Thursday, 20 May 2010

Are common carriers allowed to "personalize" prices?

The Beat is one of the best online travel industry trade journals. Portions are available only to paid subscribers, but it also has a lot of good publicly available news and commentary.

I wrote the following letter to the editor, published today, in response to an article on the trend by airlines toward “personalized” services and prices:

“AA will do what AA wants to do. If AA wants to make a more tailored option, which is that ‘You’re a platinum cardholder and this is what I will offer you,’ fine. They should be able to do that…”

I’m intrigued that the words “tariff” and “common carrier” never appear in these discussions of individualized prices. Historically, the purpose of common carrier law (and predecessor laws governing places of public accommodation, now embodied in state innkeepers’ laws in the US) was to prohibit them from charging “whatever the traffic would bear” on an individualized basis, and to require them to charge the same price to all customers complying with the same set of rules and conditions in a publicly disclosed tariff. The Airline Deregulation Act of 1978 allowed airlines in the United States to set their own tariffs, but retained, for good reason, the obligation for them to publish a tariff and sell tickets only in accordance with it.

Somehow US government reluctance to over-regulate the Internet seems to have led to the assumption that on the Internet, there are no rules, and to an explosion of off-tariff online pricing. But tariff requirements continue to serve an important consumer protection purpose. Do airlines now believe that they can completely ignore any pretense of acting as a common carrier or charging all customers according to the same published tariff? Are they really this confident that the US Department of Transportation (and comparable regulatory and enforcement agencies in other countries) will continue to ignore price discrimination and off-tariff pricing? And if tariff requirements are to be abolished, shouldn’t there be a real Congressional (and international) debate about it, and explicit proposals to amend current Federal statutes (and, for international flights, bilateral and multilateral aviation treaties)?

I’d like to see a serious discussion of the tension between price personalization and common carrier tariff requirements.

~ Edward Hasbrouck, The Practical Nomad

I’ll be interested to see if this generates any response from airlines. Please share your thoughts in the comments here, and/or with “The Beat”.

[Follow-up: More on personalization (still without mentioning common carrier or tariff requirements or the dirty words “price discrimination”) from Air Transport World: In the future, fare search engines will know who you are ]

[Follow-up: More on the conflict between personalized pricing and common carrier tariff requirements: Google buys ITA Software, Part 3: What’s it mean for travellers?]

Link | Posted by Edward on Thursday, 20 May 2010, 12:38 (12:38 PM)

With sites like Facebook and web advertising networks effectively making the Internet one big playground for behavioural data gathering, it's easy to see why we as consumers have something to fear here, especially if "personalized" pricing policy is hidden from us.

It wouldn't be difficult, with access to my web browsing history, to determine with some accuracy what my personal travel planning behaviour is like: how I shop, what my pricing thresholds are, how much time I spend before booking, etc.

With access to this data and some relatively simple analysis it's certainly possibly to imagine automated price profiling on a person-by-person basis.

I've often wondered if the price I see on Hotwire, for example, is the price that my neighbour sees on Hotwire. If my neighbour has a history of paying 10% more for hotel rooms than I do, I can't imagine that Hotwire wouldn't explore every opportunity to ferret that information out and present my neighbour with "lowest available" prices that are 10% more than those that I see.

At the very least I think we as purchasers of travel services have a right to complete transparency regarding the information that was used to calculate the price presented to us.

Posted by: Peter Rukavina, 21 May 2010, 06:41 ( 6:41 AM)

I have traveled in several countries that maintain discriminatory non-citizen pricing on almost every commodity/service imaginable. Doesn't the US have a graduated income tax? So what is the problem with a real-time publicly updated open-market scheme?

Posted by: sman, 23 May 2010, 10:15 (10:15 AM)

To answer "sman": As I said originally, there are good historical reasons for regulation of common carriers and the requirement that they charge all would-be customers according to the same published tariff.

There is a summary history of the concept of "common carrier", the reasons for regulation of common carriers (including tariff requirements), and the evolution of coomon carrier law at:

Its too long a story for me to go into here. If we are to have this debate, the proper forum is Congress, in the context of a bill to repeal the common carrier provisions of the Airline Deregulation act, and the Senate, in the context of ratification of amendments to bilateral and multilateral aviation treaties. But no such bill, and no such treaties, are being proposed. Airlines are simply ignoring existing law.

In the USA the main reason for popular support for common carrier tariff requirements was the discriminatory abuse of monopoly or oligopoly power by railroads controlling freight shipping to and form particular places.

Those issues remain relevant today. For example, as Susan Crawford and others have pointed out, the debate about "net neutrality" is essentially a debate about whether Internet service providers should be treated as common carrier of packets:

A tariff doesn't have to be a flat fare, but it has to spell out neutral rules that are applied equally to all would be passengers (or freight shippers).

A "personalized" price has more in common with a Constitutionally-prohibited "bill of attainder", to use another legal analogy. (To be clear, off-tariff pricing isn't a bill of attainder, and isn't Constitutionally proscribed. But it has many of the same properties, and is objectionable for many of the same reasons.)

Posted by: Edward Hasbrouck, 23 May 2010, 10:41 (10:41 AM)
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