The Center for Democracy & Technology (CDT) has highlighted the increasing use of data and algorithms in personalized pricing, also known as "bespoke pricing." This practice involves tailoring prices based on a consumer's identity, preferences, and situation. While some view this as a form of dynamic pricing with potential benefits, others criticize it as invasive and potentially exploitative.
Bespoke pricing isn't new; it has roots in industries like insurance and credit where prices are customized based on individual risk assessments. In broader terms, dynamic pricing adjusts costs according to supply and demand fluctuations, such as airline tickets priced differently based on purchase timing.
Historically, bespoke pricing can be traced back to ancient trade practices where merchants set prices based on their assessment of customers' willingness to pay. This mutual recognition continued into medieval markets where buyers could negotiate or compare prices among various sellers.
The Industrial Age introduced price tags in the 1870s at Philadelphia’s Grand Depot, marking a shift towards standardized pricing due to sellers' unfamiliarity with their customers. The internet era initially promised easier price comparisons for consumers but also enabled extensive data collection. This "big data" has shifted the balance back in favor of sellers who can now tailor prices more precisely while keeping their strategies opaque.
Proponents argue that bespoke pricing could enhance competition by allowing sellers to offer lower prices tailored to specific consumers’ situations. However, critics worry about potential collusion among sellers using vast amounts of consumer data to coordinate prices rather than compete.
Consumer advocates express concern that buyers remain uninformed about the context behind price settings while being fully visible to sellers through collected data. These insights allow sellers not only to identify consumers likely needing lower prices but also those willing to pay more, potentially leading to higher overall costs for many consumers.
To address these issues, the Federal Trade Commission (FTC) is studying bespoke pricing under its section 6(b) authority by requesting information from eight data intermediary companies. The results will inform policymakers about the practice's effects and whether new regulations or legislation are necessary.
Additionally, hearings in the Senate Committee on Banking, Housing, and Urban Affairs have scrutinized companies like Walmart and Amazon regarding their use of pricing algorithms.
Advocates like CDT propose stronger privacy laws to limit seller access to personal data used for setting prices. Another approach suggests using intermediaries or purchasing agents acting on behalf of consumers to restore anonymity during transactions.
Organizations like Consumer Reports could serve as purchasing agents due to their credibility and resources. They have experience with anonymous purchasing and agency services through initiatives like Permission Slip which helps consumers manage their online data privacy.
In conclusion, while bespoke pricing may bring some competitive benefits by offering lower prices selectively, its broader implications raise concerns about fairness and transparency in the marketplace. Ongoing investigations by FTC and legislative inquiries aim at addressing these challenges effectively.
