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The Destruction of Price-Representativeness

LEOGRANDE, ANGELO (2021): The Destruction of Price-Representativeness.

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Abstract

The development of industry 4.0 and e-commerce destroy the traditional mechanism of price determination, the rigidity of supply in the short run and the idea of price representativeness. Industry 4.0 has changed the traditional view of price formation. Firms know the individual purchasing history of customers. Firms can extract the reserve price for each individual due to big data. Price is no more the encounter of supply and demand, but it is determinated considering the maximum amount that individuals can pay. The combination of data, dynamic pricing and price discrimination has destroyed one of the pillars of the mainstream economics: price representativeness. Dynamic pricing is the ability to change prices. Price discrimination is the ability to apply different prices for different customers for the same product or service.

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