Loyalty Cards

Kevin Drum has a new post as part of a back and forth with Matt Yglesias and a few other economist types about price discrimination and loyalty cards.

Drum began by making the point that those of us who are savvy enough to be getting a better price are doing so at the expense of those who are getting a worse price. Yglesias counters by arguing that everyone pays the normal price and loyalty card owners trade off the use of their consumption information for a lower price. Furthermore, any non-loyalty card price gouging is the result of a supermarket having a local monopoly--something that occurs even without loyalty cards.

I tend to side with Yglesias but I think Drum needs to focus his argument more. He doesn't really seem opposed to price discrimination in the abstract, rather he doesn't like loyalty cards specifically. His arguments seem to be 1) they don't help poor people--as the poor (and elderly) aren't necessarily the savvy consumers who take advantage of cloyalty cards; and 2) poor people can't afford to pass up loyalty card prices--so they are forced to give up personal information.

These two arguments seem somewhat contradictory but I think the bigger point is that Drum needs to make the case as to why loyalty cards should be eliminated as part of public policy. As a society we don't favor economic efficiency over all else (prostitution is illegal) and we have various consumer protection laws. If Drum made the case that these loyalty cards really are either 1) shifting costs from wealthy consumers to poorer ones; or 2) coercing people into revealing information that corporations were using in an insidious manner, then I think Yglesias and co. would agree that they should be eliminated. But he needs to actually make that case because there doesn't seem to be anything inherently wrong with the loyalty card price discrimination scheme.