What Really Is Surveillance Pricing? The FTC Is Trying to Figure It Out

The use of artificial intelligence (AI) in a company’s work processes is not new. AI has automated, innovated, and optimized a business’s processes and outcomes. In recent years, tech firms and consultants have been touting “surveillance pricing,” offering companies the ability to set “personalized” prices online based on a customer’s ability or willingness to pay, rather than supply and demand. These algorithms and AI sift through heaps of data, including a consumer’s location, demographics, credit history, and browsing or shopping history and then categorize the individuals and set a specific and targeted price for products and services. This process ultimately maximizes profit.¹ On one hand, this is an example of efficient pricing, on the other, it may be seen as price discrimination.

As with many new profit maximization strategies, this practice has received the attention of the Federal Trade Commission (FTC). On Tuesday, the FTC issued orders to eight separate companies—aiming to determine how widespread surveillance pricing has become and to obtain information regarding their use of AI and historical and real-time customer information to target prices for individual consumers (the Orders).² According to the FTC, the Orders generally seek information about the potential impact these practices have on: (1) privacy; (2) competition; and (3) consumer protection.³

In issuing these Orders, the FTC is acting under its 6(b) authority, which authorizes the FTC to conduct wide-ranging studies that do not have a specific law enforcement purpose.⁴ The Orders were sent to:

• Mastercard;
• Revionics;
• Bloomreach;
• Task Software; and
• McKinsey & Co.⁵ 

The Orders seek information on four major areas:

Types of Products and Services Being Offered

The types of surveillance, pricing, products, and services that each company has produced, developed, or licensed to a third party, as well as details about the technical implementation and current and intended uses of this technology;

Data Collection and Inputs

Information on the data sources used for each product or service, including the data collection methods, the platforms and methods that were used, and whether that data is collected by other parties;

Customer and Sales Information

Information about whom the products and services were offered to and what those customers planned to do with those products or services; and

Impacts on Consumers and Prices

Information on the potential impact of these products and services on surveilled consumers.

Because these requests seek information which will be reported on an aggregate or anonymous basis, consistent with Sections 6(f) and 21(d) of the FTC Act, it might be challenging to obtain public information moving forward about the specifics of the FTC’s findings.

Though the FTC’s chief technology officer noted that the agency is just collecting information at this stage and that none of the entities who received Orders are being accused of any wrongdoing, any company who contracts with or otherwise does business with an entity who could be considered a member of these “pricing middlemen” should be mindful of this regulatory activity and ensure proper recordkeeping in the event they receive a similar order from the FTC.⁶

This inquiry may just be the tip of the spear into a broader inquiry of how retailers, and potentially manufacturers, may properly use pricing software without harming competition and consumers – triggering another investigation from the FTC.