US Senate Judiciary unpacks potential paths to address surveillance pricing

Members of the U.S. Senate Committee on the Judiciary's Subcommittee on Crime and Counterterrorism warned that the use of so-called surveillance pricing could have harmful ramifications for consumers.

Retailers, airlines and digital platforms are stepping up AI-fueled personalization, using a combination of algorithms and behavioral data to charge consumers different prices for the same item.

The pricing schemes are stirring concerns over consent agreements and sufficient transparency around data collection and use, while conversely, some stakeholders highlighted personalized pricing as improving efficiency and broadening access to certain products for more "price-sensitive" consumers.

During the subcommittee's 4 Aug. hearing, Sen. Josh Hawley, R-Mo., argued the use of surveillance pricing "is the unholy trinity of everything Americans hate: spying on people, ripping them off, and taking away jobs." He characterized the practice as "one of the biggest scams in American history" due in large part to the "complicated algorithms" that companies leave "totally opaque and unavailable to you."

States fill the gaps

Senate discussions took place in the face of a growing network of state-level rules around surveillance pricing practices.

Connecticut amended its comprehensive privacy law this year to ban all retailers from rolling out surveillance pricing. Maryland and New Jersey enacted legislation to prohibit grocers from rolling out pricing schemes. New York has existing requirements for surveillance pricing disclosures that will transition to an all-out ban if Gov. Kathy Hochul, D-N.Y., enacts a 2026 amendment bill.

Sen. Richard Blumenthal, D-Conn., said states without existing statutes could turn to consumer protection laws before passing new targeted legislation, but, he would prefer an overarching federal standard to rein in practices.

"We have an affordability crisis, and we ought to be doing something about the use of AI, regardless of what the retailer says is the goal," Blumenthal said. "We need a federal law. We need federal standards. We need national safeguards."

American Economic Liberties Project Senior Counsel Lee Hepner fleshed out other examples of state-level laws tackling pricing practices. He cited a class-action lawsuit against JetBlue that claimed the use of tracking pixels to collect consumer data for personalized pricing violated the Electronic Communications Privacy Act and the New York General Business Law.

While noting there are laws to prevent potential discrimination, Hepner said, "a lack of clarity" exists "in laws that evolved during a period of history when individualized price discrimination was thought impossible."

"Companies have interpreted that lack of clarity as a green light to entrench surveillance pricing," he added.

Privacy in focus

Pricing schemes present a double-edged sword. On one end, they can improve operational efficiency and support promotional pricing. Conversely, personalization can trigger rapid price changes and reduce predictability.

Massachusetts Institute of Technology Digital Fellow and former Visa Chief Data Officer Robert Hedges said consumer shopping history, loyalty programs, payment information, devices and browsing behavior could be used to dictate how much they will pay for certain items.

Companies use consumer data profiles to estimate a "willingness to pay" before incorporating the data into pricing strategies.

"No consumer would willingly supply personal data to third parties to be used against them," Hedges said during his testimony. "If a consumer was informed the data was being collected on them, their shopping and purchase patterns to be used in pricing models that sought to maximize retailers' profitability, the consumer would most certainly say, 'no,' which is probably why consumers are never asked."

He noted organizations should implement clear disclosures and consumer guidance around their use of data for advertising purposes and provide consumers with transparent consent agreements before using behavioral data for personalized pricing.

The case for vast data collection and use to support pricing practices is made more difficult when there is no guarantee it will translate into business gains.

"Firms don't always gain from personalized pricing," University of Pennsylvania Wharton School Professor Z. John Zhang told the subcommittee. "Research shows that it can intensify competition and reduce profits. The firms that are most likely to benefit from personalized pricing are those with higher quality products, stronger brands, and more loyal customers."

Sen. Hawley said the government must work toward a regulatory solution and "give consumers, working people and families in this country rights against this kind of surveillance and exploitation."

"If we don't do that, the basic foundations, the moral foundations of our economy and of our country will be devastatingly eroded," he added.