Final answer:
The ability of online retailers to engage in personalized pricing is enhanced by big data, which allows them to tailor prices to consumers' willingness to pay. This strategy is evident in companies like Amazon, which uses it to adjust prices and outperform competitors. Market forces can also push businesses toward less discriminatory practices and support regulations that can potentially benefit their operating model.
Step-by-step explanation:
Personalized Pricing and Big Data
The ability of personalized pricing by online retailers to price discriminate is significantly enhanced by big data. Big data allows retailers to collect, analyze, and use massive amounts of information about consumer behaviors, preferences, and purchasing patterns to set prices that are tailored to individual consumers or specific segments of the market. This practice can lead to price optimization where certain customers may be charged different prices for the same product based on their willingness to pay, which can be inferred from their online activities and historical data. Amazon, for example, has mastered the use of big data in shaping its production model and cost structure, enabling it to adjust prices and stay competitive by undercutting competitors' prices, even when accounting for shipping costs. This strategy is fostered by the wealth of information the retailer gathers, allowing for informed decision-making on what to sell, at what output, and price.
Firms, irrespective of their size, are influenced by market forces. For instance, local businesses might be incentivized to refrain from discriminatory practices if a significant portion of their customers belong to the demographic they are biased against, as this could negatively impact their sales and reputation. Similarly, a firm might support measures like the Marketplace Fairness Act if it levels the playing field with physical retailers or if it already has the infrastructure in place to comply with such regulations, as in the case of Amazon.