doesn't want you to "buy" something (e.g. privacy) then they can set the price arbitrarily high so that you won't.

> I think you have rather casually tossed out the proposition that the status quo brings the customer negative value, without supplying any justification for that claim.

Why do you imagine the merchant is offering the "discount" if it isn't net profitable? When the merchant makes money by exploiting the data they collect, whose pocket does that money come out of?

> I also think that your proposal of passing legislation to force all merchants to raise their lowest prices is unlikely to prove popular.

I don't recall proposing that merchants be required to raise their prices, only that the prices they charge be the same regardless of whether customers use loyalty cards.

Here's how "net profitable" works. Before:

Merchant buys 5 units of item at $1 each and sells them at $3. Supplier makes $5 in revenue. 5 customers each get one item at $3. Merchant makes a profit of $10.

After:

Merchant buys 20 units of item A at $1 and sells them at $2. Supplier makes $20 in revenue. 20 customers each get one item at $2. Merchant makes a profit of $20.

Net profit: merchant is $10 richer, supplier is $15 richer, 20 customers are each $1 richer.

People have different resources and trade between them generates wealth. More trade generates more wealth. This is not a zero-sum game.

All your numbers are saying is that more trade occurs when middle men charge prices closer to their costs. But that isn't the problematic scenario. It's this one:

Before: Merchant buys 20 units of item A at $1 and sells them at $2. Supplier makes $20 in revenue. 20 customers each get one item at $2. Merchant makes a profit of $20.

After: Merchant buys 15 units of item A at $1 and sells them at $3. Supplier makes $15 in revenue. 15 customers each get one item at $3. Merchant makes a profit of $30.

Net profit: merchant is $10 richer, suppler is $5 poorer, 15 customers are each $1 poorer and five would-be customers can no longer afford the item.

The trade-maximizing margin for the merchant is the lowest possible margin, which is what maximizes overall utility because it increases the number of transactions without affecting the net utility per transaction. But the merchant isn't interested in maximizing trade, the merchant is interested in maximizing his own profit.

The way a merchant maximizes his own profit is to reduce margins on goods sold to price sensitive customers and raise margins on goods sold to price insensitive customers. So your theory has to be that giving merchants more information will cause them to reduce the prices of items sold to price sensitive customers more than they raise the price of items sold to price insensitive customers.

But selective pressure already destroys merchants who charge high margins to highly price sensitive customers. Anyone who does that loses all their business as soon as a competitor offers to sell for less. By contrast, merchants who charge slightly profitable but not maximally profitable prices to price insensitive customers can stay in business indefinitely, to the benefit of everyone but themselves, regardless of the prices charged by competitors.

Which implies that giving better pricing information to the merchants who have survived market forces will cause them to raise prices more than lower them.

The problem with that legislation would be that loyalty cards would then become useless; the discount is the entirety of the consumer incentive.

why would loyalty cards be useless? aren't they supposed to help the merchants provide users with more 'relevant' services and an 'improved' experience? ;-)

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