It's no secret that we pay more for a lot of goods and services – gas, housing, groceries, etc. – but what's less well-known is that buyers could also be paying higher prices than their neighbors.
Technology firms and consultants are offering firms the power to set “personalized” prices online based on a customer's ability or willingness to pay, using algorithms and artificial intelligence to sift through mountains of information to maximise sales and profits. Proponents say the technology simply takes the principle of efficient pricing to the intense; critics say it’s unfair, discriminatory and a perversion of free-market capitalism.
On Tuesday, the Federal Trade Commission launched an investigation to find out how widespread one of these “surveillance pricing” has turn into and what impact it has had. The five commissioners voted unanimously to command Eight financial, technology and consulting firms are required to reveal what pricing services they provide, what data they collect to offer these services, who uses their services and what impact this has on consumer prices.
Stephanie Nguyen, the FTC's chief technology officer, said in an interview that the agency knows that firms “collect massive amounts of data about consumers,” including very detailed, sensitive data about their demographics, where they go, what they seek for and what they buy. The agency also knows that firms can use that data to send targeted information to individuals or groups.
The recent investigation goals to find out whether, how and the way often such data is used to set prices, she said, adding that the agency is currently only gathering information and none of the businesses are accused of wrongdoing.
Data protection advocates welcomed the investigation.
“This study is a critical first step in a really important discussion about what we think the rules for pricing should look like – what we think should be the norm,” said Lindsay Owens, executive director of Groundwork Collaborative, an economic policy think tank.
Instead of setting prices based on supply and demand, price monitoring takes into consideration indicators of your ability and willingness to pay, corresponding to your bank card and bank balances or “whether it's late at night and you're looking for an Uber home,” says Lee Hepner, legal counsel on the American Economic Liberties Project.
“We've heard allegations that some companies can now charge you a different price depending on how close your next payday is or whether you've just been paid,” he said.
The eight firms required to submit information to the FTC are financial giants Mastercard and JPMorgan Chase, consulting firms Accenture and McKinsey & Co., and technology firms Revionics, Bloomreach, Task Software and PROS.
JPMorgan Chase said on Tuesday that it had not yet heard from the agency. Mastercard said it might cooperate within the proceedings. The other six firms didn’t reply to requests for comment or couldn’t be reached.
The Commission's unanimous vote reflects a cross-party interest in examining the problems surrounding pricing based on personal data, which in turn reflects public opinion on online privacy. Survey last yr A study conducted by the Pew Research Center found that 81% of respondents were concerned about how firms use the information collected about them, and 67% had little to no understanding of what firms do with their data.
One of the risks of price monitoring is that it creates an incentive for firms to gather much more data about their customers because that information might be useful for these pricing systems, says RJ Cross, director of the buyer privacy program on the US Public Interest Research Group.
“Excessive data collection already brings with it security and privacy issues,” she said; the more data that’s collected, the more likely the data is to be exposed in a knowledge theft or hack. “This just adds fuel to the fire that can have major, negative consequences for all of us in the long run.”
Another problem, Owens said, is that surveillance pricing undermines the long-standing practice of public pricing, which arose when retailers stopped haggling over all the pieces and began putting price tags on their goods. Public pricing is vital, Owens said, since it helps ensure fairness and is transparent and predictable.
Because there are not any predictable prices, people find it difficult to budget for his or her needs, Hepner says.
George Slover, senior competition policy adviser on the Center for Democracy & Technology, said “tailored pricing” amounts to a radical reversal of a system that has worked for consumers for the reason that advent of the worth tag. Instead of sellers offering goods and services to anonymous buyers, he said, “the seller knows everything about the buyer and what the buyer is likely, willing and able to pay” – while the client stays in the dead of night about what the vendor is charging everyone else.
“It turns on its head, or one might say perverts, the assumptions underlying the justification of the free market,” he said.
The use of artificial intelligence to cost surveillance systems poses a possible obstacle to the FTC's investigation, observers say, because how these systems work could also be difficult to decipher and understand.
“It makes the job a lot harder when the people who develop the AI systems can't even clearly articulate why a system makes a decision,” Cross said. “That really puts regulators at a disadvantage.”
The legal situation can be unclear.
There are federal laws that prohibit discriminatory pricing in certain circumstances — corresponding to charging people different rents or mortgage rates based on their race — but Hepner said price monitoring may represent “a new frontier of price discrimination” that those laws don't reach.
But the FTC could have the ability to limit pricing on surveillance systems if it finds they violate federal unfair and deceptive practices law. And in Owens' view, that is inherently deceptive since it happens in secret – you don't know you're paying greater than another person for a similar goods online, so “you have no idea that you should be upset about it.”
“Isolation and concealment,” she added, “are really essential to this practice.”
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