Lately, we aren’t all getting the same price for the same product. Is the rise of data-driven “personalized pricing” corporate innovation or just next-gen gouging?
Lately, we aren’t all getting the same price for the same product. Is the rise of data-driven “personalized pricing” corporate innovation or just next-gen gouging?
Our guest, Lindsay Owens, is an economic sociologist and former policy advisor to U.S. Senator Elizabeth Warren. She’s the co-author of “The Age of Recoupment” in The American Prospect’s issue on How Pricing Really Works, and the executive director of Groundwork Collaborative.
Owens discusses how major retailers are using digital surveillance to set individual prices for individual customers. She talks about the evolution of pricing, from the bazaar to the department store to the Taco Bell app, and why AI software may be enabling price-fixing schemes in real estate that are driving up rents across North America.
Also Vass and Katrina compete for hotel deals.
Subscribe to the Lately newsletter, where the Globe’s online culture reporter Samantha Edwards unpacks more of the latest in business and technology.
Find the transcript of today’s episode here.
We’d love to hear from you. Send your comments, questions or ideas to lately@globeandmail.com.
Vass Bednar [00:00:01] This episode of Lately is sponsored by BMO Investor Line, self-directed with BMO Investor Line Self-Directed. You don't just trade. You trade with confidence. They're easy to use. Direct investing platform gives you access to research and watchlists right at your fingertips. Their analysis tools let you benchmark, customize, and track your investing performance and you get commission free trading on over 90 of Canada's most popular ETFs. So you can trade online confidently. Learn more at bmo.com/investor line. Terms and conditions do apply here. BMO Investor Line is a wholly owned subsidiary of the Bank of Montreal and it's a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
Vass Bednar [00:00:50] I'm Vass Bednar and I host this Globe and Mail podcast lately.
Katrina Onstad [00:00:54] And I'm Katrina Onstad, the show's executive producer. Vass, you know, the holiday just ended, but I kind of want to go on a vacation. Let's do it, you know? Shall we go somewhere? Staycation?
Vass Bednar [00:01:04] No. Let's go somewhere we can work from anywhere. Pack your laptop. Let's go. Let's go to New York. Okay. What do you think?
Katrina Onstad [00:01:09] Weak dollar. Let's do it.
Vass Bednar [00:01:11] Very weak dollar. Great. Time to go. Winter.
Vass Bednar [00:01:14] Dead of winter. Okay. Sure.
Katrina Onstad [00:01:16] Okay. I'm typing Hotel New York this weekend.
Vass Bednar [00:01:21] So am I. Whoever has a cheaper price should book. What do you say?
Katrina Onstad [00:01:26] Sure. So what do you got? Tell me.
Vass Bednar [00:01:30] Okay. My top three results are the 50s sonesta, the Holiday Inn, glamorous or Doubletree? What about you?
Katrina Onstad [00:01:36] Okay. I don't get that 50 Sonesta thing, they don't even want me there? But I do get the Doubletree by Hilton and mine costs 185. What is yours?
Vass Bednar [00:01:49] $168.
Katrina Onstad [00:01:51] What? Yeah, like almost $20 cheaper than me. It's just like, mean. Yeah.
Vass Bednar [00:01:57] That's weird. Okay. Same time of day, same city. What? Two women? Fairly similar demographic. Okay, what about maybe we should stay at the Wall Street location of the holiday inn what are you getting there?
Katrina Onstad [00:02:09] I'm actually afraid to say it now.
Vass Bednar [00:02:12] I'll go first. I'm at $158.
Katrina Onstad [00:02:15] I am at 166. Well, I mean, it's only eight bucks. What's the big deal? It's a big deal to me, my friend. And that is why we are here today. It's not a comfy feeling, right? Even though we kind of know it's happening. What is going on with pricing? It feels like we're in this new weird world that no one really asked for. And we kind of know this happens with hotels, with airlines, with concert tickets, if you're even able to get them in the first place. But now that same uneasy feeling of unpredictability is coming to food spreading across retail. Even the rent you pay for your apartment, it feels like you just don't know how much something actually costs at any given time. And it is dizzying. Disorienting.
Katrina Onstad [00:03:04] Yeah, it's completely freaky. And it's obviously top of mind. Pricing was one of the defining issues in the recent U.S. election. It's definitely going to come up in Canada like the price is the clearest marker of the high cost of living. So we wanted to look at this. We wanted to look at pricing and ask whether the era of a fixed price is in the rearview mirror. Right. But time where you and I pay the same thing for the same hotel, the same service, maybe that's over now that companies have access to our data and can target us directly. We're each getting our very own bespoke price. I feel special.
Vass Bednar [00:03:38] You are special, but I don't know if that means you need to pay $8 more for that hotel room. So today we're talking about this with Lindsay Owens. She's special to an American economic sociologist and academic who serves as the executive director of the Groundwork Collaborative, which is a Washington, D.C. based nonprofit public policy think tank. Owens says, look, dress this up however you want, but it's still price gouging.
Katrina Onstad [00:04:05] Yes, that's how it feels. But I'm just going to be the devil's advocate for a second. Say like is personalized pricing always a bad thing? The counterpoint from the firm is going to be, well, you know, it's a deal for someone and like maybe if you can pay more, you should. And at different times different people will pay less. And I don't know. So is this a new version of fairness?
Vass Bednar [00:04:25] I mean, look, that's the debate, right? Is this a more efficient pay wha you can push the willingness to pay economy. But the other question is this. The economy we really want, right? The cost of me getting that modest deal is surveillance and sort of paying with my privacy and this kind of fluctuation with pricing and more detailed pricing that varies from person to person is about to get more ubiquitous. Digital price tags, which are also called electronic shelf labels, are coming to Canada. Yeah, I saw this announcement from Sobeys. So what does this mean? Digital price tags? What's it going to look like in the grocery store for us? All right. Well, instead of like a paper price sticker, a digital price is shown. Sometimes there's a QR code that has to be scanned and turns out these can change the price of the item that you're seeing up to six times per minute, which makes it like impossible to budget. And, you know, begs the question, where does personalization end and exploitation begin? Like who benefits and who is left paying more? And what does this mean for fairness in the digital marketplace? I do not know why I'm asking you when I can ask Lindsay Owens.
Katrina Onstad [00:05:34] Ouch.
Vass Bednar [00:05:34] Sorry. This is lately.
Vass Bednar [00:05:51] Lindsay, welcome to Lately.
Lindsay Owens [00:05:52] Thanks so much for having me.
Vass Bednar [00:05:54] All right. What does the Taco Bell app know about me?
Lindsay Owens [00:05:59] Yeah, that's a great question. Well, I think if you are someone who uses apps to order food throughout the day, then they know quite a bit about you. They know your purchase history. They know what time you like to order tacos. If you're coming in late at night on a Friday after a night out, or if you're ordering for the family on Monday after work, they know what you like to order, what your usuals are, what your go to is are. They know a little bit about your bank account, whether or not you're plugged in through a credit card or through something like Apple Pay. And they probably know a little bit about your location. What's your go to store or where do you live? Do you hit the Taco Bell on the way home from work? Do you hit the Taco Bell next to your house? So they have, you know, quite a bit of information on you.
Vass Bednar [00:06:44] Why does the app show me higher prices sometimes on like a Wednesday than on a Monday?
Lindsay Owens [00:06:50] Yeah. So companies like Taco Bell, fast food companies like Taco Bell are really using new forms of pricing technology and in particular, something that we like to think of as dynamic pricing. So shifting pricing based on patterns of supply and demand, right? So a lot of people want tacos. They can hike the price a bit, right? And they're also using forms of personalized or what we, I think more appropriately call surveillance pricing. So we know a little bit about you, too. You always have a hankering for tacos on.
Vass Bednar [00:07:27] Taco Tuesday.
Lindsay Owens [00:07:28] Right? We're going to charge you more because we think that you're likely to you're likely to show up and you're likely to pay.
Vass Bednar [00:07:34] So there are a lot of different adjectives to describe this practice of offering individualized prices to different consumers. You mentioned personalized surveillance. There's also discriminatory pricing, algorithmic pricing, dynamic pricing, exploitative pricing. How should we think about it and why do you think the nomenclature is so messy?
Lindsay Owens [00:07:59] Yeah, I mean, I think it makes sense to actually take this question in the context of all that came before it and in the long arc of history. So for a long time, pricing discrimination was the norm, right? You went to a bazaar or a market or a souk. You know, thousands of years ago and there were no price tags on goods. It didn't say that the saffron was $7 an ounce, for example. You know, you went up to the market, you asked for what you wanted, and they set a price. And if you wanted to try to pay a little less, you haggle. This was a pretty common practice for hundreds and hundreds of years. Eventually, because of the complexities of commerce, because of the complexity and scale of stores. We started to get the price tag. So in the US context, you start to see the price tag. With the advent of big department stores like Macy's or Wanamaker's, and they offered price tags for a very simple reason. It was faster. They didn't want to have to haggle with you over every tube of lipstick. They didn't want to have to haggle with you over every pair of pantyhose. And so they offered price tags. But price tags were also fairer, right? Every consumer knew how much something cost. And if you and I were in line together at the department store and we both had the exact same pair of pantyhose, we paid the same price and we would have been pretty ticked if, you know, you got a better deal than I got. And that was sort of how pricing worked for a really, really long time. And more recently, we've kind of come full circle and we've sort of gone back to the early days of personalized pricing and at the souk. And now we're in a world particularly hastened by technology in which companies can start offering individual prices for individual customers for particular goods again. And so we're starting to see a lot more variation in price rather than fixed prices or what you might think of as public prices that are transparent and available to all.
Vass Bednar [00:10:01] Okay. So what is the best name for what we're experiencing? What should we call this?
Lindsay Owens [00:10:07] I mean, I think the kind of technical term in the economics literature is price discrimination, charging different people or different groups of people, different prices. But as the technology has evolved, we've started to get different names for the ways in which those prices are selected for different individuals. So dynamic pricing really explains the concept of varying your prices based on broad patterns of supply and demand. So not really related to anything about me or you or your specific characteristics, whether you're a woman, how old you are, how much money you have, but rather broadly, how many pantyhose are left at the store. But personalized pricing is the practice of. Price prices based on personal attributes of you or me. So if they think I can pay more because they have taken a peek into my digital wallet and they know I'm good for it because it's payday and they charge me more, we think of that as personalized pricing, but it's also just a form of price discrimination.
Vass Bednar [00:11:07] FTC Chair Lena Khan has said that, quote, We are now in an environment where technologically it is possible to be serving every individual person, an individual price based on everything they know about you. End quote. How did we get here?
Lindsay Owens [00:11:24] Yeah. So I think there are a few things that got us to this kind of pricing dystopian moment. One is, of course, data. The more companies have been able to collect our data because we're shopping online using e-commerce platforms. And the more they've been able to store that data because of the advent of things like cloud computing, the more kind of grist for the mill, they have to be able to set personalized prices. But you also needed AI and machine learning, right? You need software that can go through large datasets and predict your interest, willingness and ability to pay. And so it's this kind of culmination of of big data of cloud computing and of of technology is prediction models enabled by tools like AI and machine learning that have led us to a world in which surveillance, pricing and personalized pricing are possible.
Vass Bednar [00:12:20] How do we even know this practice is happening?
Lindsay Owens [00:12:22] In many ways I do think it is sort of difficult to beat the computer on this one, right? You may not realize that your your Taco Bell app is tinkering with with the price that you're paying. There is this case in which it was determined that Princeton Review, this test preparation company for high schoolers who are trying to get into college, you know, is determined that if you logged on to their website to buy Princeton Review tutoring for your young student, you were actually paying more if you logged on from an IP address that was in a zip code that had a higher percentage of Asian-American residents. Right. So there are frequently ways in which you're being offered a different price than than other folks, and you really have no idea.
Vass Bednar [00:13:05] You referred to in some of your work this practice of price differentiation as as part of price gouging. And I wanted to tell you that initially for me, that wasn't super resonant because here in Canada we have some provincial laws around price gouging. So I sort of felt like, maybe we were addressing this already. Why is gouging an important frame for us to use here.
Lindsay Owens [00:13:31] When this period of high inflation really swept the globe? Something I think really stood out to me, and that was consumers anxiety around these high prices wasn't limited to just the fact that prices were high. But there was another thing going on, which is consumers were also really frustrated not just with high prices, but how pricing works. And increasingly, it was starting to become clear that companies were doing a couple of things. First, they weren't just passing on their rising costs to break even, right? They were passing along their rising costs, but going for more. They were assuming that because you and I expected high prices, they could charge a little bit higher still. But the second thing that was going on is during this period of high inflation over the last four years, the cover of inflation, the expectation of consumers sort of knowing that prices were going up, I think gave a lot of companies more confidence to roll out some pricing technologies that had frankly been collecting dust on the shelves. So what we saw increasingly was folks sort of rolling out these less transparent, more tricky pricing strategies. And I think, you know, in my mind, we can call this a number of things. We could call it profiteering. We could call it gilding the lily, right? They're going for even more than they needed to. You know, we saw record profits post-pandemic across the non-financial corporate sector. Internationally. We could call it gouging in the colloquial term like that. Guys overcharging me. He's ripping me off. He's gouging me. Or we could call it gouging in the legal nomenclature, which is to say, you know, a company or a seller who is taking advantage of a crisis, a climate emergency, a hurricane, a global health emergency, like a pandemic, exploiting shortages, which we saw in the post pandemic period, to charge higher prices, then they might be able to get away with otherwise.
Vass Bednar [00:15:37] Well, speaking of going for more, I want to bring another economic term to this conversation, price fixing, because here in Canada, we had a somewhat infamous bread price fixing scandal. Where. The major grocers divulge that for about 14 years they had been colluding to inflate the price of bread. And I wonder, isn't what we're talking about this kind of personalized pricing, to the extent that the price is set by a computer system, not a human, just price fixing?
Lindsay Owens [00:16:13] Yeah. So I think for something to constitute price fixing, we're really looking at coordination, whether explicit or tacit, by multiple sellers. We don't think about just Taco Bell overcharging you as price fixing. What we do t hink about is if Taco Bell and McDonald's and Wendy's are going in on pricing together, we think of that as price fixing. And I do think these algorithms and the fact that many sellers will use common algorithms, right. There's one company selling its algorithmic technology to all of the sellers. Absolutely. That can facilitate price fixing. But I think we would want to see multiple parties coordinating on price together, either via new technologies or just in the old fashioned way where you get in a room and you have a brand and you decide everybody is going to cook the books.
Vass Bednar [00:17:07] Well, in a more modern instance of possible collusion that you just alluded to. Tenants in Canada have been complaining that corporate landlords are using or have been using an AI driven software called, you know, the name yield Star to coordinate rent increases. And in the U.S., the Department of Justice is suing yield stars, owners. RealPage. Maybe you could walk us through why regulators think this might be illegal.
Lindsay Owens [00:17:35] Yeah, I mean, this is like truly one of the most stunning developments, I think, in in my lifetime. I mean, I will say, the more I dig in to RealPage, the scarier gets and the more my jaw just like drops onto the floor. So I've read through the 115 page complaints that the Department of Justice and the United States brought against RealPage. So Real Pete is the company who owns the algorithm called Yell Star. And what RealPage has tried to do with the old star is put together a they call it a revenue maintenance software, but it is really a rent setting software program where they use data market wide data on what landlords are charging for units with a given floor plan to ensure that landlords are charging the maximum they can per unit. And this means that the algorithm is programed in a whole host of ways that really indexation and recommend price hiking basically exclusively when the algorithm is in a moment where it should be recommending price drops or discounts. It doesn't. Instead, it just recommends that they hold at yesterday's price. And this is one of the ways in which I think it's important to to lay out here that these technologies are not inherently designed to hike prices, rate the same technology that is recommending landlords hike your rent can be flipped into reverse and can recommend that your landlord drop your rent. But it never recommends that your landlord drop your rent because the companies who are using these technologies are looking for profit. One analysis from a colleague at the American Economic Liberties Project suggests that up to a quarter of rent inflation in the U.S. could have been the result of RealPage. And, you know, that estimate comes from real pages, own estimates of how much they are driving up rents, which of course we know because this is how they recruit new landlords, is they tell them just how much they're going to be able to get for them above market on rent prices. And so, you know, these price hikes are small in some cases, but large in others. And across the entire economy, they add up to be quite a tall.
Vass Bednar [00:20:07] You're based in the U.S., a new president has been elected. A lot of people, at least in the algorithm that I see on social media, have been blaming inflation for the Democrats loss. But could it be that, you know, corporate pricing strategies were actually more of a thing that's been at play? Like, are people raging about a price or the price itself? Or are we more frustrated with these new ways that prices are even being set in the first place?
Lindsay Owens [00:20:35] I absolutely think it's both. I mean, the more I dig into this, the more I realize that there are so many aspects of pricing that have become really unfair for consumers, including new forms of surveillance pricing. We've had a couple of examples in the United States of property insurance companies using aerial imaging from balloons and drones to take a picture of your roof, say that there's mold on it and drop you from your insurance altogether, Right? They're looking to shed claims and shared properties. We have examples in the auto insurance industry. A story just broke in the New York Times which suggested that GM, one of the large auto manufacturers, was selling your driving data to third party companies who were then packaging up your driving data as a risk score and selling it to your insurance company who was then coming back to you and hiking your premium because you know you accelerated quickly or drove over 80 miles an hour. And so I think everywhere you turn, whether it's dynamic pricing on the Taco Bell app, whether it's your landlord, you know, setting above market rents because of a yield star recommendation, whether it's your auto insurance company spying on you, sitting shotgun in the passenger seat. There are ways in which companies are really deploying increasingly sophisticated technologies in the service of price hiking. And I think that is absolutely something that is driving a lot of folks around The Globe's frustration with high prices during this period.
Vass Bednar [00:22:12] I was noticing that some economists have defended the strategy or attempted to write, saying that while people shouldn't assume that it's anti-competitive, actually it's efficient. If I could boil down their argument, I do my best to do that. Basically, they say that tailoring different prices for different people can actually extract maximum value and expand the market. So is it really nefarious?
Lindsay Owens [00:22:38] Yeah. I mean, look, these technologies are not inherently nefarious. And of course, these new technologies around dynamic pricing can be used to offer discounts just as quickly and just as seamlessly and just as easily as they can. Price hike. The issue here is that broadly, at least recently during this inflationary period, companies have been using these technologies almost uniformly in one direction, and that is the price hiking direction.
Vass Bednar [00:23:06] Do you think we have the right villain? Like, should we also blame the software companies that facilitate data driven pricing? It strikes me there's a lot of money in this, not just for companies that may be increasing price, extracting that maximum value, but also for data brokers and other firms that you mentioned that facilitate that.
Lindsay Owens [00:23:26] Yeah, I mean, the root of all of this is the never ending insatiable appetite for profit, right? This is the result of a culture in which quarterly returns and doing right by shareholders are of utmost importance to the largest companies around the globe. And for decades, the way in which companies and, you know, juiced profits was primarily through cost cutting. Right. We saw trade agreements that shipped jobs overseas to save on labor. We saw union busting that helped save on labor. We saw the rise of the big four accounting companies and firms who would come in and do these rigorous investigations and analyzes of of how much you could save by, you know, getting rid of your stapler. Right. I mean, there was there was really no rock unturned when it came to cost cutting strategies. And I think what we're seeing now is that eventually cost cutting hits bone at some point there's no more fat to trim. And I think what we saw is a pivot towards price hiking. And I think these new technologies were ready and available to facilitate that price hiking. And I think that's the sort of era we're in now. And so, yes, I think the software companies are, of course, and on this, they're providing the technology. The data middlemen who are helping these software companies hoover up. The data from competitors are in on this. The companies themselves who are deploying and buying these technologies in the service of overcharging consumers are in on this. But structurally, this stems from an insatiable appetite for profit.
Vass Bednar [00:25:05] Now, in. On to that insatiable appetite. Senator Elizabeth Warren, who you've worked for in the past, has proposed banning algorithmic collusion or price gouging. How is that truly possible from an implementation standpoint?
Lindsay Owens [00:25:20] A lot of the activity we're seeing is already illegal. Like, you don't necessarily need new laws to prohibit algorithmic price fixing because price fixing is already illegal. However, you do it whether you use a pencil or a computer. Right. Like, you can't team up with the other sellers in an industry to set prices above competitive levels. That being said, there are a number of bills in Congress in the United States to kind of, you know, put a finer point on the fact that this is indeed illegal. But my own view is that lawyers should be bringing these cases, and they are obviously, the Department of Justice is suing RealPage, But there are also class actions and state attorneys general throughout the U.S. who are already suing RealPage as well. And I think hopefully we will get to the end of practice sooner or later and part through those legal cases.
Vass Bednar [00:26:12] You used the word dystopia earlier, and if it's this bad now, what do you see on the horizon for this new form of price calibration?
Lindsay Owens [00:26:25] Yeah. So. Can I take this in a utopian direction?
Vass Bednar [00:26:31] Totally.
Lindsay Owens [00:26:33] Okay. I think and we are starting to see a little bit of this. I think that at some point, consumers will grow. So fed up with these practices that companies who are willing to come in and offer a stable price, even if that price is sometimes higher and I think we'll do well. So, for example, you know, my last name is Owens. You come to Owens's hardware store and you're never going to pay a different price than the person who walks in right after you. A hammer is always $12 a box analysis, always for $10. Right. And we are starting to see some companies start to advertise predictability, fairness, transparency around pricing. There was an interesting example in the U.S. case where Lyft, one of the competitors Uber, in the ride sharing space, rolled out a products they called Lyft Lock. And the lock here stands for Locking In Your Price. And it was a subscription that regular commuters could purchase to lock in their commute price day in and day out so that they didn't have to deal with the whims of surge pricing. And I think on the one hand, it feels a little weird to to talk about that as a real benefit. It's like, look, you can buy a subscription to not get gouged. What a dream scenario where and.
Vass Bednar [00:28:00] It sounds like a taxi to me, but I get what you're saying.
Lindsay Owens [00:28:03] Exactly right. Like the rate system on a taxi ride. Like you always know what it's going to cost to go from the airport to your house. On the other hand, I think it does demonstrate that increasingly there is sort of an interest in marketing fair prices and transparent prices and predictable prices. And I think we are going to see more of that in the future. But of course, that is really in part dependent on consumer's tastes and tolerances.
Vass Bednar [00:28:30] I love that we're ending with a little bit of optimism. Lindsay, thank you so much for joining us.
Lindsay Owens [00:28:35] Thanks for having me.
Vass Bednar [00:28:49] You've been listening to lately, a Globe and Mail podcast. Our executive producer is Katrina Onstad. The show is produced by Jay Cockburn, and our sound designer is Cameron McIvor, and I'm your host partner in our Shownotes. You can subscribe to the Lately newsletter where the Globe's online culture reporter Samantha Edwards unpacks more of the latest in business and technology. A new episode of Lately comes out every Friday wherever you get your podcasts.