California A.B. 2654: Banning Surveillance Pricing
California A.B. 2654 Targets the Practice of Surveillance Pricing
California Assembly Bill 2654 (A.B. 2654), authored by Assemblymember Chris Ward, proposes a ban on "surveillance pricing." This practice occurs when corporations use personally identifiable information collected through electronic surveillance to offer different prices for the same product to different consumers.
According to the Electronic Frontier Foundation (EFF), surveillance pricing is part of a broader business model where companies harvest, collate, and store personal data to maximize profits. The EFF argues that this practice allows companies to manipulate economic choices by altering prices based on a detailed dossier of a consumer's personal information.
Defining Surveillance Pricing and Legal Carveouts
Under A.B. 2654, surveillance pricing is explicitly defined as a customized price for a good for a specific consumer or group of consumers based, in whole or in part, on personally identifiable information collected through electronic surveillance, including data acquired from third parties.
To avoid disrupting standard business practices, the bill includes three specific carveouts where price differences are permitted:
- Cost-based differences: Price variations based solely on the costs associated with providing the good to different consumers.
- Service termination discounts: Discounts offered to consumers who are taking steps to terminate a service.
- Uniformly available discounts: Discounts conspicuously posted on a retailer's website that are available based on criteria anyone can meet (e.g., signing up for a mailing list), membership in a broadly defined group (e.g., seniors), or participation in a loyalty program.
Consumer Impact and the Role of Data
The Federal Trade Commission (FTC) has highlighted the potential for harm in surveillance pricing. In a research summary, the FTC noted that companies may use profiling to charge higher prices to vulnerable consumers; for example, a parent profiled as a new parent might be shown higher-priced baby thermometers in search results based on their zip code and the time of purchase.
While some proponents of personalized pricing argue it can lead to lower prices for some consumers, research from Yale and Carnegie Mellon University suggests that the outcomes depend on the consumer's ability to switch products and the accuracy of the underlying data. The EFF notes that surveillance pricing is often based on false or inaccurate information.
Industry Perspectives and Community Debate
The San Francisco Chamber of Commerce has expressed concerns regarding the bill, questioning how businesses will comply and how it affects loyalty programs. The EFF maintains that the bill's text clearly defines the banned practice and provides sufficient carveouts for traditional loyalty schemes.
Community discussions on Hacker News reveal a divide in perspectives on the ethics and economics of personalized pricing:
- Arguments for the practice: Some argue that personalized pricing is a modern version of "haggling" or price discrimination that can benefit lower-income individuals (e.g., regional pricing for pharmaceuticals in poor countries).
- Arguments against the practice: Critics describe it as "rent-seeking" and a way for companies to extract the maximum possible amount from every consumer. Some users argue that "loyalty programs" are simply a proxy for surveillance pricing, as they force consumers to trade personal data for a fair price.
"Whatever mind tricks you think you'll be able to play under a surveillance pricing regime will not work. They will always be three steps ahead of you."
Comparison to Behavioral Advertising
The EFF equates surveillance pricing to online behavioral advertising. Both practices incentivize the mass collection of personal data to create dossiers used to manipulate economic choices. The EFF urges governments to ban both practices to protect privacy as a fundamental human right rather than a currency to be traded for lower prices.