MD takes first steps to limit personalized price gouging

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In December, Consumer Reports revealed that Instacart, the online grocery delivery service, was experimenting with algorithmic pricing and charging different consumers as much as 23% more for the same items from the same stores. Under this pricing model, businesses obtain information from a variety of sources, perhaps including artificial intelligence chatbots or data brokers who operate without consumers even knowing of them, to determine how desperate consumers are for the particular product and how much they would pay. For example, a delivery service could charge a cancer patient buying over-the-counter medicines more than someone who was merely stocking up on the same medicines.

Algorithmic pricing, also called surveillance pricing, is not unique to Instacart. Delta Airlines has also used artificial intelligence to set different prices for different customers. The FTC reported that companies even used mouse movements on a web page to figure out how much they could charge a consumer.

Instead of competing by offering the best products at the best prices, companies using these methods charge as much as they calculate they can get a consumer to pay, even as the company sells the same thing to other, more parsimonious, customers at lower prices. Critics call this personalized price gouging. We call it creepy and unfair. And businesses understand that consumers are troubled by this practice. After Consumer Reports broke its story, Instacart abandoned its experiment.

Surveillance pricing impairs the functioning of markets by making comparison shopping more difficult. Because larger sellers can more readily obtain information on consumers than smaller sellers, algorithmic pricing also incentivizes and rewards market concentration. It also encourages snooping on consumers, perhaps without their knowledge. It may lead to disturbing discrimination because firms may charge people of one race, say, more than they charge others. And because it largely happens behind the scenes, consumers are typically unaware of it.

Maryland’s new privacy law may make it harder for businesses to engage in surveillance pricing, but it can’t stop it alone. Fortunately, the governor and General Assembly have made a start on the problem. The legislature has enacted a bill to block surveillance pricing by grocers and food delivery services. The legislature was careful to make clear that the bill does not prevent the use of loyalty cards or similar programs offering reduced prices. There is no private enforcement, and offending sellers have 45 days to cure any violations.

But the bill is only a first step. It would not, for example, apply to non-food items, as in the examples of Delta or medicines described above. Still, first steps are important. And if the bill produces the salubrious results for the body politic we anticipate, we hope the General Assembly will extend it to other transactions.

Editorial Advisory Board Members Arthur F. Fergenson did not participate in this opinion.

EDITORIAL ADVISORY BOARD MEMBERS

James B. Astrachan, Chair

Gary E. Bair

Jill P. Carter

Arthur F. Fergenson

Nancy Forster

Susan Francis

Julie C. Janofsky

Ericka N. King

George Liebmann

George Nilson

Steven I. Platt

Angela W. Russell

Debra G. Schubert

Jeff Sovern

H. Mark Stichel

The Daily Record Editorial Advisory Board is composed of members of the legal profession who serve voluntarily and are independent of The Daily Record. Through their ongoing exchange of views, members of the board attempt to develop consensus on issues of importance to the bench, bar and public. When their minds meet, unsigned opinions will result. When they differ, or if a conflict exists, majority views and the names of members who do not participate will appear. Members of the community are invited to contribute letters to the editor and/or columns about opinions expressed by the Editorial Advisory Board.