FTC Warns Businesses Against Using Personalized Pricing

Federal regulators are cautioning businesses to refrain from utilizing consumers' personal data to determine pricing, as they may be breaching the law. The Federal Trade Commission (FTC) issued an enforcement bulletin on this matter on Wednesday, urging public feedback. FTC Chairman Andrew Ferguson remarked, "When consumers encounter a listed price, they anticipate it to be uniform across all shoppers, not the retailer's assumption of their willingness to pay based on their personal data."

The FTC does not possess the legal authority to prohibit personalized pricing universally, but businesses that fail to disclose how consumer data influences price setting may be in violation of the FTC Act and other relevant laws. The commission contends that retailers suggesting a static price when it fluctuates based on the shopper are liable for misleading their customers.

Informed consumers might adopt strategies to evade higher personalized prices, such as employing a virtual private network or private browsing session, or altogether avoiding retailers practicing personalized pricing. The regulator added that the undisclosed use of personal data for personalized pricing could contravene the FTC Act, which prohibits unfair/deceptive marketplace practices.

Notably, personalized pricing differs from dynamic pricing, which adjusts according to market factors like holiday increases in airline ticket prices, without considering personal characteristics. The FTC's actions follow other states' attempts to curb personalized pricing. As of May, over 50 bills had been proposed in 26 states seeking to restrict or ban the use of AI and other tools to set personalized prices, particularly for essential items like food.

New Jersey enacted a law in May that prohibits businesses from charging different shoppers varying prices for identical products based on their personal information. Governor Mikie Sherrill, a Democrat, stated, "If businesses aim to compete, they should do so by providing superior prices, not by discovering new methods to exploit shoppers."

This law prioritizes New Jersey shoppers by safeguarding their privacy and ensuring fair pricing. The state's Republican lawmakers, however, contested the law, arguing that it endangers loyalty programs, discount apps, and member pricing. They emphasized that grocery stores do not increase the price of essentials like milk, eggs, and butter depending on the time of day; instead, they offer coupons when customers leave items in their virtual carts.