Imagine this: a family member has died, and attending their funeral is very important to you. Somehow — you don’t know how — the airlines know this about you, so when you go to buy a ticket they jack up their prices, forcing you to pay more for the same flight than other people.
This is an example of what’s being called “surveillance pricing” — basically, using data and knowledge about consumers to treat us differently from other customers and squeeze more money out of us. A lot of people are talking and worrying about this right now — and given the enormous amount of unethical spying on consumers that is taking place today, there is good reason to worry. If these strategies are allowed to succeed, it’s likely that companies will adopt them not just in aviation but across a variety of markets, from telecommunications to grocery stores.
Privacy advocates have long warned of related uses of personal data including targeted advertising, price discrimination, consumer disempowerment, profiling, and digital redlining. In 2012 it was not a new concept when I wrote that “big data”
accentuates the information asymmetries of big companies over other economic actors and allows for people to be manipulated. If a store can gain insight into just how badly I want to buy something, just how much I can afford to pay for it, just how knowledgeable I am about the marketplace, or the best way to scare me into buying it, it can extract the maximum profit from me.
Later that same year, an investigation by the Wall Street Journal found that prices quoted by online retailers like Staples and Home Depot changed based on who the customer was — with people living in higher-income areas generally getting the best deals.
A renewed focus
But today, the threat is being talked about — and actualized — more than ever. The president of Delta Airlines told an investor conference in December that his company was planning “a full reengineering of how we price,” that the company’s technology could determine “the amount people are willing to pay for the premium products related to the base fares,” and that eventually, “we will have a price that’s available on that flight, on that time, to you, the individual.”
These statements added to growing attention to these practices. Members of Congress, the Federal Trade Commission, consumer groups, and state legislators have all been looking at the issue. A 2024 market study performed by the FTC concluded that “that retailers frequently use people’s personal information to set targeted, tailored prices for goods and services—from a person's location and demographics, down to their mouse movements on a webpage.” The FTC looked at an emerging market of middleman firms that companies hire to do the price tweaking for them. The head of one such company told Forbes that their algorithms use “all the data we can get our hands on. We are very stealth about how we work.”
Concern over this issue stems from the failure of Congress to enact strong, overarching privacy legislation, excitement about AI and belief that it will enable companies make better use of personal data, and the development of technologies such as “Electronic Shelving Labels” that allow companies to constantly change the prices that shoppers see.
Of course, there are complexities and line-drawing problems about exactly what price-setting activities are objectionable and how they are defined. Jameson Spivack at the Future of Privacy Forum does a good job laying those out. Is it okay to raise the price on an umbrella when it’s raining? To charge recovering smokers more for tobacco alternatives? For Uber and Lyft to change their prices and driver payments by the minute as demand for their cars fluctuates? The answers to such questions may depend on the extent to which such price variations vary not by overall conditions, but from individual to individual based on the data held about them. Uber’s demand-based price fluctuations may strike some as reasonable, but the advocacy group More Perfect Union sat seven drivers down in the exact same location and found that some were offered more than others for the same rides for no apparent reason — a growing practice experts call “algorithmic wage discrimination” or “surveillance pay.” Even when personal data is not involved, there are certainly areas where Americans do not see market pricing as fair; most states have laws against ticket scalping and price gouging in emergencies.
But such complexities aside, the bottom line is that we are certainly not the ones whose power increases when companies crunch data with AI (or without) to individually set the prices they charge us. Policymakers and political leaders are right to be focusing on this issue. There’s no doubt that at core, the kind of leverage that surveillance pricing enables is something that hurts ordinary people — especially those least able to afford it. Where some companies begin increasing their profits by engaging in these practices, their competitors will likely be forced to follow suit to keep up. Surveillance pricing also incentivizes companies to increase surveillance of their customers as they try to squeeze ever more profits out of them.
Consumers, of course, will not be powerless in the face of surveillance pricing, and actually will have a lot of ways of fighting back by trying to hide their identity from companies they’re shopping with. But surveillance-pricing companies may have an ace in the hole in that battle. More on that in part two of this post Monday.
UPDATE:
Part 2 of this post
