I am honestly befuddled by the righteous outrage over Matt Yglesias‘ and, later, my adventure in fake parenting.
To recap, Amazon has a discount program called “Amazon Mum,” which is actually for both mums and dads. Or, by entering made up information about a “child,” non-parents can register in it too, and Matt and I did.
Amazon, for its part, notes that “We are using the honour system, and we expect the vast majority of users to be honest.”
But here’s my case that what we’re doing is just fine.
First, let’s take a step back and understand what Amazon is up to here. A transaction occurs when an item is worth more to the buyer than it costs the seller to make. The transaction price can land anywhere between seller’s cost and buyer’s value, allocating most of the surplus from the transaction to either the buyer or the seller. In order to maximise their share of the surplus, sellers use a strategy called price discrimination. They try to identify the buyers who are willing to pay high prices and charge them high prices; they offer low prices to the buyers who are more price-sensitive.
In this case, Amazon has decided that parents (and especially mums) are more likely to comparison shop and choose the lowest-price retailer, so it’s offering a discount that’s targeted to them. It thinks it can extract a bigger margin on sales to non-parents than to parents.
“Discrimination” has negative connotations, but there’s nothing immoral about price discrimination. In fact, it can be an economically useful mechanism. If airlines had to charge the same price to every flyer, a lot of flights would become uneconomical to operate, making both the airline and the passengers worse off.
But just because it’s OK for sellers to price discriminate doesn’t mean that buyers have to help them implement their price discrimination strategies. The buyer is entitled to maximise his share of the surplus by misleading the seller about his price sensitivity.
Sometimes, sellers engage in price discrimination by varying prices over metrics that correlate with willingness to pay. For example, airlines and hotels may charge less for trips that involve staying over a Saturday night, on the theory that leisure travellers are more price-sensitive than business travellers.
Sometimes sellers use demographic information to price discriminate. For example, FreshDirect charges lower prices for certain groceries in lower-income neighborhoods.
Obviously, there is nothing immoral about buyers trying to thwart these price discrimination strategies. Nobody is going to write a Gawker piece calling you a “dipshit” if you extend your business trip over a Saturday to save money or order your groceries for delivery to your friend’s house in Newark.
But sometimes, sellers ask you questions to try to suss out your willingness to pay a high price. The best way for a buyer to thwart this strategy is to lie. Is that immoral?
You might be a Kantian who says “yes, duh, lying is immoral,” but most people don’t take that view. We have a pretty clear standard that buyers are allowed to lie about at least one thing: their level of interest in buying at a given price.
Think about buying a car. People knock car dealers as dishonest, but car buyers also lie constantly. You might be indifferent about the colour of the car you’re buying, but you go ahead and tell the dealer you had your heart set on blue so you won’t pay so much for the red one he has on the lot. You might act nonplussed during the test drive even if you love the car he’s showing you. You might say “That’s my final offer” when you’re in fact willing to entertain further negotiation.
This isn’t some nasty immoral subterfuge, it’s just how price negotation works.
So let’s imagine that, instead of asking you whether you have a child, Amazon just asked you straight up about your price sensitivity. “If we offered you a 5% discount on paper towels, would that make you more likely to buy from us instead of Costco?” If you say “yes,” you get the discount; if you say “no”, you don’t.
Would you have any obligation to answer that question truthfully?
Or what if Amazon just asked you “What’s the highest price we could charge for this product such that you would still buy it?” and then charged you that price? Can you lie there? Or do you have to tell the truth and allow Amazon to capture all the surplus from the transaction?
It would seem weird if Amazon asked those sorts of questions, and the buyers would lie all the time, just like they lie to car dealers. So instead of asking directly about price sensitivity, Amazon tries to get at it indirectly by asking questions like “Are you a parent?”
If you wouldn’t have a moral obligation to answer truthfully when Amazon asks about your price sensitivity directly, why do you have a moral obligation to answer truthfully when they ask about it indirectly? Amazon isn’t asking about your parental status because they care whether or not you have a child. The question is just a proxy for “will you pay a higher price?”
That said, I do think there are times when buyers do have a moral obligation not to seek out discounts by lying: When the discounts are not a price discrimination mechanism. Gawker’s Adam Weinstein offered one such example: discounts for veterans, which seem to me to be a pure altruistic thank-you to people who served in the military.
Another example is bereavement airfares; people travelling on short notice to funerals are not very price sensitive, but airlines offer them a break on airfare to be nice. Don’t be like George Costanza and try to get one you’re not entitled to.
But go ahead and tell Amazon you have a fake baby, if you like.
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.
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