I recently bought plane tickets for a family trip. My brother texted me a link to the flight, which cost around $150 a seat. But when I went on my laptop to book for myself, my husband, and our toddler, the price suddenly jumped by an extra $100 per person.
I called the airline; surely this could be resolved? But when I finally got a human on the phone, she told me that they only had a limited number of seats for sale at the cheaper price. I could buy the last one available for that amount (thanks?), but the additional two would cost more.
I was annoyed, to put it mildly. But I was also stuck. My parents and brother had bought their tickets already, and there were no other flight options at similar times. I begrudgingly went through with the purchase, forking over several hundred dollars more than I originally planned. You feel sorry for me, I know.
Watching the cost of something you want (or worse, need) change before your eyes is both enraging and increasingly normal. Blame dynamic pricing, the practice of increasing a price to take advantage of higher demand. Dynamic pricing is not new, of course; corporations have always been greedy, and they want to sell goods and services for the highest amount that customers will spend before they get fed up and walk away. But in recent years, the practice has taken a more pernicious turn as companies like Target, Wendy’s, Home Depot, and countless others harness technology and consumer data to ratchet up prices when people seem more likely to pay them (or offer discounts when they aren’t). Enter personalized pricing, dynamic pricing’s creepier cousin, which offers different rates to individuals based on their spending habits, location, demographics, credit history, and other data (this is also known as “surveillance pricing,” which is probably a more accurate term).
Most of us are accustomed to surge pricing in rideshare apps and “high season” costs for hotels; conversely, we know that certain things are cheaper or discounted when demand is lower. But what if these pricing strategies go a step further? What if Uber charges you a higher rate when your phone battery is low and you’re more desperate to get home, or if you’re going to a more expensive neighborhood? What if, in shopping for plane tickets, I was pigeonholed by an algorithm that determined I might be willing to pay more because my family members were already on the same flight? Or the algorithm knew I had recently gotten a paycheck and could technically afford the higher price?
There’s a line between what’s fair game and what feels predatory, intrusive, and exploitative. But right now it’s hard to see. Last week, the Federal Trade Commission ordered eight companies that offer surveillance pricing products — including Mastercard and JPMorgan Chase — to share more information about how it works. “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,” said FTC chair Lina Khan.
Of course, inquiries like these take months, if not longer. In the meantime, how can the rest of us recognize dynamic pricing when it’s happening — which is most of the time — and what can we do about it? I spoke to some experts to learn more.
Dynamic pricing has always existed, to some degree. But why does it seem so much worse now?
Corporations have had the technology to roll out more highly targeted pricing models for many years, says Lindsay Owens, the executive director of the Groundwork Collaborative, a Washington-based economic policy think tank. But until recently, they mostly didn’t use it because they feared consumer backlash. One example: In the ’90s, Coca-Cola considered putting thermometers on vending machines so that soda prices would go up on hot days, but customers were so enraged by the idea that the company quickly scrapped it.
What has changed? For one thing, e-commerce enables companies to be sneakier. “If you and I are shopping at the same Walmart store and we can see that the digital price tag right underneath the loaf of bread is changing every minute, you’re going to be mad if you wind up paying more than me,” says Owens. “But if you’re shopping online, or if you’re buying everything on an app and then picking up your stuff at the store, you have no idea that you paid more.” When customers are more isolated, they’re less price-sensitive. On Amazon, prices change constantly and most people barely notice.
Another factor is that some companies took advantage of inflation and supply-chain disruption to shake up their pricing models. “During the pandemic, as prices were going up everywhere, it provided this perfect opportunity for companies to finally roll out these new pricing technologies that had been collecting dust for years prior,” says Owens. “I think one of the big reasons that consumers are so mad right now is that there’s been this confluence of inflation and pricing tricks and traps everywhere.”
At its core, dynamic pricing feels unfair because it’s untethered from the cost of the product itself. “There’s a sense that a tangible good should be priced in a transparent way, based on how much it costs to produce and sell it, plus a profit,” says Owens. “And when firms start to play around with that profit, in a way that’s unmoored from the underlying costs of the product, people find that frustrating and unacceptable.”
How much of this is legal?
Surveillance pricing is relatively new, and there are no federal laws that explicitly ban it. But the FTC has broad authority to regulate “unfair and deceptive acts and practices” that affect commerce and — as mentioned above — is starting to crack down. (It’s worth noting that discriminatory pricing is illegal for certain types of goods; you cannot charge a Black family more for a mortgage than you would a white family with similar qualifications, for instance.)
What’s more, most states have laws against price-gouging, especially after natural disasters and public-health emergencies. But the biggest incentive for businesses to be up front about their pricing — and for lawmakers to enforce it — is that consumers deserve to make informed decisions about what they’re buying, says Owens. “I think it is broadly popular that companies should be transparent about how they price things, and if you’re being served a personalized price based on your data.”
What kind of information might companies use to determine what you’ll pay for something, as an individual?
It’s hard to say for sure, as these practices remain pretty shady. But anytime you check a box agreeing to terms and conditions on a website, you can assume that whatever you browse or buy is being monitored, recorded, and monetized in some way, says Owens. One example of personal information that companies might use: The travel site Orbitz directed customers to more expensive hotels if were using Mac computers to search for them. In another case, The Princeton Review charged higher rates for SAT tutoring packages in certain Zip Codes, particularly — brace yourself — ones with larger Asian populations. If you use apps for certain retailers or services, you can assume that those apps are tracking your other phone activity too, and using it to predict what you might be willing to buy (and what you’re willing to pay for it).
Are there any ways to game the system, make dynamic pricing work in your favor, or at the very least protect yourself from being upcharged?
Technology may have facilitated Big Brother pricing, but it also provides tools for consumers looking for deals, says Sara Rathner, who covers dynamic pricing for NerdWallet. She recommends Honey, an app and browser extension that finds existing coupon and discount codes for items you want to buy. There’s also Camel Camel Camel, which monitors Amazon prices and tracks the best time to make purchases. Retailer apps and loyalty programs are usually a good way to get better prices, she adds, even if they are capturing your data in the process.
To be fair, dynamic pricing can work in your favor too. It doesn’t necessarily force everyone to pay more; Rathner points out that it can help people pay less, especially if they’re willing to be patient and strategic. There’s a reason why coats are on sale in July: People are less interested in buying them, so the price goes down.
If you want to go further upstream and try to protect your data, it’s worth clearing your cookies regularly, which can limit some digital tracking. But it’s also pretty unrealistic to try to coupon-clip your way out of this, says Owens. “The answer isn’t to teach everyone how to beat the machine,” she says. “The answer is to set rules of the road, through good policy, so that the machines are more fair.”
Finally, if you suspect you’ve been targeted by surveillance pricing, ask a friend to look up a price on their computer or phone — comparison shopping from different IP addresses can usually ferret out pricing inconsistencies. Then, speak up. “Aside from policy and law, consumer backlash has actually been a pretty effective deterrent to some of these behaviors,” she says. Ultimately, companies are trying to make money, and that depends on a different kind of currency: customer loyalty and trust.
Email your money conundrums to mytwocents@nymag.com (and read our submission terms here.)
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