Article Summary
Brandeis University economist Benjamin Shiller has written a paper which explains how Netflix could combine demographic data with customers' Web browsing habits to more accurately predict how much a customer would be willing to pay for a Netflix subscription, and how using this method of first-degree price discrimination would generate higher profits. Shiller explains that the more information a company has about its customers, the better it is at being able to set prices to increase profits. As he stated in his paper, "Using all variables to tailor prices, one can yield variable profits 1.39 percent higher than variable profits obtained using non-tailored 2nd degree price-discrimination. Using demographics alone to tailor prices raises profits by much less, yielding variable profits only 0.14% higher than variable profits attainable under 2nd degree [price discrimination]."
Source: Brian Fung, "How Netflix could use Big Data to make twice as much money off you," Washington Post, September 4, 2013.
Refer to the Article Summary above. If Netflix chose to use Shiller's pricing method
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consumer surplus, producer surplus, and deadweight loss would all be equal.
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consumer surplus would be zero.
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producer surplus would be zero.
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deadweight loss would be maximized.
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