Imagine two people going through the checkout at your local big box store. They pick up the exact same product and scan it at the exact same time. One pays $10. The other pays $14.
The price difference isn’t due to a coupon or membership in the store’s loyalty program. Instead, it comes from something called “surveillance pricing,” an emerging way of pricing products based on an algorithm powered by AI or other data-processing techniques. With surveillance pricing, the store sets custom prices based on the information it has about you. This might be where you live, what you bought in the past, your financial status, travel habits, or affiliations. Basically, the store gauges what you’re willing to pay, and then charges you that much.
A recent Colorado bill would have banned companies from using surveillance pricing for consumer goods and wages. However, Colorado Governor Jared Polis vetoed it. This is actually the second time in the last 12 months that he’s blocked a bill to ban a consumer protection law targeting algorithmic pricing. (He’d previously blocked a bill that restricted the use of rent-setting software.)
What Was Colorado House Bill 26-1210 Trying to Ban?
The bill was introduced by democratic lawmakers Javier Mabrey and Jennifer Bacon. If it hadn’t been vetoed, House Bill 26-1210 would have prohibited companies from using personal data and algorithmic systems to set individualized prices for consumers or individualized wages for workers. It was written to prohibit discrimination against a consumer or worker resulting from the use of a price or wage setting algorithm (PWSA). That’s an algorithm that uses statistical modeling, data analytics, artificial intelligence, or other data processing techniques to analyze surveillance data.
There were some exceptions outlined in the bill for certain discounts tied to loyalty programs and transparent markdowns for students and senior citizens. The bill also listed things that are not considered use of a PWSA. These include publicly disclosed pricing based on membership in a broadly defined group, like teachers, or for people who buy in bulk, or pricing based on factors such as delivery distance.
Colorado Governor Jared Polis Said the Bill Was Too Broad
In an open letter, the Colorado governor explained that his price concerns stemmed from the breadth of the bill. In his view, the bill was broad enough that it applied to “any technology that incidentally influences a price or wage amount. Because of that broad sweep, the bill would punish differentially lower prices, not just higher prices.” He added, “In practice, this means that many Coloradans won't get discounts on items they buy if I were to sign this.”
Instead, the governor said that he is advancing a policy to specifically target clearly egregious price-gouging practices such as when a natural disaster occurs.
Consumer advocates were not happy with the veto. Some accused Gov. Jared Polis of siding with corporations over the everyday people of Colorado. Consumer groups worry that surveillance pricing will be used to force consumers to pay the highest price they can tolerate for items they buy in stores, and work for the lowest wages they’ll accept.
A Growing List of US States Are Considering Banning Surveillance Pricing
Colorado’s bill is part of a wave of concern over surveillance pricing. More and more states are considering or in the process of implementing bills that would limit its use. These include California, Massachusetts, and New Jersey. New York is also banning surveillance pricing. A bill called the One Fair Price Act bans surveillance pricing while protecting coupons, promotions, and discounts.
These actions are important because surveillance pricing isn’t just a concept. It’s probably in use more than you think. A Consumer Reports investigation found that Instacart consumers were shown very different prices for items, including some items that were as much as 23% more expensive for one buyer than another. And in Minnesota, a local news investigation found that consumers were shown higher prices in the Target app when they were in or near a store to match in-store prices. (Target says it’s changing its app based on those findings.)
For Colorado lawmakers, it’s back to the drawing board. But similar debates nationwide show that surveillance pricing is an issue far from settled.
