We need to keep an eye on surveillance pricing

Sophie Vallier, the doughty daughter of an innkeeper near the rural French town of Pin Bouchain, was a bold practitioner of surveillance pricing. Local legend has it that in 1814 Napoleon stopped at her inn and ordered an omelette. When presented with the surprisingly large bill, Napoleon asked whether eggs were rare in that part of France. “Eggs, sir? No. But emperors? Yes,” Vallier replied.

For centuries, this was the standard way of doing business. Prices depended on a buyer’s ability to haggle and Napoleon did not appear to be very good at it. Fixed and transparent pricing only emerged gradually after the Quaker John Wanamaker first introduced price tags at his store in Philadelphia in 1874.

But older practices are being reinvented in our algorithmic age. Travelling emperors in bicorne hats are easy enough to spot and gouge. But the vast amounts of personal information that data brokers systematically gather and sell today risk turning us all into unsuspecting Napoleons.

Like innkeepers, algorithms can calculate how able, ready or desperate we are to pay for a product or service, inferred from our location, behavioural, financial and demographic data. That sometimes works in a consumer’s favour; often it does not. We might enjoy receiving loyalty discounts at our favourite online grocery. But we would be angry if an airline suddenly hiked the fare because they knew we were attending a funeral.

Last month, the US Federal Trade Commission warned consumer companies against unfair or deceptive practices when offering personalised prices. “The higher price paid by a consumer due to personalised pricing may be a substantial injury,” it said. Although it admitted there was thin evidence for how pervasive the practice was, the commission promised to use all its existing tools to protect consumers.

Such tough talk from regulators is welcome. Decisive enforcement of fair trading laws would be even better considering how poorly they have defended antitrust principles this century. But one tricky challenge is knowing when consumers have been the victims of discriminatory pricing. Often their personal data is gathered and sold without their knowledge. Prices for exactly the same goods and services can fluctuate widely, even on the same day. Research by the think-tank Groundwork Collaborative found that the price of a carton of eggs offered by Instacart could vary by as much as 23 per cent (the company said its price testing service was not based on personal information and ended it). What is it about eggs?

Vigilant shoppers can use virtual private networks, private browsing, price comparison websites and AI agents to try to find the best price. But consumers should not have to haggle with a mighty machine. They have a right to expect the machine to operate fairly.

Amid the current cost-of-living furore, surveillance pricing is becoming an increasingly hot political issue in the US. Both state and federal politicians are itching to legislate. More than 40 bills have been introduced or passed in 24 states and cities this year to address the issue. The One Fair Price Act has already been passed by the legislature in New York, but is still awaiting signature by the governor Kathy Hochul.

It is not just Democrats who are banging this political drum. Some populist Republicans are, too. For instance, Josh Hawley, the populist Republican senator from Missouri, has denounced surveillance pricing as “one of the biggest scams in American history”. It incorporated the “unholy trinity” of everything Americans most hated: spying on people, ripping them off and taking away jobs. Last month, the Senate judiciary sub-committee that Hawley chairs heard expert witnesses on the subject. Action was now needed, he concluded, to protect the moral foundations of the economy.

Price discrimination, like technology, is neither good nor bad, but nor is it neutral. What is certain is that a massive information asymmetry exists between online sellers and buyers, which opens the door for abuse. Dynamic pricing, such as ride-hailing companies use to entice more drivers to the streets during peak demand, can be valuable for consumers. But surveillance pricing, which aims to extract the maximum profit from information imbalances, is not.

A federal privacy bill enshrining personal data rights would be the best consumer protection. But that seems as likely under the Trump administration as the president renouncing golf. In its absence, consumer groups, lawmakers and regulators should continue to press for prices that are fair and transparent. That is a modern principle worth defending.

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