The Federal Trade Commission (FTC) has launched an investigation into the controversial practice of "surveillance pricing," where companies use artificial intelligence (AI) and extensive consumer data to dynamically adjust prices based on individual customer behavior and characteristics. This probe underscores growing concerns about privacy and fairness in the digital marketplace.
FTC Chair Lina Khan highlighted the potential risks posed by this pricing strategy, stating, "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." Khan referred to this system as a "shadowy ecosystem of pricing middlemen," indicating significant opacity in how these practices are conducted and their impact on consumers.
The FTC has issued mandatory requests for information to eight major companies: Mastercard, JPMorgan Chase, Accenture, McKinsey & Co., Task Software, Revionics, Bloomreach, and Pros Holdings. These companies are known for their AI and tech tools that use consumer data to tailor prices individually. This investigation is being conducted under the FTC's 6(b) authority, which allows the agency to collect information without pursuing a specific law enforcement action.
The companies have varying degrees of involvement in these practices. For instance, Revionics, which works with retailers like Home Depot and Tractor Supply, stated that its software does not target individual consumers with specific prices but rather considers market-level factors when recommending prices. "We are confident that the FTC will affirm the benefits of Revionics' AI price optimization software pending its research into this matter," a Revionics spokesperson said.
Mastercard, another company under scrutiny, has expressed its willingness to cooperate with the FTC. "We will cooperate with the FTC in this process," a Mastercard spokesperson confirmed. Other companies such as Task Software, Bloomreach, and Pros Holdings have yet to comment publicly on the FTC's inquiry.
The FTC's study will seek detailed information about the products and services offered by these companies, the types of consumer data collected, the identities of their customers, and the impact these practices have on pricing. This initiative aims to shed light on whether companies are using this data to engage in unfair pricing practices that could harm consumers.
Online advertising has long used consumer data, such as browsing history and device location, to target ads more effectively. However, the application of similar technologies to price goods and services raises new ethical and regulatory challenges. The FTC is concerned that these pricing strategies could lead to disparate pricing based on consumer data, which it terms "surveillance pricing." There is also a worry that these practices could enable companies to collude with competitors, leading to broader market distortions.
The FTC's decision to investigate was unanimous, with a 5-0 vote in favor. However, the agency's two Republican commissioners expressed reservations about the term "surveillance pricing," preferring "personalized pricing" instead. Regardless of terminology, the underlying concern is about the fairness and transparency of these practices.
The products under investigation are marketed under various names, including data-driven pricing, price optimization consulting, and location-based predictive targeting. Consumer advocates, like R.J. Cross from the U.S. Public Interest Research Group (PIRG), have raised alarms about these practices' implications for fairness and privacy. Last year, PIRG and other groups urged Mastercard to limit its use of cardholder data strictly to providing card services.
