Price Discrimination "Just for You

Journal of Business & Technology Law Volume 17 Issue 1 Article 4 Price Discrimination "Just for You" - A Proposal to Increase Enforcement of Vertical Restraints That Are Designed to Sustain Personalized Pricing Noga Blickstein Shchory Follow this and additional works at: https://digitalcommons.law.umaryland.edu/jbtl Recommended Citation Noga B. Shchory, Price Discrimination "Just for You" - A Proposal to Increase Enforcement of Vertical Restraints That Are Designed to Sustain Personalized Pricing, 17 J. Bus. & Tech. L. 52 (2022) Available at: https://digitalcommons.law.umaryland.edu/jbtl/vol17/iss1/4 This Article is brought to you for free and open access by the Academic Journals at DigitalCommons@UM Carey Law. It has been accepted for inclusion in Journal of Business & Technology Law by an authorized editor of DigitalCommons@UM Carey Law. For more information, please contact . Shchory (Do Not Delete) 8/8/2022 2:48 AM Price Discrimination “Just For You”—A Proposal to Increase Enforcement of Vertical Restraints that Are Designed to Sustain Personalized Pricing N OGA BLICKSTEIN S HCHORY *© Abstract In e-commerce, there is a growing use of personalized pricing. Personalized pricing is the tailoring of an individual price to each individual consumer so that different consumers pay different prices for the same product. This practice relies on the use of big data regarding each consumer’s unique elasticity of demand. The results of this practice include, on the one hand, a potential increase in output and, on the other, the almost complete transfer of welfare from consumers to sellers. It also causes potential reduction of welfare and other distributive effects. Personalized pricing rests, inter alia, on consumers’ inability to arbitrage and thereby cause price convergence. To guarantee this inability, sellers often impose direct or indirect restraints, known as vertical restraints, that prevent consumers from re-trading the product. This article examines the implications of the shift toward personalized pricing, including how online vertical restraints are often adopted to support personalized pricing. As argued herein, although the law explicitly prohibits both price discrimination and anticompetitive vertical restraints on trade, the developments in economic thought have led courts to approach each of these practices with a permissive stance. The problem is that vertical restraints that are imposed to sustain personalized pricing cannot be justified solely for doing so. The anticompetitive effects undermine the procompetitive effects underlying the tolerance toward price discrimination. To prevent that problem, this article argues that courts should adopt a stricter approach toward vertical restraints designed to sustain personalized pricing. Practically, it suggests increasing antitrust scrutiny by adopting a presumption that restrictive arrangements that are directly tied to personalized prices are anticompetitive. Accordingly, such behavior will suffice to make a prima facie case against these arrangements, which then can be rebutted by the defense by showing a procompetitive justification. To avoid over-litigation and chilling effects, this article suggests several exemptions from this presumption. Journal of Business & Technology Law 52 Shchory (Do Not Delete) 8/8/2022 2:48 AM NOGA BLICKSTEIN SHCHORY I. Introduction An important conference is taking place next week, a few hours’ drive from Professor A’s town, and he is about to present a study he has been working on for a long time. He convinces Professor B to register with him so they can both visit friends. However, car rentals in Professor A’s town are pricey this weekend, and he cannot get a reasonable price. All of a sudden, professor B calls, announcing there is a 50% discount at one of their town’s car rental companies! Professor A logs in to the exact same website his colleague mentioned but sees no discount. Turns out the ad Professor B saw said, “CAR RENTAL, 50% DISCOUNT – JUST FOR YOU!” so the discount was not available to professor A. He asks Professor B whether she could make the rental on his behalf so he can enjoy the price she got. She tries but finds out the car rental makes it explicit that the rental price is just for her, so she cannot rent for someone else. As Professor A would not dare miss the opportunity to present at this conference, he ends up paying the higher price the rental demanded. In the age of e-commerce, variations of this frustrating story are constantly growing in many day-to-day commodity and service markets.1 In these occurrences, sellers use personalized pricing—that is, a price (high or low) tailored to a particular consumer and to a particular time frame. Additionally, to sustain this practice, sellers impose contractual or other vertical restraints to limit the transferability of the product or service and to prevent a resale of the commodity under the exclusive price.2 Because of these combined practices, in many markets, different consumers receive a different price proposition for the same product and are unable to share the advantage. Such occurrences are often annoying and are considered “unfair.” The “free market” is believed to be one in which market forces work simultaneously to offer all consumers the same price.3 However, personalized pricing and vertical restraints, together, eliminate single-price equilibrium.4 The resulting distribution of prices, which counters the understanding of the free market, hints that market © Noga Blickstein Shchory, 2021. * Noga Blickstein Shchory is an Attorney at the District Attorney’s Office in Tel Aviv (Fiscal and Economy), a PhD candidate in the University of Haifa School of Law, and a member of the Center for Cyber Law and Policy at the University of Haifa. A previous version of this paper was nominated for the best Student paper category award in Concurrences, Antitrust Publications & Events. I thank Michal Gal, Elad Pinchas and Ram Shchory for their useful comments to this paper. Any mistakes or omissions remain the author’s 1. Oren Bar-Gill, Algorithmic Price Discrimination When Demand is a Function of Both Preferences and (Mis) Perceptions, 86 U. CHI. L. REV. 217, 224-25 (2019); ARIEL EZRACHI & MAURICE E. STUCKE, VIRTUAL COMPETITION: THE PROMISE AND PERILS OF THE ALGORITHM-DRIVEN ECONOMY, 89-94 (Harvard Univ. Press, 2016); Ariel Ezrachi, & Maurice E. Stucke, The Rise of Behavioural Discrimination, 37 EUR. COMPETITION L. REV. 485 (2016). 2. ANNA BERNASEK & D. T. MONGAN, ALL YOU CAN PAY 82 (Nation Books, 2015). 3. ROBERT S. PINDYCK & DANIEL L. RUBINFELD, MICROECONOMICS 8-9 (Pearson Education, Inc., 7th ed. 2009). 4. Daniel J. Gifford & Robert T. Kudrle, The Law and Economics of Price Discrimination in Modern Economics: Time for Reconciliation?, 43 U.C. DAVIS L. REV. 1235, 1240-41, 1253 (2010). Journal of Business & Technology Law 53 Shchory (DO NOT DELETE) 8/8/2022 2:48 AM Price Discrimination “Jus (...truncated)