Rigged: Corporate behemoths are using junk fees and technology to keep prices high

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Consumer sentiments about the American economy have reached a 7-month low and now maintain a baseline at the lowest levels since the Great Recession . This is despite historic economic gains following the COVID-19 pandemic that have resulted in an economy that is the envy of the world and the strongest economy in modern American history .

This divide between the sentiments of consumers and the hard economic data pored over by analysts has been called the ‘vibecession’ . But why is there such a profound disconnect between the impressive economic data and the pervasive cynicism felt by many Americans?

One explanation is rooted in exploitative pricing practices that have become all too common. The American economy may be thriving according to indicators used by economists to measure the economic health and well-being of the country, but those economists ignore a fundamental component that drives so much of the discontent: Power.

New technologies and business practices have reshaped the landscape of pricing . Corporations use their vast troves of consumer data to create deceptive and exploitative pricing strategies that may benefit their bottom line, at the expense of consumer choice and autonomy.

One of the key issues in this context is the proliferation of junk fees. These are hidden charges that consumers often only discover after they have committed to a purchase. Airlines, hotels, and banks are well-known for tacking on such fees, which can significantly inflate the final cost of a product or service. But junk fees can also be found on your rent and utility bills, your check at restaurants, and even your propane distributor, as one egregious example outlines .

These fees, loaded on at or near the end of a transaction, lead consumers to believe they are getting a great price only to find out right before they complete the transaction that the price has drastically increased. People hate junk fees so much that an overwhelming 83% of likely voters say they would vote for a legislator that would end the practice, and 79% of voters say they support state legislation to ban the use of junk fees.

My price is not the same as your price

Corporations have also found it easier to implement “personalized pricing” strategies. As consumers become increasingly isolated , shopping via apps and websites instead of in stores and around others, they no longer see what other people are paying for the same product. This means that two customers might be served two different prices for the same product based on their browsing history, purchase patterns, and even their location.

In other words, my price is not the same as your price . This lack of transparency and fairness not only erodes trust but also leads to higher prices for those least able to afford them.

Surge pricing — when a company raises the prices of its offerings when demand is highest and popularized by ride-sharing services like Uber and Lyft — is yet another example of deceptive pricing practices that enable companies to gouge consumers to increase margins. While it is often justified as a way to balance supply and demand, surge pricing frequently results in exorbitant prices during times of highest demand. One study demonstrated that Uber will charge you more than another rider if its algorithm detects that your phone battery is running low. This practice has spread to other industries — Xcel Energy recently proposed surge pricing for electricity distribution — and results in essential services being more expensive when they are needed most.

One-click subscription lock-ins exploit consumer inertia. Companies like Amazon and Adobe make it incredibly easy to sign up with a single click but create a labyrinthine process for cancellations. As a result, consumers find themselves stuck paying for services they no longer use or need, draining their financial resources over time. When the Federal Trade Commission announced a lawsuit against Adobe this month for its unfair fees and its cancellation policy that the FTC argues traps consumers, users of the service celebrated .

Algorithmic price fixing in the housing market is a particularly egregious and nefarious development. Using opaque software and relying on nonpublic competitor data, consolidated real estate holding companies and corporate landlords can manipulate rental prices to maximize profits, often leaving units vacant rather than lowering prices in order to entice in new renters. This practice exacerbates housing affordability issues, and, across industries, is a driver of inflationary pressure on American pocketbooks.

According to a recent Gallup poll , voters now list housing costs as one of the top concerns this election year. The ability of software companies to facilitate widespread real estate cartels not only distorts the housing market but also places additional financial burdens on renters and homebuyers, contributing to the broader sense of economic discontent.

In a memo published by Local Progress and the American Economic Liberties Project , algorithmic price fixing has played a significant role in double-digit rent increases across the country. These inflated rents are exacerbated by consolidation in local housing markets that leads to both higher rates of eviction and higher profits for landlords. Cities like Tucson, AZ, and Nashville, TN, have seen 13 and 14.5% rent increases, respectively, ushered in by revenue management companies like RealPage.

In response to these challenges, federal and state regulators like the Federal Trade Commission, the Consumer Financial Protection Bureau, the Department of Justice, and state attorneys general have taken action against monopolistic domination and unfair pricing strategies, and have started to hold executives accountable for their illegal and unethical behavior .

The FTC has taken Amazon to court over its “dark patterns” technology, which uses a deceptive interface to easily enroll and automatically renew their Prime subscriptions, while making the cancellation process so complicated it effectively trapped customers into the subscription. Amazon itself called its cancellation process Project Iliad, after the Ancient Greek epic.

The CFPB is cracking down on junk fees , banning the practice in mortgage servicing and capping excessive credit card fees. These actions have the potential to save American consumers billions of dollars over time. Minnesota recently became the second state to ban junk fees.

Last month, the DOJ raided the corporate offices of Cortland Management , a property management company in Atlanta, Georgia, as part of the DOJ’s antitrust probe into price fixing in the housing market. On top of a private class action lawsuit based in Tennessee, the attorneys general of Arizona and Washington DC have also sued RealPage and residential landlords , alleging an illegal price fixing conspiracy in rental housing. In the Arizona case, Attorney General Kris Mayes accuses RealPage of acting like a cartel to gouge renters by no longer adhering to the dictates of supply and demand.

As quoted in the Phoenix New Times , “It used to be that landlords would be worried about vacancy rates, and they would be worried about being able to compete against the landlord next door,” Mayes said. “Now they don’t have to worry about any of that, because they’re all charging the same high rent. And they aren’t deviating from it because RealPage tells them not to.”

And in Minnesota, Attorney General Keith Ellison has joined the DOJ in a lawsuit against Agri Stats , an agricultural data aggregator that is accused of engaging in a similar anticompetitive algorithmic price fixing scheme that resulted in consumers paying substantially more for chicken, pork and turkey.

These actions and others like them by state and federal regulators are essential to check the power of dominant corporations, which are too often willing to bludgeon workers and consumers in their singular pursuit of profit. We should support lawmakers and political leaders that defend these regulators, and speak out against politicians that seek to cut their budgets or diminish their power through the courts .

Addressing the deep disconnect between how consumers feel, on the one hand, as they are nickel and dimed through aggressive pricing mechanisms designed to gouge them for profit, and the hard evidence of a surging economy, on the other, requires a concerted effort by legislators and regulators to rebalance power in the marketplace. People are fed up, and it’s good that the Biden administration and antitrust regulators are stepping up to fight back.

By cracking down on junk fees, surge pricing, and other unfair and deceptive practices, we can restructure markets towards fairness. And through encouraging transparency and fairness, we can create an economy and society where consumers are genuinely empowered and optimistic about their financial futures. Only then can we close the distance between the historic economic data and the lived experiences of everyday Americans.

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