Regulators Move to Restrict Algorithmic Pricing

In the Internet age, data is everything. Data is tracked, collected, and sold regularly. Advertisers often use this data to target demographic groups and conduct market research. However, the lengths to which companies can tailor their products and pricing, using data, are under scrutiny. Algorithmic or “surveillance” pricing is a controversial practice where data is used to adjust prices based on an individual or group’s demand elasticity. Several states have taken to restricting or banning the practice. A recent Faegre Drinker memo outlines regulatory movement at the state level:

“Due to increased media coverage and interest from the FTC, over 20 state legislatures have introduced legislation that addresses or bans surveillance pricing for at least some industries. While several bills, such as Illinois Senate Bill 2255 and California AB 2564, ban the use of surveillance pricing in all industries, other proposed statutes focus only on essential goods and services, such as groceries.”

States aren’t the only ones taking notice. Lawmakers at the federal level put forward several bills to restrict algorithmic pricing:

“The Stop AI Price Gouging and Wage Fixing Act (H.R. 4640) and the Stop Price Gouging in Grocery Stores Act (H.R. 4966) propose significant federal restrictions on the use of surveillance and dynamic pricing technologies in retail grocery stores and in setting wages. Under the Stop AI Price Gouging and Wage Fixing Act, individuals, partnerships, corporations, and other entities would not be allowed to engage in “surveillance-based price setting” based on personal information, genetic information, behavior, or biometrics of an individual or of a group.”

The inherent feeling of unfairness evoked by algorithmic pricing is galvanizing constituents. That is pushing representatives to move for regulation. While some of the proposed laws would see the practice banned outright, others restrict it only in certain sectors, such as groceries, or require disclaimer language on algorithmically set prices. This area of technology will likely see a patchwork of state and federal laws in the foreseeable future. Companies using such technologies need to keep up on compliance as well as consider the legal and reputational risks of these practices.