Algorithm-based pricing changes are now common. Some laws are pushing back.
Online shoppers in New York are now seeing a new warning on product pages thanks to consumer protection legislation that took effect in early November. Particularly noticeable during Black Friday sales were messages that told shoppers: “This price was set by an algorithm using your personal data.”
This piece of legislation requires companies (with exceptions for rideshare apps) to show buyers when they use surveillance pricing to set online prices, potentially raising costs for some people while lowering them for others.
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So what data are these companies collecting to shift prices? Well, unlike surge pricing, this type of algorithm pricing calculates data related to the individual person or device. That could include the type of device (Android versus iPhone, etc.), your account’s browsing history, recent purchases made from that browser and — most importantly — your location.
In other words, reported examples have shown that items like eggs will increase in cost for wealthy neighborhoods while staying at lower standard costs for less prosperous zones. But it can get far more complicated than that: Some pricing algorithms study millions of online purchases to predict buyer patterns.
A representative for the New York Senate didn’t immediately respond to a request for comment.
Is surveillance pricing legal?
So far, yes. What laws like this New York legislation do is enforce transparency about what may be affecting prices, instead of banning it. And even that was too much for business groups, which immediately sued to block the law in federal court, alleging that it violates the businesses’ First Amendment rights.
It’s not clear whether companies are complying with the law as directed, or what it fully entails, either. The bill requires “clear and conspicuous disclosure” near the price, but some companies appear to be putting the information in a harder-to-spot area behind an information icon at the bottom of a pop-up.
Efforts to control pricing via algorithm
Surveillance pricing is still largely legal and difficult to regulate.
New York isn’t the only state to tackle surveillance pricing. Other states and cities are entertaining similar legislation, as well as complete bans on the practice. But it’s an uphill battle due to the many details and strong pushback from, well, every industry that sells products online.
The most recent example was from September, when California’s congress went through its proposed ban on surveillance pricing and cut out nearly everything. In its current state, the California law would only apply to grocery prices, which is still not a common online purchase. Colorado, Illinois and other states are also working on their own versions of related laws.
The question of whether shoppers would appreciate transparency laws, or whether they’d be less likely to purchase products if they knew the price was based on their personal data, is tough to answer (what if the algorithms are giving you a lower price than other nearby shoppers?). But the privacy question has a more far-reaching impact: Once shoppers see how much of their personal data is being harvested for pricing, they may start to wonder what else it’s being used for.
