Transactions via the Internet – How Can Trust be Built?

by Rebekka Rehm and Clemens Recker, researchers at iwp Institute for Economic Policy at the University of Cologne.

Selected by Gymnasium an der Wolfskuhle Essen

One aspect of digital transformation is the increasing availability of data on consumer preferences and characteristics. This data also allows conclusions to be drawn about the individual willingness to pay for products or services. Where companies have pricing power, they could use this information for individually different prices for comparable products or services.

In simplified terms, a company would gain a producer’s surplus if it could produce a product at costs below the selling price. Consumers, on the other hand, would gain a consumer’s surplus if they had been willing to pay more than the selling price. In a scenario with differentiated prices based on the individual willingness to pay, companies could possibly transform former consumer’s surplus into producer’s surplus.

One exciting question is how consumers could react to such a profit shift. If the feeling would arise that the company side would always benefit disproportionately from market transactions, this might reduce the acceptance of our economic order.