“This price was set by an algorithm using your personal data.”
That is the 11-word sentence at the center of a legal fight brewing in New York over the Preventing Algorithmic Pricing Discrimination Act, a new law requiring retailers to display the sentence as disclosure to shoppers when a price is set using personal data such as purchase history, online shopping carts, and zip codes—a controversial practice known as surveillance or personalized pricing.
The National Retail Federation filed a lawsuit against the State of New York last month after the law went into effect, claiming the warning is “misleading and ominous,” per the filing, and that the state “cannot force businesses that disagree to do so.
NRF General Counsel Stephanie Martz made an even bolder claim in an interview with Retail Brew: “We don’t think that the warning is factual,” she said. “We don’t think it’s accurate, and we think it’s really going to diminish customers’ trust in retail needlessly.”
When asked how the warning was inaccurate specifically, Martz emphasized again that the warning had an inherently negative connotation. “The suggestion is clearly that prices have been set,” she said. “Otherwise, why would the State of New York even have passed a law requiring a disclosure like that and didn’t think the practice was inherently negative.”
But does “inherently negative” equate to inaccurate? Lee Hepner, senior legal counsel for the American Economic Liberties Project, which is not involved in the lawsuit, argued that the “negative valence is not in the disclosure itself, but tethered to a very basic norm, which is that most people would be offended to hear they are paying at a different price for the same product than their neighbor or coworker.”
The New York Attorney General’s office did not respond to an interview request in time for publication.
Getting personal: The idea of surveillance pricing goes back to the 1970s, Hepner explained, when economists started exploring the possibility of “individualized price discrimination,” or setting prices based on a consumer’s personal willingness or ability to pay.
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He added that this idea challenged a norm going back over a century that consistent retail prices established a fair playing ground for consumers.
NRF’s argument denies that surveillance pricing is being used to discriminate between consumers, or even raise prices for that matter. Indeed, that is the opening salvo of its complaint: “Retailers use algorithmic pricing to help customers save money.”
“We’re not talking about raising prices in an unfair or opportunistic way,” Matz said. “There are actually already laws against some of those practices, like price gouging.”
The suit claims algorithmic pricing is actually bringing down prices in the aggregate, because it helps companies be more responsive to shifts in supply and demand, and thus better reflect market conditions.
Blame game:To the extent that there is a public perception problem, Martz blames regulators: “I think part of the reason there’s a public perception issue is that regulators have gone out of their way to make this a public perception issue.”
She cited the example of a January Federal Trade Commision report that, in her view, painted surveillance pricing as an “inherently bad or concerning practice.”
“Initial staff findings show that retailers frequently use people’s personal information to set targeted, tailored prices for goods and services—from a person’s location and demographics, down to their mouse movements on a webpage,” then–TC Chair Lina M. Khan said in a statement on the report.
The topic quickly became political. One week after the outgoing Biden administration released these preliminary findings along with a request for information, the newly Trump-appointed FTC Chair Andrew Ferguson closed out public comments.
Hepner, however, said the onus is on retailers and proponents of surveillance pricing to address any negative perception, whether that perception originates with lawmakers and regulators’ public efforts or with consumers’ basic sense of fairness.
“Godspeed to them in their effort,” he said.