Docket ID No FTC-2006-1057
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Introduction
Personalized pricing is a method of pricing in which firms use personal information about individuals to set different prices to different consumers instead of charging a single price to all consumers.
This proposed enforcement policy is premature. We do not have a sufficient understanding of personalized pricing to warrant such a policy. While consumers often view personalized pricing negatively and policy makers portray the practice as exploitativeandpredatory, these views are based on preconceptions rather than on knowledge of personalized pricing. Studies have shown that personalized pricing, while resulting in higher prices to some consumers, can lower prices to others. The overall welfare effects of personalized pricing are as yet unknown.
Moreover, there has been no testing of the required disclosures, so it is uncertain how consumers would react to them. The disclosures could result in a de facto ban on the practice, which would cause consumers to forgo any benefits they would receive from the practice.
Due to our lack of understanding of personalized pricing and of the disclosure required by the FTC’s proposed enforcement policy, it is impossible to know whether the policy would benefit or harm consumers.
I recommend abandoning this proposed enforcement policy and conducting more research on how personalized pricing affects consumer welfare before making any further policy decisions.
We do not have a good understanding of personalized pricing
Before making policy decisions that may alter or deter a business practice, it is essential to have a good understanding of the practice. How prevalent is it? Who benefits and who loses, and by how much?
At this time, personalized pricing is not well understood, a fact that is noted in the proposed enforcement standard: “The extent to which businesses currently use personalized pricing is not well understood, and the effects of personalized pricing on consumers are unclear.”
Nor do we have a good understanding of its prevalence. Jin et al. (2025) ask whether surveillance pricing actually exists, citing several examples described in media reports that the companies involved typically deny.
The FTC’s preliminary report of its 6(b) study of surveillance pricing, Research Summaries: A Staff Perspective, does not provide any information on the prevalence of the practice or its effect on consumer welfare. The FTC has not yet released a final report for the 6(b) study.
Because there is so little information about the use of personalized pricing, policy makers tend to use hypothetical examples to describe its potential harm. Lina Khan, the former chair of the FTC, presented an example in which airlines could charge higher air fares to passengers traveling to the funeral of a family member, a scenario that the airlines deny. Hypothetical examples are also used in the FTC’s Research Summaries: A Staff Perspective, such as how identifying a consumer as a parent could result in a firm offering a higher price for baby thermometers. The press release for the One Fair Price Act, a bill proposed in the US Senate, states: “When you go to the grocery store, you expect to pay the exact same price for milk as the person in line behind you. But imagine if they charged you more for milk because they know you have growing kids at home and that you need it more than the person behind you.” A summary of the Stop Price Fixing and Wage Gouging Act, introduced in the House of Representatives, claims that a ride-sharing app (Uber) charges a customer more when his or her phone battery is low, but this is not true. The proposed enforcement statement itself uses hypotheticals when describing personalized pricing scenarios that could violate Section 5.
These hypotheticals are designed to make personalized pricing look harmful to consumers. Rarely do policy makers mention its potential benefits to consumers.