Hmmm.

So, price discrimination is not intrinsically illegal. That’s where you try to sell the same thing to different people if you can manage to somehow split them up based on ability and willingness to pay. For example, airlines tend to charge business travelers more than (more price sensitive) vacation travelers. They don’t have a good way of doing that directly, but they know that business travelers normally have less less time in their travel plans before the flight, so flights get more expensive if you don’t book them well in advance.

The ideal for the seller would be to charge every consumer precisely as much as that exact consumer is willing to pay before they so “no”. Basically, the scenario they would aim to create with price discrimination is one where every consumer is gritting their teeth and saying “the price tag on this really hurts…I don’t know if this is worth it,” but then just barely comes down on the side of buying the product.

Price discrimination doesn’t, as I understand it, necessarily intrinsically alter economic efficiency one way or another, though it can do so.

It does, however, mean that the vendor winds up a lot better off then they otherwise would be, which is why they would prefer to price-discriminate. They convert consumer surplus into producer surplus. That’s generally not desirable for existing consumers of the product, but it benefits the producer.

Some consumers can be better-off under price discrimination – it doesn’t just mean that consumers pay more. The optimal price for a provider to sell a product at in the absence of price discrimination is typically higher than it would be for some segments of the market. So, there are people who, today, feel that they cannot afford an Internet connection, and won’t get service. It may still be possible for the provider to profitably provide service at a lower price to them than they currently offer…but if they cannot price discriminate, they would also have to lower the price to other consumers, and that may make it undesirable for them to offer service.

So in general, if you’re an Internet service provider, you would like to be able to price-discriminate. If you’re a consumer who has service, you’ll probably not want price discrimination, since it’s likely to drive up what you pay to the point where it makes you grit your teeth and almost are not willing to get it. If you’re a consumer who does not have service because it’s not worth it to you at the current price point, price discrimination might be desirable, since it might mean that service will become available at what is within your budget – albeit at what is a tooth-gritting price for you.

Normally, it’s hard to price-discriminate in a competitive market. If you don’t have a monopoly or sellers cannot collude and engage in price-fixing. Otherwise, if I am an ISP who tried charging someone a higher price than they currently charge to take advantage of the fact that I would be willing to pay more, given no other options, the consumer would just switch to another ISP.

A number of utilities are natural monopolies – the way the market works just naturally tends to encourage there being only one provider. This often is a result of them having to buy a lot of expensive infrastructure to reach each consumer. For example, having multiple municipal water providers would require maintaining multiple (expensive) pipe networks. I do not believe that ISPs are strongly in this camp, but they do have physical infrastructure. In general, utilities aren’t allowed to price discriminate – like, your water company isn’t allowed to try to figure out exactly how much you personally are willign to pay and charge that – so I’m a little suspicious that regulators may not take that route with ISPs. That being said, California and some other states have been allowing electric utilities to link one’s electricity bill to one’s income, so it does happen.