FTC Launches Probe into Surveillance Pricing Practices

The Federal Trade Commission (FTC) has initiated an investigation into eight companies over concerns about the use of surveillance pricing, a practice that could significantly affect consumer costs and market fairness. This investigation is targeting eight firms:

• Mastercard
• Revionics
• Bloomreach
• JPMorgan Chase
• Task Software
• Pros
• Accenture
• McKinsey & Co

All of these companies have been identified as employing advanced technologies like AI to customize prices for individual consumers based on personal data.

Surveillance Pricing vs. Dynamic Pricing

Surveillance pricing differs from dynamic pricing, a strategy commonly used by companies like Amazon, ride-sharing services, and airlines.

While dynamic pricing adjusts costs based on broader market factors such as demand fluctuations, surveillance pricing delves deeper into individual consumer data, including precise location, shopping habits, and even browsing history.

This practice can lead to individualized pricing, potentially putting certain consumers at a disadvantage by charging them more based on their specific data profiles.

The FTC’s Concerns and Goals

The FTC’s probe, leveraging its 6(b) authority, seeks to understand the extent and impact of surveillance pricing practices. The agency has issued orders to the involved companies, requesting detailed information on several key areas:

• Types of Products and Services: The nature of the surveillance pricing technologies, including their development, implementation, and intended use.
• Data Collection and Inputs: Methods and sources of data collection, including whether the data is collected by third parties.
• Customer and Sales Information: Details on the customers using these technologies and the purposes for which they employ them.
• Impacts on Consumers and Prices: The potential effects on consumers, particularly regarding the prices they pay due to these practices.

Impact on Businesses and Consumers

This investigation raises significant questions about transparency and fairness in pricing strategies.

If the FTC determines that surveillance pricing unfairly exploits consumer data, it could lead to stricter regulations and oversight, impacting how businesses, especially those in retail and online markets, operate.

According to CNBC, Mastercard and Bloomreach have already expressed their intention to cooperate, while some argue that such data-driven approaches can ultimately benefit consumers by optimizing prices.

Implications for Amazon and Sellers

While the current probe focuses on surveillance pricing, it also echoes issues around dynamic pricing, a practice Amazon extensively uses.

Back in March, the Commission raised significant concerns about the use of algorithms in setting prices, emphasizing that such practices could potentially violate federal antitrust laws. 

This warning, reinforced by a recent FTC blog post, Price fixing by algorithm is still price fixing, and a joint Statement of Interest filed with the US Department of Justice (DOJ) in a related legal case, highlights the scrutiny algorithms face when they influence market pricing. The focus on algorithms, as seen in cases like Duffy v. Yardi Systems, Inc. and In re RealPage, Inc., centers around allegations of price fixing—where competitors allegedly use shared algorithms to set or influence prices, thereby undermining competitive market dynamics.

In May, US Senator Sherrod Brown also launched his own inquiry into the use of dynamic pricing algorithms by Amazon and Walmart, highlighting concerns over potential price gouging and unfair pricing practices.

Senator Brown’s letter to Amazon CEO Andy Jassy outlines specific questions that, depending on the responses, could lead to further regulatory actions:

• Fair Price Determination: How Amazon defines and ensures fair pricing.
• Data Use: Detailed information on the data used in pricing algorithms, including customer data.
• Price Change Triggers: The factors that trigger price changes.
• Non-Discrimination Measures: Steps taken to prevent discrimination based on protected classes.
• Consumer Communication: How Amazon communicates price changes to consumers and helps them plan for purchases.

If the FTC or the Senate decides to scrutinize dynamic pricing practices further, Amazon could face new regulatory challenges, especially if their pricing strategies are found to lack transparency or fairness.

For instance, the eComm giant could be exposed to lawsuits similar to those in the Duffy v. Yardi Systems, Inc. case, where pricing algorithms led to allegations of price fixing.

This could prompt a reevaluation of how pricing algorithms are deployed, potentially affecting both consumer trust and competitive dynamics on Amazon.

The FTC’s investigation underscores a growing concern about the ethical and practical implications of using personal data in eCommerce. As AI continues to evolve, the balance between innovation and consumer protection remains a critical focus for regulators and businesses alike.

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