Personalised pricing under the spotlight in UK and US

Personalised pricing under the spotlight in UK and US

The UK’s competition watchdog has announced that it will be researching how businesses offer personalised pricing on the basis of customer data, while a US Federal Trade Commission hearing debated whether the practice should fall under competition law rules.

The UK’s Competition and Markets Authority (CMA) announced on 4 November that it will soon be starting research that will “explore whether and how personalised pricing makes use of personal data points such as a consumer’s address, marital status, birthday and travel history”.

The research, a press release said, will look at how widespread the practice is; whether businesses do it through search engines, apps or comparison tools; and the extent to which personalised pricing is “preventing shoppers getting the best deals”.

Alec Burnside, partner at Dechert in Brussels, told GDR that personalised pricing is typically about finding out the “willingness to pay” of any given consumer; something which could depend on generic profiling characteristics like location, age and gender, or on more personal factors such as browsing habits.

Burnside noted that personalised pricing has always existed in some form. “Economists have always had a benign view of that, believing that it gets goods to consumers at better prices,” he said.  “What’s new is digitalisation. The ability to discriminate on price may now be much greater.”

Economists still hold a generally positive view of the practice, though with exceptions; the perceived unfairness, felt by many consumers, is growing, driven by differences in internet pricing, he said.

UK business secretary Greg Clark said in a statement that though the type of technology that goes into tracking consumer data can benefit consumers and save them money, the government wants to ensure companies don’t abuse customer data and that consumers are treated fairly.

Meanwhile, speaking yesterday at an FTC hearing on the relationship between competition and consumer protection, academics also discussed whether businesses will use data to start charging customers different prices for the same product.

FTC economist Jeremy Sandford, who moderated the panel, asked why personalised pricing is yet to become widespread, given that this was an anticipated consequence of the data-driven economy that started developing 20 years ago. 

Ginger Zhe Jin, professor of economics at the University of Maryland and a former FTC economics director, said that if a business “has a sense” that consumers dislike price discrimination, this is likely to stop the practice. But personalised pricing can offer positive consequences to consumers, given that it should push prices down, she said.

Liad Wagman, a professor of economics at the Illinois Institute of Technology, noted that some businesses, such as ridesharing apps like Uber and Lyft, already offer personalised pricing and have been highly successful.

The FTC hearing focused on the relationship between data protection and consumer protection policy. Speakers also discussed the benefits of targeted advertising – a data-based practice that has been widely adopted, unlike personalised pricing.

Burnside said that issues around competition law, consumer protection and data privacy are “coalescing”. He said that as both competition and data protection law seek to protect the same people, they should be more closely aligned.

Regarding whether data can be a barrier to entry, panellists noted that early giants in the social media and online search markets, Myspace and Yahoo! respectively, were usurped by Facebook and Google, suggesting that possessing data does not necessarily represent a barrier to entry.

Burnside noted that one business holding data on a consumer does not usually preclude another business holding the same or equivalent data, but said that companies like Amazon, which have a “vast reach”, may have access to such detailed and granular information that possession of that data does represent an unfair advantage.

The FTC hearings on consumer protection and competition continue until Friday.