Surveillance Pricing Hurts Everyone in the Long Run: No One Wins

Dynamic pricing isn't limited to online platforms—it's expanding into physical retail as well.

The rapid growth of data-driven technologies has introduced surveillance pricing—where companies adjust prices based on individual consumer data. Unlike surge pricing from apps like Uber, which fluctuates with demand, surveillance pricing targets individuals based on their personal data. This shift transforms dynamic pricing from a tool for managing supply and demand to a form of dystopian personalization, where consumers may pay more due to personal habits, income, or impulsivity. With increasing scrutiny from the Federal Trade Commission (FTC) and lawmakers like Senator Elizabeth Warren, the detrimental effects on fairness, privacy, and economic equality are becoming clearer. In the end, no one benefits—neither consumers, who face unfair pricing, nor businesses, which risk losing customer trust.

Surveillance Pricing: What Is It?

Surveillance pricing involves using real-time consumer data to set individualized prices. Companies gather information such as browsing history, demographics, location, and credit history to estimate how much a consumer is willing to pay. Technologies like AI and advanced algorithms allow businesses to adjust prices dynamically based on this data, often charging different rates for the same product. Marketed under names like price optimization, predictive pricing, and personalized pricing, this practice often results in unfair price discrimination. The FTC is investigating this issue, focusing on a "shadowy ecosystem of pricing middlemen" and has sought information from companies like Mastercard, JPMorgan Chase, McKinsey & Co., and Accenture to understand its impact on privacy, competition, and consumer protection.

Why the Hype?

Dynamic pricing isn't limited to online platforms—it's expanding into physical retail as well. Senator Elizabeth Warren has accused Kroger, a major U.S. supermarket chain, of potential price gouging using electronic shelf labels (ESLs). These labels enable Kroger to adjust prices in real-time, potentially creating "surge pricing" similar to Uber's fare increases during high demand. While initially marketed as a consumer-friendly feature, there are concerns that Kroger’s ESLs might lead to opportunistic price hikes, such as higher ice cream prices on hot days. Warren’s letter compares this to previous issues like Orbitz charging Mac users higher prices and Staples showing different prices based on location.

Devils in the Data: What Is Causing This?

Surveillance pricing relies on extensive data collection, often without full consumer consent. Data brokers, digital platforms, and other intermediaries gather information from various sources, including browsing history and purchasing patterns, to feed algorithms that set prices. A Harvard study suggests that higher prices can arise from the automated nature of algorithms, impacting any market where firms price algorithmically. The FTC’s inquiry focuses on key questions: What data are companies using to set prices? How is it collected? Who is buying these services, and how does it affect consumers?

Economic Inequality: Who Pays the Price?

While personalized pricing may seem beneficial, it often exacerbates economic inequality. Higher-income consumers may receive discounts, while those with less disposable income might face higher prices. Surveillance pricing can further entrench these inequalities, like how credit scores impact loan rates or zip codes affect insurance premiums. Marginalized communities, including people of color and low-income individuals, are particularly vulnerable to higher prices due to algorithmic biases, as seen in allegations against rideshare apps like Uber.

Privacy Risks: How Much Do They Know?

One of the biggest concerns with surveillance pricing is the lack of transparency in data collection. Consumers often unknowingly provide data through cookie agreements and lengthy terms of service. This data—ranging from location to credit scores—fuels pricing algorithms and raises privacy issues. According to the IAPP Consumer Trust Study, 70% of consumers decided against making an online purchase, because of privacy concerns.

Implications for Business: How It May Impact?

Surveillance pricing doesn’t just harm consumers. Businesses that engage in this practice may see short-term gains, but they risk long-term damage to their brand reputation and consumer trust. When consumers feel manipulated or unfairly treated, businesses lose loyal customers and face public backlash.

Regulatory Actions: What May Come Next?

Increased regulatory scrutiny could impact personalized pricing models. The FTC’s investigation using its 6(b) authority could lead to new laws or regulations limiting surveillance pricing practices. This potential regulation could affect both current practitioners and the broader retail and e-commerce sectors.

A Call for Privacy-First, Fair-Pricing Models

To protect consumer privacy and foster a fair marketplace, businesses should:

• Opt-in Data Collection: Seek explicit consumer consent before collecting personal data.

• Fair Pricing Models: Shift to subscription-based or fixed-rate pricing to avoid unfair charges based on personal data.

• Transparency in Algorithms: Disclose how pricing algorithms work to ensure transparency and fairness.

Surveillance pricing might boost short-term profits, but it comes with significant long-term costs. The FTC’s investigation highlights the opaque and problematic nature of this practice. From deepening economic inequality to raising serious privacy concerns, surveillance pricing ultimately harms everyone. Businesses must prioritize consumer trust, data privacy, and fair pricing to ensure a more transparent and equitable marketplace.

(For more reading on the subject of surveillance pricing, you might be interested in this LinkedIn post from ETP’s JJ.)

---

What We’re Reading on Ethical Tech This Week

Every week, we round up the latest in Ethical Tech. Subscribe now and also get our monthly digest, the Ethical Tech News Roundup!

• Elizabeth Warren - Warren, Casey Investigate Kroger’s Use of Digital Price Tags, Warn of Grocery Giant’s “Surge Pricing” Causing Price Gouging and Hurting Consumers

  • Senator Elizabeth Warren is focused on investigating Kroger’s potential use of surveillance pricing.

• FTC - FTC Issues Orders to Eight Companies Seeking Information on Surveillance Pricing

  • Agency seeks information about products and services that use personal data, including finances and browser history, to set individualized prices for the same goods or services.