FTC targets hidden personalized pricing

The Federal Trade Commission told companies using personal data to set individualized prices that they must inform consumers about the practice. The agency released a bulletin on Wednesday, requiring businesses to explain when they rely on detailed consumer information like browsing history, location, or shopping behavior to create personalized price offers.

While the FTC cannot ban personalized pricing under its current authority, it will enforce disclosure requirements. The move addresses automated pricing systems, including those using AI, which adjust offers in real time based on a user’s data profile.

How companies use data to set prices

This pricing method differs from traditional discounts for groups like students or seniors. It instead tailors prices to individuals by analyzing data such as device type, past purchases, or whether a customer has competing apps installed. A ride-share service might charge more if it detects a user doesn’t have a rival app on their phone.

Food-delivery platforms were cited as another example, where prices could vary based on location or browsing habits. The practice has expanded as retailers gather more data through websites, apps, and connected devices, making it easier to estimate what someone might pay.

Some believe the approach takes advantage of vulnerable shoppers. Earlier research found that companies could charge higher prices to those unfamiliar with a market, such as first-time car buyers or new parents. The agency has not released a full report on its findings, and the study faced criticism from Republican commissioners.

Instacart faced scrutiny in 2023 after testing personalized pricing in four cities, where different users saw different prices for the same items. The company said the tests were meant to help retailers understand preferences but ended them after backlash. Critics, including Sen. Elizabeth Warren, have called the practice a way for companies to extract more money from consumers.

Though the FTC’s bulletin doesn’t ban the practice, it marks a push for greater transparency. The agency acknowledged that consumers can suffer harm when they pay more without knowing their personal data influenced the price. As these systems grow more advanced, the commission noted, consumers are less likely to benefit.

States take stricter measures

Some states have imposed tougher rules. New York now requires companies to disclose personalized pricing, while Maryland has banned algorithms from adjusting food prices at the individual level. The federal warning remains narrower, focusing on disclosure rather than prohibition.

Consumer advocates argue the agency’s action is insufficient. Nidhi Hegde, executive director of the American Economic Liberties Project, called the move “two years too late and not nearly enough.” The FTC admitted it doesn’t know how widespread the practice is, but its bulletin makes clear: businesses using personal data to set prices must now inform customers.

The agency’s authority remains limited without new legislation. Its ability to regulate the practice will depend on enforcement of existing rules. The warning may still prompt some companies to reconsider how they use consumer data—or at least how much they reveal about it.

Public concern over data-driven pricing has grown alongside broader unease about AI advances.