Should 'surveillance pricing' be banned?

NPR.

When you walk into a store, you're probably used to seeing price tags on everything.

A little sticker or a sign that says to every customer, here is what the product costs.

But when you shop online, there is no price tag.

There's just the price you see on screen.

And because of that, do you ever wonder whether the price that you see is the same as what others are seeing?

Like, could companies use your online data, like your location and browsing history, to charge you more than somebody else?

Sounds fishy, but the short answer is yes.

It's a practice called personalized pricing, though to critics, it has a more sinister name.

surveillance pricing.

This is the indicator for Planet Money.

I'm Adrienne Ma.

And I'm Darien Woods.

Surveillance pricing was in the news recently after Delta Airlines said it's been using AI to set some ticket prices.

And even though Delta says it does not engage in personalized or surveillance pricing, that hasn't stopped some lawmakers from wanting to ban the practice.

So today on the show, we wade into this debate.

Is surveillance pricing as bad as it sounds?

And what, if anything, should we do about it?

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Kind of sounds bad, but you know, economists use it in a more neutral way to describe a situation where different people are charged different prices for the same product.

Like a movie theater might sell cheaper tickets to students or seniors.

But when it comes to shopping online, you don't know if the price that you see is the same as what others see.

And this creates the potential for what some call personalized pricing and others call surveillance pricing.

So surveillance pricing is when companies collect data from consumers like their location data, their demographics, their internet search history to set individualized prices.

And the goal is to charge each person the most that they're willing to pay.

Sam Levine is a former director for the Federal Trade Commission's Bureau of Consumer Protection.

And he says, companies collect data on consumers in a few basic ways.

They can track you through web browsers or cookies or through apps that you use.

They can also buy that data from a third-party data broker.

And once they have it, they can use it to target you with, say, personalized ads.

Yeah, you probably know the drill.

You Google for one pair of shoes and then suddenly those pairs of shoes are kind of following you all around the internet.

So creepy.

So the same technology that's powering advertising can power pricing as well.

So instead of just showing you an ad for shoes, if a company knows that you're really looking for shoes and maybe you're in a hurry to get them, they can raise prices on those shoes because they know you're really looking for it.

We should say this is not illegal, but in theory, it's the kind of consumer harm Sam was looking for when the FDC started investigating this type of pricing last year.

As part of these efforts, the agency demanded data from eight companies that allegedly offer, quote, surveillance pricing products and services, end quote.

The companies included names like MasterCard, JP Morgan, Chase, and McKinsey.

I hear the theoretical argument behind it, but how big is the scope of this problem really?

I think the scope is big and getting bigger.

The FTC study we did and that we released some of the results from in January showed that just among the eight pricing consultants we looked at, they were working with more than 250 companies in industries ranging from grocery to hardware to apparel and more.

Sam says companies have the technology and the motive to engage in surveillance pricing, and he thinks it should be banned.

Here's the thing.

It's really hard to say just how prevalent this practice is.

Through a website called Consumer Watchdog, we did find a few documented examples that suggest there is there.

For instance, in 2012, the Wall Street Journal found companies like Staples and Office Depot were showing different customers different prices for the same product.

And they did that based on things like their location and browsing history.

In 2015, the investigative news outlet ProPublica found the Princeton Review showed people different prices for online tutoring based on their zip code.

And the result was that people living in areas with a bigger Asian population might have paid hundreds of dollars more for the same service.

But these smoking guns are hard to find, in part because what companies do with our data is sort of a black box.

And even though the FTC's investigation promised to shed more light on the practice, that investigation seems to be on pause after President Trump took office and installed new leaders at the agency.

We repeatedly reached out to the FTC for an interview for this piece, and each time, a spokesperson for the agency said it has no comment.

So what does Sam Levine think about all this?

I really think the FTC's seeming inaction and

lack of attention to this issue is quite worrying, and I think it's why states really need to step up.

And some states are.

New York recently passed a bill requiring businesses to disclose when they're offering customers personalized algorithmic pricing, in their words.

Lawmakers in Georgia, Colorado, California, and Ohio have also proposed regulating or banning the practice.

Still, some experts like Jean-Pierre Dubay are skeptical of this rush to regulate.

The concept of a company using data that I wasn't aware they had to determine a marketing offer for me, I don't think that's all that new.

Jean-Pierre is a professor of marketing at the University of Chicago who's studied personalized pricing.

Calling things surveillance pricing is just a way of branding it in a very negative light so that people would have a hard time wanting to defend it.

Because how could surveillance ever be good in a free country like America?

Good point.

It does not sound good.

Jean-Pierre prefers a more neutral term like personalized or differential pricing.

And he says it's not unusual for businesses to consider a customer's attributes and tailor prices accordingly.

For example, think of a car dealer who sees a customer walk into the showroom with a fancy suit and a gold watch on.

They might decide to charge them a little more because, you know, it seems like they can afford it.

Yeah, classic haggling.

But he says personalized pricing doesn't always mean higher prices.

If I have the data that allows me to know what people's willingness to pay are, there's just as much interest in me lowering my prices to some people to serve customers that would otherwise not have purchased.

So as long as I can charge you more than my cost of supplying to you, this is additional profits I collect.

So some people will pay more, some people will pay less.

To illustrate, Jean-Pierre told us about an experiment he and a colleague ran with ZipRecruiter, a company that makes money selling job matching services to employers.

And what they found was when ZipRecruiter tailored their pricing to different customers based on data they provided, more than 60% of them were offered a lower price than they would have gotten if the company had just just charged everyone the same flat fee.

Most of these people being charged less were the smallest businesses.

And so if you think small businesses deserve special advantages over large companies, then you would argue this seems a lot more equitable and fair.

Now, it's important to note in this experiment, customers provided their data voluntarily.

And that's different from the secretive, involuntary data collection critics of surveillance or personalized pricing talk about.

And on this particular point, Jean-Pierre says he gets it.

I think we have to be very careful about saying that charging differentially is unfair, but I would definitely agree with you that it feels like consumers are losing the agency over their personal information.

On that note, if you're concerned about all of this, there are a few things that experts suggest you can do to lessen your exposure, like regularly clearing your web browser's cache.

Seems pretty easy.

You could use a private browser or a VPN.

Inconvenient, but doable.

Or go to a physical store and buy things in cash.

That's going too far.

This is Adrian's populist revolt.

This episode was produced by Angel Carreras and engineered by James Willits.

It was fact-acted by Sarah Juarez.

Kate Kincaden edits the show, and The Indicator is a production of NPR.

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