Tuesday, June 26, 2012

Mac Users and Price Discrimination

NB: A careful reader points out that it is only the selection of rooms and not the price of the rooms that is different.  Which is too bad: they aren't as clever as I thought...

A fascinating little tidbit from the Wall Street Journal (as reported by Briar Dudley of The Seattle Times):
If you're looking for a deal on hotel rooms, perhaps you should use a Windows PC instead of a Mac.

According to a new Wall Street Journal report, travel giant Orbitz has begun offering some Mac users more expensive hotel rooms.

That's based on past spending patterns of Mac users. After tracking and analyzing this, Orbitz decided to experiment with offering Mac users "different, and sometimes costlier, travel options," the Journal reported.
From the article:
Orbitz Worldwide Inc. has found that people who use Apple Inc.'s Mac computers spend as much as 30% more a night on hotels, so the online travel agency is starting to show them different, and sometimes costlier, travel options than Windows visitors see.

The Orbitz effort, which is in its early stages, demonstrates how tracking people's online activities can use even seemingly innocuous information—in this case, the fact that customers are visiting Orbitz.com from a Mac—to start predicting their tastes and spending habits.

Orbitz executives confirmed that the company is experimenting with showing different hotel offers to Mac and PC... (and here the paywall kicks in, but pone presumes the next word is 'users')
Students of economics will recognize this a good old fashioned price discrimination: charging different users different prices based on willingness to pay. In this case a Mac is a bit of a luxury item - Mac users pay a premium for a Mac over a PC - and thus is a sign that on average Mac users might have a higher willingness to pay for some items.

Orbitz has found that Mac ownership (or usership, really) is correlated with higher spending on hotels and so it uses this info to change them a higher price. In economics we call this information (that you are using a Mac) the 'identification' problem: being able to tell who has a higher willingness to pay. The other problem, the 'arbitrage' problem, would come about when a bunch of PC users booked hotel rooms and sold them for a discount to Man users - not likely in this case.

The thing about price discrimination is that sure it is a profit maximizing strategy for firms but it is important to note that two things happen when firms price discriminate: One, customers with higher willingnesses-to-pay end up paying more than they would under a one price regime, but customers with lower willingnesses-to-pay end up paying less than they would under a one price regime. Two, more hotel rooms get rented because by lowering the price on low willingnesses-to-pay people more and more will do so. So how you feel about price discrimination depends on whether you are a high willingnesses-to-pay person or a low willingnesses-to-pay person.

Of course, if this kind of thing takes off there is a type of arbitrage solution: use your friends PC to book, or use some kind of browser that mimics a PC. [I am no techie, but this must be a pretty easy work around, no?] But you can imagine the possibilities.  If you log into a place with your Facebook account and they can see where you live, they know the average income of your area, to give one example and can charge you a price accordingly.  This is great if you live in a low income area, not so great if you live in a wealthy neighborhood.


JakeWeigler said...

I think you're misreading the story. They offer a selection of higher-end rooms to mac users than they do to PC users. But the price you pay for a given room is the same regardless the platform you're searching on.

Patrick Emerson said...

That's probably becuase I couldn't actually read the story only the Seattle Times' coverage of it as I don't subscribe to the WSJ.

That is disappointing - would have been so much better to have done it my way. I guess they aren't as smart as I thought.