Is Targeted Ads Price Discrimination?

If you use a service for free but you need to see ads targeting towards you, how much do you actually pay? I didn’t think about this before I used Google Contributor a few years ago. Now I think I pay the whatever the price advertisers pay to show me the ads, but then the advertisers subsidize me fully to get me to see their ads.

The concept of Google Contributor is very simple. You can understand it if you ever purchased targeted ads online. You set up a budget between $2 and $15 per month. You use that budget to buy ads targeting a single person – yourself. You compete against any advertisers that happen to target you. Every time when you are supposed to see an ad, the bidding process happens between you and other advertisers. If you win, you see a message saying “thank you for being a contributor” in the place where the ad should be displayed. If you lose, you see the ad from the winning advertiser, just like if you were not using Google Contributor.

I would imagine I win in every case so I never see any ads. The cost I pay for that is the price I actually pay for using the “free” service. When I don’t win or when I don’t use Google Contributor altogether, it’s advertisers subsidizing me but I have to see their ads, but it’s still the same price.

It’s interesting that different user pays different price. It’s like price discrimination. If you are worth more in the eyes of advertisers, you pay more. If your impression is worth less, you pay less. It’s easy to guess that an average user in the US would pay more than an average user in India.

If we apply similar price discrimination to a subscription based service (e.g. Microsoft Office 365, which is cheaper in China), we need to use IP check or other methods to prevent customers in a higher price region from purchasing from a lower price region. There’s no such need when the service is paid by targeted ads. A user in the US can’t pretend to be in India and then “pay” less by seeing lower cost ads. It’s also not in the US user’s interest to do so, because ads targeting an Indian user is less relevant and doesn’t improve experience.

In conclusion, I think targeted ads is an effective form of price discrimination. What do you think? (Feel free to comment after the post.)