Editor's note: Tonight on "The Screen Savers," Andrew Odlyzko talks about discriminatory pricing practices and how they affect your privacy. Here's an excerpt from his paper, Privacy, Economics, and Price Discrimination on the Internet.

The private sector often moves to reduce privacy, motivated by the incentives to price discriminate, or charge different prices to various customers for the same goods or services. Erosion of privacy lets companies learn more about customers' willingness to pay. It also lets them control arbitrage in which somebody who might face a high price from a seller buys instead from an intermediary who manages to get a low price.

Price discrimination offers a much higher payoff to sellers than any targeted marketing campaign. For example, adjacent seats on a flight can bring in revenues of $200 or $2,000, depending on when and where a person purchase's the ticket. Airplane tickets, non-transferable contracts with named individuals, enables airlines to practice yield management in its extreme form.

When sellers have less information about buyers, and less control over resale, possibilities for differential pricing are more limited, but companies still manage. A 2001 Wall Street Journal article pointed out that Dell sold the same laptop to health-care companies for three percent less, and to state and local governments for 10 percent less, than the price charged to small businesses.

Dell's dynamic pricing practices, along with other components, make the economy more efficient. The WSJ also reported, in the same article, Dell's record low overhead costs (the company leads in price-cutting) and satisfies customer demands with record speed and flexibility.

Still, price discrimination seems to makes up a substantial part of the Dell success story. Dell operates in a commodity market, with low net margins. Obtaining an extra 10 percent from a particular buyer is likely much more important for the bottom line than better target advertising.