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Paper Title

-- By EricWest - 22 Oct 2014

Section I Introduction

Consumer privacy is of growing concern as an issue of public policy. Typically, we couch privacy concerns in terms of individual liberty: a right to privacy for privacy’s sake, a right to make your own choices and live a life without interference. Because of changes in technology and electronic data collection, a new threat to privacy exists, and it is an economic one. Between any two parties negotiating a successful transaction, there is a necessary overlap between what a buyer is willing to pay, and what a seller is willing to receive to part with his wares. The “agreed upon” price typically falls between two pain-points: the most the buyer is willing to spend, the least the seller is willing to take. Assuming parties are rationally self-interested, they want to get the other party as close to the pain-point as possible. The most intuitive way to do this is to try and gain access to information that reveals the other’s pain-point, while masking your own pain-point. Historically, differences in consumer interests (ie: their individual paint points) diversified their pain-points to a place where sellers would have to find a happy middle ground that would yield them the highest profit. In other words, the “trick” was to view the consumer as one heterogeneous group. The resulting amount left over from each consumer’s purchase that fell short of her pain-point (highest amount consumer would pay minus actual amount paid) is the transactional surplus, which is essentially “consumer savings.” Profit driven sellers want to decrease transactional surplus.

Section II The Problem

Due to advances in market research, this transactional relationship has taken a turn, particularly because of data mining. Sellers no longer see consumers as single heterogeneous group, but a series of statistically distinct and identifiable groups, with specific pain-points. Once identified, sellers can charge individuals differently under the euphemism of “dynamic pricing.” This allows sellers to collect more of the transactional surplus from the deal. Put another way, this deprives consumers of bargaining power, since the seller knows more about the consumer than the consumer wanted the seller to know. This only works in two situations: where a group of sellers function as a monopoly (oligopoly), or where consumer access to market information is so poor that consumers have no bargaining power. The existence of market oligopolies may be too ambitious for a 1,000 word paper. More interesting, however, is the lack of information access for consumers. The modern consumer obsession with convenience, where consumers trade personal data such as buying habits, address, credit card information, age, gender, home value, approximate income, etc. - in exchange for ease of access -unintentionally creates the situation discussed: Consumers do not have access to market information because they do not want it. We want to shop less, we want monopolies more. We want Amazon to know what we want and for it to be a price we are willing to pay, we do not want to have to search, and we are tacitly willing to pay closer and closer to top of the mark for goods. We typically perceive this disparity in bargaining power as unfair (despite having asked for it). I would argue that there is a solution.

--++ Section III The Solution

It starts with an untapped marketplace: the dark net. Currently, the dark net is known for a series of services, from such notorious dealings as child pornography, drug dealing and organ sales to acting as a forum for more traditionally desirable social functions such as political and social organization and software trading. Payments often are in bitcoin, and both usage and payment on the dark net are very difficult to trace (even the government, which created the dark net, has difficulty with this). Its users necessarily have one thing on their mind: privacy. This point is an important one. There already exists a market of people whose personal preferences and buying habits as a group of consumers is a known unknown. This set of people have two identities, their traditional identity that has been data-mined ad infinitum, and their dark net identity (or identities) that is anonymous besides having an avatar. This second identity is wealthy in information, in that their private facts are hoarded, and inaccessible to sellers. Of this set of people, set [P], I argue there should be at least one consumer already on the dark net who would want to maintain anonymity when making normal purchasing decisions to maintain bargaining power, subset [NP]. Alternatively, if there is no [NP], at least some people outside of [NP] and [P] thinks such a market should exist. Conveniently, the marketplace for such transactions already exists. Therefore, there is a market for “typical” consumer goods (anything legal and non-political in nature) attached with an assurance that the seller will not collect data beyond “what consumers on the dark web are willing to pay,” which should be roughly analogous to the information acquired for and the traditional notion of “market price.”

Concessions

Of course, this market would be small. But it could have several positive effects that would “snowball” as market-size increase. First, legitimate business on the dark net would decrease stigma, which would encourage new users who thought it was strictly nefarious in nature. Second, it would benefit customers who a dynamic pricing model would gauge above [market price plus transaction price]. Of course, a company like amazon could drop prices to try and out-compete, but the dark net has different perks than amazon that consumers value differently: Where amazon has expediency, the dark web has privacy. This creates a division in consumers who are willing to pay more for each of these conflicting qualities, and a divergent market could be created. Admittedly, this will never be as cheap data-mined transactions can be (note: under oligopoly conditions, data-mined purchasing may be more expensive than traditional market-pricing). However, the expense paid is for privacy, and once the market is “flush,” traditional price points guarantee a higher consumer transactional surplus than under either data-mined market (oligopoly or information-deprivation) discussed.

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