If you’ve never heard of surveillance pricing or surge pricing, you are not alone. But both practices have crept into retail operations, leading lawmakers in Washington state to take action this legislative session. House Bill 2481, sponsored by Rep. Mary Fosse, D-Everett, and a host of other House Democrats, aims to rein them in.
“As residents are really struggling with affordability and to buy food, technology is changing at a rapid pace,” said Fosse at a hearing in the House Technology, Economic Development, and Veterans Committee on Wednesday. “Large retailers are starting to employ these AI systems that can change prices instantly, individually and secretly — faster than we can keep up with.”
The bill would prevent “economic prejudice” by prohibiting surveillance pricing in grocery stores, banning surge pricing on essential goods and pausing the rollout of electronic shelf labels until they can be further investigated. Fosse said the proposal is meant to safeguard consumers. Violations of the pricing practices would also be enforceable under the Consumer Protection Act.
Surge pricing refers to retailers changing the price of a product based on demand. Surveillance pricing, on the other hand, involves companies collecting consumer data to build individual profiles and using AI to set personalized prices depending on the consumer. The goal of the latter is to determine how much someone is willing to pay for an item based on their consumer profile.
Imagine you’re at the grocery store with a friend. You buy the same item, but companies have collected data about you and your shopping habits, so you end up paying more than your friend. The difference may not be huge, but it is noticeable, and it can add up.
The practice is so widespread in the U.S. that the Federal Trade Commission under former President Joe Biden’s administration conducted a study and found that companies can, and do, track a wide range of data like mouse movements while searching a webpage, items left unpurchased in an online shopping cart, demographics and location to tailor prices for each consumer.
“The quantity of data that these massive retailers are collecting on individual consumers, I think, would shock most consumers,” said John Marshall, capital strategies director for UFCW 3000, a union representing retail, grocery and health care industries. Marshall testified in favor of the proposal Wednesday.
He said he believes surveillance pricing and electronic shelf labeling are part of a push by major retailers like Albertsons, Kroger and Instacart to transform community-based supermarket chains into “media companies that sell data to advertisers, adding that he is concerned it will eventually result in retailers leaving lower-income neighborhoods to focus on high-income consumers.
An investigation last year by Groundwork Collaborative, Consumer Reports and More Perfect Union found that Instacart, a grocery delivery service, was secretly employing AI pricing software to conduct hidden price experiments on consumers. The report found price discrepancies between consumers could leave some families paying up to $1,200 more a year.
Derek Kravitz, an investigative journalist for Consumer Reports who contributed to that report, testified Wednesday and noted that algorithmic pricing is invisible to consumers who are only able to see the prices and fees they are offered. He noted that researchers can't access the “complex” systems and machinations that result in individualized prices.
Lobbying groups such as the Washington Retail Association and Northwest Grocery Retail Association testified against the measure.
Crystal Leatherman from the Washington Retail Association said the group has a shared goal of wanting to prevent discriminatory pricing, but is opposed to the legislation as written due to its broad language. She said enforcing violations through the Consumer Protection Act would open retailers to class action litigation, urging lawmakers to clarify key definitions to prevent confusion.
The legislation has not yet been scheduled for a vote. But if passed and signed by the governor, it would go into effect 90 days after the Legislature adjourns on March 12.
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