FTC Investigates Surveillance Pricing Practices

On 23 July 2024, the Federal Trade Commission (FTC) issued orders to eight companies to provide comprehensive information on their surveillance pricing practices. The companies involved are Mastercard, Revionics, Bloomreach, JPMorgan Chase, Task Software, PROS, Accenture, and McKinsey & Co. This investigation focuses on understanding how these firms utilize personal data, such as browsing history, credit scores, and other demographics, to set individualized prices for goods and services.

Context and Purpose

The FTC’s initiative aims to scrutinize the opaque market of surveillance pricing, where companies use advanced algorithms and AI to exploit personal data for pricing strategies.

According to a blog post on the background to this study, the FTC aims to:

 

1. 1. Understand Surveillance Pricing Mechanisms: Investigate how companies use personal data to fuel their pricing algorithms and identify the sources of this data.

1. 1. Identify Key Players: Focus on intermediary firms that enable surveillance pricing, examining their technical methods and the data pipelines involved.

1. 1. Assess Consumer Impact: Determine the effects of surveillance pricing on consumers, including the types of data used and how it influences the prices they pay.

This investigation leverages the FTC’s 6(b) authority, which allows for wide-ranging studies without specific law enforcement purposes. The goal is to comprehend the implications of these practices on consumer privacy, market competition, and protection from unfair pricing.

Specifications and Requirements

The FTC’s orders require the companies to submit a Special Report detailing various aspects of their surveillance pricing solutions:

1. Types of Products and Services: Each company must list all User Segmentation Solutions and Targeted Pricing Solutions developed, produced, or licensed. This includes detailed descriptions of the intended uses, technical approaches, features, data inputs, and promotional materials.
2. Data Collection and Inputs: Detailed information on internal and external data sources used, data collection methods, platforms used for data collection, data retention periods, and oversight mechanisms for data sources. Companies must provide a complete data map and explain the use of each data field.
3. Customer and Sales Information: Annual aggregate sales data, customer lists, and details of contracts and service agreements with major clients. Companies must describe contractual limitations on the use of their solutions and the enforcement of these limitations.
4. Impacts on Consumers and Prices: Analysis, reports, studies, and surveys evaluating the effects of User Segmentation and Targeted Pricing Solutions on pricing, sales volume, and consumer segmentation.

FTC Chair Lina M. Khan emphasized the potential risks, stating, “Firms that harvest Americans’ personal data can put people’s privacy at risk. Now firms could be exploiting this vast trove of personal information to charge people higher prices.” The FTC’s inquiry aims to illuminate these practices and protect consumers from potential exploitation.

The orders stipulate that the companies must:

• • Submit responses within 45 days of the service date.

• • Ensure the Special Report is prepared or supervised by an official who can verify its accuracy.

• • Schedule a teleconference with FTC representatives within 14 days of receiving the order to discuss their response.

• • Provide all responsive documents in electronic or hard copy format, accompanied by detailed metadata and indexes.

 

 

The topic of pricing discrimination has been discussed under EU law especially under Art. 22 GDPR (fully automated decision making). Here are some recommended readings on this:

• Price Discrimination, Algorithmic Decision-making, and European Non-discrimination Law by Frederik Zuiderveen Borgesius (at SSRN) – see also the accompanying blog post here.
• Affinity-based algorithmic pricing: A dilemma for EU data protection law, by Zihao Li (at Science Direct)
• A special price just for you: effects of personalized dynamic pricing on consumer fairness perceptions, by Anna Priester, Thomas Robbert & Stefan Roth (at Springer)