The Economics of Data

Question 1

Definition of Big Data

Answer 1

Information asset characterized by high velocity, variety, volume to require specific technology and analytical methods for its transformation into value

Question 2

what are the four v of big data

Answer 2

velocity
volume
variety
value (transformation by tools needed to do this)

Question 3

Publically observed meaning

Answer 3

through device, operating systems, ip addresses

Question 4

Discuss information that is voluntarilty provided by consumers

Answer 4

when registering - personal information is provided
login based data - information about products being looked for, purchases etc

Question 5

Which methods are used for tracking customers online

Answer 5

Tracking cookies: specific cookie that is distributed, shared and read across two or more unrelated websites
Browser and device fingerprinting: method of tracking browsers by the configuration and settings information they make available to websites
History sniffing: tracking which sites viewer has visited
cross-device tracking - ability to interact with the same consumer across devices both online and offline modes

Question 6

Whata are data brokers

Answer 6

primary business is collective personal information about consumers from a variety of sources and aggregating, analyizign and sharing information or information derived from it for market, fraud detection, verifying identity,

Question 7

Describe the situation in the US with data brokers

Answer 7

own huge amount of data on almost every house hold in the US
combine offline and online data from multiple sources
analyze the data and make inferences about consumers, placing them into categories that may be sensitive

Question 8

Describe data uses for firms - with the data as input

Answer 8

improving products/services
personalization
improving processes, marketing and organization
targeting

Question 9

Describe data uses for firms as an output

Answer 9

Data sales

Question 10

Definition of price discrimination

Answer 10

a firm price discriminates when it charges two consumers or the same consumer different prices for two units of the same or similar products and the price difference does not reflect in cost differences

Extracts as much as possiblewh

Question 11

when is price discrimination viable

Answer 11

firme should have some market power
there are no or limited possibilities of arbitrage or resale

Question 12

What are the three types of price discrimination

Answer 12

first degree - personalized pricing - firms observe all relevant heterogeneity and capture the entire consumer surplus

third degree - group pricing - firms observe some but not all the relevant heterogeneity and construct groups. Using direct singnals about demand, they price to discriminate between groups - not within groups

second degree - versioning - when the relevant heterogeneity cannot be observed - firms can still offer menus of options or packages and consumers self select and option/package based on their preferances

Question 13

Explain how data can facilitate price discrimination

Answer 13

firms can collect data to estimate consumers willingness to pay
more information, more accurate calculations of willingness to pay can be calculated
to the extent of their market power - the firm can set discriminating prices based on the estimation

Question 14

Explain personalized pricing

Answer 14

price set for a specific user based on the information gathered from them and their activity

technology does exist

Question 15

why is targeted pricing hardly observed

Answer 15

fear of negative consumer reaction
observed as unfair when they pay a premium
may undermine consumer trust in online markets

Question 16

what are more acceptable ways to achieve the same results as a firm would from personalized pricing

Answer 16

personalized discounts
search discrimination/steering (showing different products to consumers of different groups)

could be based on consumer hardware

Question 17

Discuss conditioning prices on purchase history

Answer 17

seller has tech to record purchase history of consumers
consumers have tech to avoid being tracked

how a seller can condition prices
- new customer - seller offers price
- records behaviors
- comes again -> price can be conditioned on previous behavior

Question 18

is it profitable to condition prices on purchase history

Question 19

Discuss pricing for naive consumers

Answer 19

consumers are naive if an absense of privacy benefits the seller

• there is vh and vl prices

price is set at slightly lower than vH at p1, then if bought, price is set at vH at p2

consumers of L do not purchase good, the price is then set to vL at p2

Question 20

Discuss pricing for rational consumers

Answer 20

they can decide not to purchase the good today to avoid paying a high price tomorrow

seller must consider strategic reaction to its pricing decision

with rational consumers they make the highest profits by setting uniform prices

Question 21

Discuss personalized pricing in an oligopoly

what is the effect of a switch from uniform to personalized prices

Answer 21

all competing firms have access to the same information about consumers tastes and preferences

• id one firm can introduce personalized prices, this firm can increase its profits
• if all firms switch, competition can either increase or decrease
• balance between possibility to extract surplus and intensified
  competition on some consumer segments.

On the industry level the availability of big data containing
consumer information can be either beneficial or harmful

Question 22

Discuss big data and consumer privacy

Answer 22

do consumers care about privacy
is there a growing distrust from consumers
there is competing in private - who is better at keeping your privacy and respecting it