Price Gouging, Now Personalized Thanks to Surveillance Pricing and Collusion
With Democrats becoming more assertive in their embrace of socialists such as Bernie Sanders and Zohran Mamdani, the abundance and prosperity we enjoy in a free-market economy are under threat. (RELATED: At What Point Do We Stop Tolerating Bernie Sanders?)
But free market capitalism is also threatened by the corporate embrace of unscrupulous business practices. There is a disturbing modern management philosophy that seeks to financialize all aspects of a business’s operations by mining every possible dollar from each customer engagement. This may produce short-term gains, but it destroys long-term brand equity, and more importantly, it erodes consumer trust. By treating customers as prey, unethical executives are providing ammunition to the enemies of free markets.
A particularly nasty method of revenue-mining customers is the use of “surveillance pricing.” Back in the pre-digital era, customers walked into a store and simply bought a product for the posted price. In the digital era, however, customers’ preferences, spending habits, and price resistance are made available to merchants. Unlike “flex pricing,” in which there is different pricing based on the time of day or distance involved in fulfilling the order, we are starting to see examples of pricing being tailored to a specific consumer based on what an algorithm calculates that specific customer is willing to pay.
As documented by Consumer Reports a few months ago, and then reported more broadly, consumers using Instacart to purchase groceries at chains such as Target, Costco, and Safeway were subject to “algorithmic pricing.” The price charged to a specific customer was determined by how sensitive the algorithm determined the customer was to higher prices. If two customers were buying the exact same item at the exact same time, they were charged a different amount. Consumer Reportsperformed an experiment in which online shoppers concurrently ordered identical baskets of groceries. The price of that basket of groceries varied from $114 to $124.
Surveillance pricing is also much different from loyalty programs, which provide customers with cheaper pricing if they are loyalty members or for bulk purchase discounts. In those situations, all customers still have access to the same pricing. With surveillance pricing, however, the price a consumer is charged is based on his online digital shopping patterns. With strong consumer and political backlash, Instacart soon suspended its algorithmic pricing. What’s disturbing is that the moral compass in some corporate executive suites is so defective that this practice was allowed to occur at all.
JetBlue recently found itself in a similar PR nightmare, as it seemingly acknowledged that it prices airline tickets based on a customer’s internet search history, rather than based on the current price of that ticket offered to all consumers.
A customer trying to book unexpected travel for a funeral checked the price online, then a day later went to book the tickets, only to find the price was now $230 higher. That can happen because pricing changes day to day based on seat availability and other factors. The customer tagged JetBlue in an X tweet that read, “I love flying @JetBlue but a $230 increase on a ticket after one day is crazy. I’m just trying to make it to a funeral.”
The shocking response from JetBlue’s X feed seemed to explicitly confirm that the airline employs surveillance pricing by stating that if the consumer would make his internet search history unavailable to JetBlue, a better price could be obtained. Specifically, the tweet from JetBlue read, “Try clearing your cache and cookies or booking with an incognito window. We’re sorry for your loss.”
After these tweets went viral, JetBlue quickly deleted its tweet and went into damage control mode, stating that “The reply from our JetBlue crewmember on social media was incorrect, and we apologize for the error. JetBlue fares on JetBlue.com and our mobile app are not determined by cached data or other personal information.”
Meanwhile, Amazon has apparently been strong-arming its vendors, such as Levi’s and Hanes, to coerce Amazon’s competitors to raise their prices. Amazon understandably wants to hold its pricing and margins, but this seems to indicate that price collusion is happening among competitors, at the expense of consumers.
As reported by CNBC, based on documents released by the California attorney general, Amazon would send links to its vendors showing competitors (such as Walmart and Home Depot) undercutting Amazon’s pricing. If the vendor did not pressure the competitor to raise the price being charged to consumers, Amazon would throttle visibility on its website for the vendor’s products.
Specific examples, as documented by the California attorney general, included:
- A 2022 communication between Amazon and Hanes, in which Amazon sent links pulled from Target and Walmart’s websites, which showed lower prices than Amazon was charging. Hanes then confirmed that it had “reached out to Target and Walmart to have the prices increased.”
- Amazon advised eye-drop maker Allergan that it was suppressing online visibility of Allergan’s products because Walmart was undercutting Amazon’s prices. Allergan subsequently replied to Amazon that “Walmart got their price back up,” and Amazon agreed to stop throttling visibility of Allergan’s products.
The actions alleged against Amazon are clearly violations of federal statutes prohibiting collusion and price fixing, specifically the Sherman Anti-Trust Act.
But even worse is that these actions, be they price fixing or surveillance pricing, are unethical, and they erode consumer faith in free market economics.
Consumers — who are also voters — might see themselves as being asked to choose between the promise of socialism or the morally bankrupt business ethos that has made price fixing and surveillance pricing reputable in some corporate C-suites. While corrupt business practices would still be preferable in that either/or scenario, we shouldn’t want voters thinking they must choose between the lesser of two evils. Ethical corporate behavior is imperative if we are to defeat the siren song of collective economics. (RELATED: Decommodification: The Dark Matter of Zohran Mamdani’s Agenda)
Corporate America must police itself better, and we free-market advocates on the political right must also police corporate misbehavior. In the meantime, there needs to be laws prohibiting surveillance pricing, and there must be consequences for those engaging in anti-competitive behaviors.