US FTC Investigates Impact of AI-Powered Dynamic Pricing

The U.S. Federal Trade Commission demanded information from a clutch of firms that advertise their ability to match consumers with prices through artificial intelligence, dubbing the practice “surveillance pricing.”

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The enforcement agency on Tuesday ordered eight companies to respond to a series of questions about the data sources and algorithms used to supply retailers with data models that allow them to set prices based on individual traits. Those factors include customers’ location and demographic characteristics, their purchase and return history and even their online browsing behavior.

Companies issued an FTC demand – the rough equivalent of a subpoena – include Mastercard, Revionics, Bloomreach, JPMorgan Chase, Task Software, PROS, Accenture and McKinsey & Co.

The internet-driven explosion of digitized consumer data has led to years of warnings that retailers set prices according to consumers’ willingness to pay – a practice an Organization for Economic Co-operation and Development paper in 2018 says can “promote innovation and rent-seeking behavior” while warning of its potential for “dampening trust in digital markets.”

Pricing algorithms have drawn mounting ire from Democratic policymakers, including Senate Banking Committee Chair Sherrod Brown, who during a May hearing said, “It’s clear that in the long run, dynamic pricing leads to higher prices.”

In a Tuesday statement, FTC Chair Lina Khan said that firms could be using digitally gathered personal data to charge higher prices.
“Americans deserve to know whether businesses are using detailed consumer data to deploy surveillance pricing, and the FTC’s inquiry will shed light on this shadowy ecosystem of pricing middlemen,” she said.

The order seeks information on the types of products and services each company has produced, developed or licensed to a third party, along with how they have implemented the product and what its current and intended use is. The targeted companies must also furnish details on the data source they use for each product or service, including data collection methods and platforms and whether the data was collected by third parties.

The agency also demanded information on the target audience for the surveillance pricing products and what those customers plan to do with the services. It wants to know the potential impact the products and services could have on surveilled consumers, including the prices they pay.