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Have you ever shopped around online to find the best possible deal, clicked the checkout button, walked away smug at your sleuthing – only to find someone else got the same thing from the same place for an even cheaper price?
This is the result of personalised pricing: also known as “dynamic pricing” or “price discrimination”, depending on who you ask. By collecting data about your habits online, and employing algorithms to analyse that data, businesses can charge you what they predict you are willing to pay for their goods and services. The catch is, this is not always the same as the lowest price they are willing to sell for. It may even be above the market value of the thing you’re buying.
The example you might be most familiar with is air fares. Two people sitting next to each other on the same flight could have purchased their tickets on the same day, with the same fare conditions, but one might have paid more – sometimes significantly more – than the other.
But it doesn’t just happen with air fares. These days, just about anything you buy online could be susceptible to this type of pricing. As you shop around, businesses can collect data about you, then employ sophisticated analytical tools to ensure you may never actually get the lowest available price.
So is it even worth it to shop around online for deals? The answer is complicated.
Dr Rob Nicholls, an associate professor of regulation and governance at UNSW Business School, says that dynamic pricing has precedent. “Before about the 1870s, almost all prices were set by negotiation,” he says. “To quote Life of Brian, ‘You’re supposed to haggle!’” The price tag was invented in the late 19th century, “and only when it was widely adopted did the price charged deviate much from what the merchant thought the customer could afford to pay”.
Dynamic pricing, in its most benign form, is a product of competitive markets, where businesses respond to demand, changing the price based on how many people want a product at any given time, and how many are available. Businesses also compete for customers, so may offer lower prices to gain a competitive edge.
Nicholls says airlines have been using dynamic pricing since the 1980s, and hotels adopted the practice in the early 2000s, “but it was only the major chains that had sufficient data”.
“However, the growth of online sales has created a much greater scope for dynamic pricing and, consequently, the risk of personalised pricing or price discrimination,” Nicholls says.
Skip forward to 2022, add in big data and algorithmic decision making, and you’ve got prices that change by the second. And rather than in response to supply and demand, they can fluctuate based on the unique habits of the customer who’s doing the buying. This can have perverse impacts on consumers.
With the granular, individual data they use, a business can ensure they’re selling their goods and services at the maximum price they know a customer is willing to pay, without the customer even knowing it is happening.
For instance, if you’re shopping around for an air fare, and enter the same search for flights to the same destination on the same travel dates on multiple occasions, airlines can use this information to charge you more. Nicholls says this type of price discrimination is based on “your perceived need to travel on specific dates. The more inquiries that you make using a specific set of dates, the higher the perceived willingness for you to pay for those dates.”
Dodging personalised pricing
In Australia, price discrimination is legal, so long as it doesn’t cross the line into actual discrimination – for instance, a retailer setting higher prices for people due to gender, disability, race, age, or other protected characteristics.
So is there anything you can do to protect yourself from price discrimination? Nicholls says when shopping around online, “the best way to avoid price discrimination is to avoid leaving ‘digital breadcrumbs’. Use ‘private mode’ on your browser when searching, or use a search engine that does not optimise advertising [such as Duck Duck Go].”
You can also use intermediary sites that aggregate product deals and find the lowest price for you. “[But] don’t sign in to comparison apps or sites until you have the pricing that you are prepared to pay,” Nicholls says. And always, always, clear your cookies.
Nicholls says you can also play the “name and shame game” if you feel like you’ve been targeted with price discrimination. “Inform everyone you know,” he says. “That reputational risk issue is really important to businesses.”
While it’s not the consumer’s job to do the legwork in keeping businesses accountable, awareness and dialogue is an important first step in drawing attention to these opaque business practices.
Rent-seeking and simple fairness
Watchdog group Euroconsumers notes that “personalised pricing is not inherently harmful to consumers”; however, because personalised pricing is “invisible to consumers”, they are put at “a double disadvantage”.
Consumers are not only targeted by an opaque analytic process, they are unable to shop around in a meaningful way. “The end of any kind of standard or expected pricing is highly significant … and is almost impossible to spot on an individual level.”
The OECD has also expressed concerns that price discrimination can result in “rent-seeking” in monopolised markets – that is, businesses with little competition increasing the amount they charge to fit the price consumers are willing to pay. Rent-seeking maximises business profits, without adding any extra value for consumers.
Simple fairness is at stake too. Is it fair to charge people differently based on their online behaviour profile?
Ultimately, the more businesses rely on data and personal information to increase profits, the greater the urgency for regulatory and legislative reform to protect consumers from the impacts of an ever-widening power imbalance.