FTC Weighs Algorithmic Pricing Enforcement Policy

The Federal Trade Commission is considering an enforcement policy that would put businesses on notice that using personal data to set individualized prices without adequate disclosure could violate federal consumer protection law.

The proposed policy statement targets what is sometimes called “surveillance pricing”: using information about a consumer’s behavior, circumstances or characteristics to estimate the highest price that person might be willing to pay. The FTC opened a 30-day public comment period after approving the proposal by a 2-0 vote.

“When consumers see a listed price, they expect it to be the same price that everyone else sees, not the retailer’s estimate of how much they are willing to pay based on their personal data,” FTC Chairman Andrew Ferguson said in a Wednesday (Aug. 19) press release.

Personalized pricing remains poorly understood. The FTC said there is limited economic research on its effects and uncertainty about how widely businesses employ it. But existing research suggests that increasingly sophisticated personalization generally increases corporate profits while making consumer benefits less likely, according to the proposed statement.

The agency also warned that the spread of data-driven pricing could end the country’s history of relatively limited price variation among individual consumers and potentially strengthen companies with monopoly power.

The FTC’s principal legal tool is Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices. The agency lacks the legal authority to declare every use of personalized pricing illegal, but it could bring enforcement actions when a seller misrepresents a price as static or generally available while secretly tailoring it to an individual.

Undisclosed collection or use of personal data for price setting also could violate the statute. The proposed policy calls for businesses to disclose both that personalized pricing is being used and what information influences the price. Ars Technica reported that the FTC also expects companies to obtain consent to collect data for that purpose.

Disclosure matters because an informed consumer might use private browsing or a virtual private network, correct inaccurate information or avoid a retailer that personalizes prices. A consumer who believes a price is a loyalty discount, when it is actually higher because of data about disposable income or shopping habits, may be deprived of those choices.

The FTC illustrated its concerns with examples that include a delivery platform raising prices because a customer cannot leave home, or a rideshare raising a fare after determining that no competing ride-hailing applications are installed on their phones.

Initial comments have been overwhelmingly hostile to such practices, describing personalized pricing as “abhorrent,” “atrocious” and discriminatory. As summarized by Ars, commenters warned that hidden algorithms could impose the greatest burdens on low-income consumers, seniors, young people and people with limited technical knowledge. Several urged the FTC to prevent the use of race, sex, religion and sexual orientation in pricing.

But the comments also exposed dissatisfaction with the policy from opposite directions. Some argued that disclosure would merely legitimize exploitation through a compliance checkbox and called instead for prohibitions, consumer opt-outs or coverage of algorithmic wage setting.

Others warned that the proposal’s breadth could eliminate beneficial personalization, including grocery loyalty discounts, coupons, membership prices and app-based promotions. If businesses cannot determine which practices invite enforcement, critics said, they may discontinue discounts while retaining higher uniform prices.

While the FTC’s legal authority is limited, Congress can impose a comprehensive prohibition. A pending Stop AI Price Gouging and Wage Fixing Act would restrict certain algorithmic pricing and wage practices while protecting publicly disclosed group discounts and voluntary loyalty programs.

States, meanwhile, are moving independently. According to an overview by Wiley, New Jersey enacted a Fair Price Protection Act in July that restricts grocery stores and delivery platforms from using browsing activity, location, purchasing history and inferred demographics for individualized surveillance pricing. It also regulates electronic shelf labels while preserving a complex exemption for properly disclosed loyalty discounts.

Together, the FTC initiative and New Jersey law show personalized pricing emerging simultaneously as a privacy, consumer-protection and competition issue. Businesses using customer data to tailor prices, promotions or discounts now face a widening risk: even where personalization itself remains lawful, secrecy about how it works may not be.