Should Surveillance Pricing Be Allowed or Prevented?

The Federal Trade Commission (FTC) is investigating “surveillance pricing,” where companies use artificial intelligence to set different prices for the same item based on individual customer data. This practice could lead to varying prices for the same product depending on a customer’s characteristics and behavior.

According to CNBC, the FTC has questioned eight companies — Mastercard, JPMorgan Chase, Accenture, McKinsey, Task, Revionics, Bloomreach, and Pros — about their use of AI and customer data in pricing. FTC Chair Lina Khan expressed concerns that such practices could exploit personal data to set higher prices and undermine privacy. The investigation aims to reveal how these practices affect consumer pricing.

“Firms that harvest Americans’ personal data can put people’s privacy at risk. Now firms could be exploiting this vast trove of personal information to charge people higher prices. Americans deserve to know whether businesses are using detailed consumer data to deploy surveillance pricing, and the FTC’s inquiry will shed light on this shadowy ecosystem of pricing middlemen.”

FTC Chair Lina Khan via the FTC

Different forms of price surveillance have existed for quite some time — from charging different amounts to specific age groups to the newer notion of dynamic pricing at fast-food restaurants. Additionally, individual businesses that have loose pricing can adapt based on their perception of their customer. For example, appliance installers, car repair shops, and handymen might charge more if they notice that their customer is from a more affluent neighborhood or has an expensive car.

Per Lee Hepner, senior legal counsel for the American Economic Liberties Project, and reported by Governing, instead of determining prices based on supply and demand, surveillance pricing examines factors like your credit card and bank balances, or “whether it’s late at night and you’re looking for an Uber home,” to assess your ability and willingness to pay.

Industry experts are growing concerned over the amount of personal data being collected, the sensitivity of the data, and how businesses will use surveillance pricing as a means to go after even more personal data and more frequently.

According to Fast Company, another concern is the “individualized nature of that price personalization. A surveillance pricing system amasses data about each specific consumer, and feeds them a price based on the information it’s learned.”

Although the negatives seem apparent enough, other experts see surveillance pricing in a more positive light.

Jacobin highlighted that business school professors researching personalized pricing are enthusiastic about its potential. There are many academics involved in this field, with MIT offering courses about using data to “improve” pricing. Harvard even has a Pricing Lab department dedicated to analyzing data and conducting experiments such as the Billion Prices Project.

Jacobin further explained that the theory behind this optimism is that “an individualized price is better for the consumer.” For instance, a ZipRecruiter experiment revealed that 60% of consumers in the sample paid less with personalized pricing. However, the outlet noted that “making things cheaper isn’t really what economists mean by ‘better for the consumer.’”