ADRIAN MA, HOST:
Can businesses use your online data to overcharge you? The short answer is yes. It's a practice called personalized pricing - or, to critics, surveillance pricing. And it's been in the news after Delta Air Lines said it's using AI to set some ticket prices. Now, the airline says it does not engage in this practice, but that hasn't stopped some lawmakers from wanting to ban surveillance pricing. So in the meantime, how concerned should we be as consumers? Sam Levine is a senior fellow at the University of California, Berkeley School of Law and a former director of the Federal Trade Commission's Bureau of Consumer Protection, which recently investigated surveillance pricing. And Sam joins us now to talk about all this. Thanks for joining us.
SAM LEVINE: It's great to be here.
MA: To start us off, can you just describe - what is personalized or surveillance pricing?
LEVINE: Yeah. So surveillance pricing is when companies collect data from consumers, like their location data, their demographics, their internet search history, to set individualized prices. And the goal is to charge each person the most that they're willing to pay.
MA: And where does this data come from?
LEVINE: This data can come from all sorts of sources. Companies collect a lot of data from people directly, like what products they're looking at on a website, how they're sorting those products, where the location is. But companies can also get data from third parties like data brokers, which collect vast troves of data on American consumers.
MA: How does this translate into surveillance pricing? Like, can you give some examples of how this would work?
LEVINE: Sure. So most people by now are familiar with the idea, as you said, that when, you know, you're searching for shoes online, suddenly every website you go to, you start to see ads for shoes. And that's because a number of companies in the background have figured out that you're looking for shoes, and they want to serve you ads for shoes. Well, that same underlying data and that same underlying technology can be used to target you with prices in the same way it's being used to target you with ads.
MA: So if companies, hypothetically, have the ability and the technology to set different prices to different consumers for the same thing, how does that harm consumers?
LEVINE: What we know is that these third-party, so-called pricing consultants are telling companies that they can earn billions of dollars in additional revenue by collecting vast troves of data on consumers to try to predict the most that they're willing to pay. You know, a recent real-world example is Delta Air Lines. Delta told investors over the last few months that thanks to AI pricing, they were going to be able to stop matching competitors' fares. They were going to be able to predict - they called - this was called the Holy Grail - exactly how much each consumer is willing to pay. Now, since then, the company has tried to walk back those claims, but I think the reality of this business model is exposed. Surveillance pricing is about charging the most people are willing to pay, and that's going to mean higher prices for consumers.
MA: Are there other examples that give us a sense of how widespread this practice is?
LEVINE: I think the scope is big and getting bigger. The FTC study that we did and that we released some of the results from in January, just among the eight pricing consultants we looked at, they were working with more than 250 companies in industries ranging from grocery to hardware to apparel and more. I'll give you another recent example. Target was sued by a number of enforcers in California for raising prices on consumers in their app when the consumers were in the parking lot. And the idea, according to the lawsuits, was that Target didn't want consumers to know that they could get lower prices online when they were near a store, so they just increased the prices online.
MA: What would you say to some people who are a little skeptical that surveillance pricing really is the problem that people like yourself say it is?
LEVINE: Well, companies are certainly telling lawmakers that surveillance pricing is nothing to worry about, that it's all about discounts, that this is all about consumers saving money. But that's not what they're telling investors, and it's not what high-priced pricing consultants are telling companies. You know, the reality is companies innately (ph) are in the business of making money. They are not going to use expensive, sophisticated technology to lower prices on people.
MA: So as of now, do consumers have any recourse to try and avoid being singled out in this way?
LEVINE: Unfortunately, this is not an issue where consumers can protect themselves. The fact of the matter is, you know, people can take steps to better protect their privacy online. They can limit what they share. They can be mindful of what apps they download. But most of us rely on using digital services, and there's a whole market run by data brokers that has profiles on just about every single American these companies can use in order to set prices. So there's really not much that individual consumers can do. This really requires a response by policymakers.
MA: Well, on that note, how do you think this should be regulated?
LEVINE: We don't need to live in a world of one person, one price. We can do better than that. I think all states should pass surveillance pricing bans, especially if Congress doesn't act. We really have an opportunity to both protect people's privacy and protect affordability before it's too late. And I think the - you know, with Congress unlikely to act, this is a great opportunity for states to protect the public.
MA: We've been speaking with Sam Levine, senior fellow at UC Berkeley Law. Thanks for taking the time.
LEVINE: It's been a pleasure. Thanks for having me. Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.
