Privacy: For the Rich or for the Poor?
posted by Omer Tene
Some consider the right to privacy a fundamental right for the rich, or even the rich and famous. It may be no coincidence that the landmark privacy cases in Europe feature names like Naomi Campbell, Michael Douglas, and Princess Caroline of Monaco. After all, if you lived eight-to-a-room in a shantytown in India, you would have little privacy and a lot of other problems to worry about. When viewed this way, privacy seems to be a matter of luxury; a right of spoiled teenagers living in six bedroom houses (“Mom, don’t open the door without knocking”).
To refute this view, scholars typically point out that throughout history, totalitarian regimes targeted the right to privacy even before they did free speech. Without privacy, individuals are cowed by authority, conform to societal norms, and self-censor dissenting speech – or even thoughts. As Michel Foucault observed in his interpretation of Jeremy Bentham’s panopticon, the gaze has disciplinary power.
But I’d like to discuss an entirely different counter-argument to the privacy-for-the-rich approach. This view was recently presented at the Privacy Law Scholar Conference in a great paper by Laura Moy and Amanda Conley, both 2011 NYU law graduates. In their paper, Paying the Wealthy for Being Wealthy: The Hidden Costs of Behavioral Marketing (I love a good title!), which is not yet available online, Moy and Conley argue that retailers harvest personal information to make the poor subsidize luxury goods for the rich.
This might seem audacious at first, but think of it this way: through various loyalty schemes, retailers collect data about consumers’ shopping habits. Naturally, retailers are most interested in data about “high value shoppers.” This is intuitively clear, given that that’s where the big money, low price sensitivity and broad margins are. It’s also backed by empirical evidence, which Moy and Conley reference. Retailers prefer to tend to those who buy saffron and Kobe Beef rather than to those who purchase salt and turkey. To woo the high value shoppers, they offer attractive discounts and promotions – use your loyalty card to buy Beluga caviar; get a free bottle of Champagne. Yet obviously the retailers can’t take a loss for their marketing efforts. Who then pays the price of the rich shoppers’ luxury goods? You guessed it, the rest of us – with price hikes on products like bread and butter.
This implies that far from being a right for the rich, privacy is in fact a right for the poor. It levels off economic disparities and prevents businesses from using information to discriminate in favor of the wealthy. As Moy and Conley put it, “instead of defining privacy as a negative right of interest only to those individuals with something to ‘hide,’ we should conceive of privacy in our networked information society as a social right, the expression of which improves—rather than impedes—the functioning of society”. This result shouldn’t be surprising if you recall that information – personal or not – enhances market efficiency. Like it or not, market efficiency favors the wealthy: the rich get richer while the poor get poorer; and information just oils the wheels.
Or does it? Personal story: A few weeks ago I tried to book a hotel room in Boston. For a couple of days, I was simply unable to do so for less than $600 a night, despite trying half a dozen online booking agencies. $600? I wasn’t even trying to get a royal suite! What was going on? I have never been locked out of an entire city before. Coincidentally (or not), that same week, the Wall Street Journal reported that Orbitz “steers” Mac (as opposed to PC) users to high-end hotels. As a Mac user, could I have been mistaken for a rich traveler? Regardless of my Boston travails (I finally got a decent room for a fair (well, almost fair) price), this seems to imply that privacy is a right for the rich. It enables high value shoppers to conceal their willingness or ability to pay, preventing retailers from price discriminating against them on this basis. This too is intuitively clear.
Well – which is it then? Is privacy a right for the rich or for the poor? In their paper, Moy and Conley make another interesting observation: it is not so much that retailers collect information about customers, rich or poor; rather they create the information themselves. Or more accurately, they create categories of information, which are then populated by individuals to segment the market. In other words, Elaine, who buys expensive goods, is only “rich” compared to Frank, who buys the cheap stuff. As Moy and Conley put it, “By revealing what she is—a consumer of fine wines and fish—Elaine also reveals what her lower-income counterpart is not”.
Our concern then is that personal information is used to draw distinctions between individuals; to categorize them. Such distinctions could be illegal – for example when based on criteria such as race or gender; or legal – for example when based on willingness to pay or propensity to default on a loan. They could ostensibly be legal but at the same time morally reprehensible (consider, for example, Target’s alleged practice of assigning shoppers a “pregnancy score”) or untoward (see this week’s Economist article on “attractiveness discrimination”). In any case, it seems that what causes us concern is not really the privacy invasion inflicted by retailers, but rather their use of data to discriminate against certain groups of customers. This implies that policymakers should perhaps focus not on the collection of personal information but rather on its use and abuse.
[PS: In another paper presented at the PLSC, titled Aligning Classification Systems with Social Values through Design, Deirdre Mulligan and Cynthia Dwork demonstrate that the discussion of privacy has become conflated with arguments about fairness. Jules Polonetsky and I have made similar arguments in our own PLSC paper, Exposing Big Data: There is an App for That. We think one solution to these problems may be more transparency and greater individual access to data. More on these papers and others – in future posts].
July 26, 2012 at 2:05 am
Tags: big data, data protection, discrimination, price discrimination, Privacy
Posted in: Advertising, Conferences, Consumer Protection Law, Cyberlaw, Privacy, Privacy (Consumer Privacy), Technology, Uncategorized
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Responses (6)
anon - July 26, 2012 at 4:26 am
If the authors of this paper bothered to study microeconomics, they would have known what happens to prices and consumer surplus when producers can price-discriminate instead of charging the same price to all consumers. Hint: the poor do NOT subsidize the rich. Rather, the rich subsidize some of the poor: rich consumers pay more, and some poor consumers get access to previously inaccessible goods. One can think of adding various complications to the model, but nothing in this post suggested that the authors made the smallest move in a coherent direction here. People should stick to the topics they know something about. I guess in this case, the authors’ expertise is in debating whether price discrimination is, like, totally immoral, or something.
leolabeth - July 26, 2012 at 8:36 am
Dear @anon,
Though your argument is familiar and intuitive, maybe we should wait and read the paper before condemning the whole premise.
What objection do you have to more transparency in terms of the use of our information?
arthur - July 26, 2012 at 11:41 am
The argument makes no sense. Selling to rich people is profitable, and it becomes more profitable due to higher volume when the retailer offers “free” caviar and discounts. But the discounts make sense only as long as the sales to the rich remain profitable without regard to what poor people are paying. When sales to the rich become unprofitable due to discounts, it’s time to cut discounts, not to raise prices on a different group of customers. You may notice that when Orbitz though you were rich, they wanted you to pay more than you would have paid otherwise.
To the extent selling to poor people is profitable, the retailer won’t use profits to subsidize sales to the rich, they will just pocket the profits. That’s the Walmart business model.
anon - July 26, 2012 at 1:21 pm
Leolabeth: I said “nothing in this post” suggested that the authors had any clue of the huge, vast, enormous microecon literature to which they purport to contribute. It’s possible that they discovered something new and unique, and in fact contributed to it, but it is HIGHLY unlikely.
Re objections to more transparency on the use of information — the same as objections to any expropriation of property that another party created by mixing labor into it. These companies create data; put a lot of money into it; “disclosure” will reduce its value, and they’ll either produce less of it or produce it in the form that cannot be meaningfully disclosed. Again, perhaps a person capable of doing modern micro analysis can add these considerations into the model and show that disclosure is still worthwhile, but, as best I can tell, this isn’t something that these authors are capable of doing.
Tony - July 27, 2012 at 12:21 pm
Sorry to troll-bait, but re. anon’s comment: the paper does not appear to be describing price discrimination, which occurs in imperfectly competitive markets where a supplier can set separate price points for people with different reservation prices. What it describes, rather, is a situation where a supplier effectively lowers the price of elastic goods like beluga caviar (by offering some of those goods for free through promotions etc). The goods that poorer people are willing to buy (milk, bread etc.) are, presumably, relatively inelastic compared to beluga caviar, and it therefore makes sense for a supplier to raise the price on those goods, thus leaving poor people (who need to buy basic staples) with less discretionary income.
Of course, the obvious objection is that poorer people could simply buy from suppliers who don’t engage in these practices, and are therefore able to keep the prices lower on the inelastic goods. Presumably, however, they’re not describing a perfectly competitive market, but one with transaction costs for switching suppliers.
Perhaps I’m wrong — I haven’t read the paper. My real point is to suggest that commenters avoid writing hostile, vituperative comments — particularly when they betray the commenter’s ignorance of concepts about which they are accusing others of being ignorant.
Ken Arromdee - July 30, 2012 at 4:19 am
Whether raising the price of bread brings more profit is independent of whether lowering the price on caviar brings less. If companies actually thought that raising the price of bread increased profits, they would raise it all the time, not just raise it when they need the increased profits to compensate for the loss on caviar. After all, they want increased profits all the time.
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