Biden regulators set to look into unequal online pricing scheme

A great deal of the Biden administration’s economic agenda has focused on protecting people from getting ripped off: The ever-shrinking Snickers bar , fighting overdraft fees and pushing airlines to make travelers whole when things go awry.

Now his corporate-misconduct cops are looking to the next possible stage in profiteering: personalized pricing, in which online firms offer different prices to individuals depending on what the companies know about them. The controversial, burgeoning practice is sometimes called "surveillance pricing" by advocates, since it depends on closely tracking individuals' data.

The Federal Trade Commission, led by Chair Lina Khan, is preparing to launch a broad study on the practice, according to three people with knowledge of the plan.

As soon as August, the agency could demand information from companies involved in facilitating personalized pricing, the people said. The plans for the study are not yet final, and it isn’t yet clear what companies the agency would be targeting.

An FTC spokesperson declined to comment.

The practice that worries the FTC is a new variant of so-called dynamic pricing, an approach that has been commonplace for years in some of the most widely used apps and websites. Ride-hailing apps, airline tickets and online shopping sites all constantly adjust prices based on demand. The study is intended to shed light on a still-nascent practice with more potential for unfairness: charging two different people different prices for the same toothbrush at the same time.

Critics are concerned that differential pricing is unfair — and also that it creates an appetite for more consumer data, which compounds concerns around people's privacy.

“The technology and infrastructure for personalized pricing has been in place for more than a decade, but it's exploded in the last few years because retailers have transformed themselves into mini Googles and Metas,” said Jeff Chester, a longtime privacy advocate who heads the Center for Digital Democracy. “This leads to harvesting the massive data they have on their consumers to enable more targeted advertising and pricing” in conjunction with large consumer brands, Chester said.

Individualized pricing is not entirely new, said Adam Elmachtoub, a Columbia University industrial engineering professor who studies pricing and supply chains. He pointed to interest rates on loans and college admissions as two examples. (Elmachtoub also has a part-time role as a visiting academic with Amazon.) And he said there are certain safeguards in place, such as the Civil Rights Act, which protects against discrimination on a host of attributes such as race, disability and age.

But he acknowledged that fast-moving online marketplaces create a different version of the problem, where opaque uses of data could cause companies to charge people more. “I don't want to be in a world where I have to be strategic about how I express my data to the world to get good prices,” he said.

The study could unearth proprietary information about how companies are setting prices, since the FTC enjoys subpoena power when it conducts market studies. Other recent examples include drug pricing and acquisitions of artificial intelligence start-ups by big tech companies. The studies are separate from investigations, though they can later inform the agency’s enforcement work.

“The idea of being able to charge every individual person based on their individual willingness to pay has for the most part been a thought experiment,” Khan said last month in an interview with the American Prospect . And because of the “enormous amount” of personal data collected by companies, “we’re now in an environment that technologically it actually is much more possible to be serving every individual person an individual price based on everything they know about you.”

In recent years, the FTC has become more focused on companies’ use of consumer data. It has cracked down on intermediaries like data brokers, companies that make money by trafficking in people’s personal information, as well as the loose privacy practices of tech giants like Microsoft and Amazon . It is in the early stages of issuing privacy regulations that would combat commercial surveillance, an overarching term for profiting from the tracking and collection of consumer data.

As part of that latter process, the agency is considering limits on the amount of data companies can collect on their users, as well as requirements against algorithmic discrimination, such as in job and housing applications, according to people involved in the process.

The pricing study could potentially inform that process, the people said. Certain lawmakers have been pushing for years to enact federal privacy legislation, though that appears unlikely anytime soon.

The process moves slowly. The FTC also has another study, outstanding since December 2020, looking into the privacy practices of social media and streaming companies. The agency is also expected to finally issue a report from that soon, the people said.

“Surveillance pricing and price-gouging are related,” said Zephyr Teachout, a Fordham Law School professor who also worked on consumer pricing issues at the New York Attorney General’s office.

“It's a really substantial revolution in pricing with all sorts of implications,” Teachout said. It’s not just a matter of fairness, she said: the more prices vary from person to person, the harder it is for consumers to manage money. “A family trying to budget for a month? It would be impossible. That obscurity really matters.”