The Federal Trade Commission (FTC) is launching a comprehensive investigation into the practice of "surveillance pricing," focusing on how artificial intelligence (AI) is utilized to adjust prices dynamically based on extensive customer data and behavioral analytics.

Scope of the Investigation

Surveillance pricing refers to the practice where companies use advanced AI technologies and extensive data collection to tailor pricing strategies to individual consumers. This method allows businesses to set varying prices for different customers depending on numerous factors, including purchasing behavior, transaction history, and demographic information. The FTC's investigation seeks to determine the prevalence of this practice and assess its implications for consumer privacy and the fairness of pricing mechanisms.

Mandatory Information Requests

To advance its inquiry, the FTC has issued mandatory information requests to eight companies renowned for their expertise in AI-driven pricing and data analytics. The entities under scrutiny include:

- Mastercard: A prominent global payment technology firm with extensive consumer transaction data.

- JPMorgan Chase: A major financial institution utilizing sophisticated data analytics in its operations.

- Accenture: A leading global consulting firm offering a range of technology and data-driven solutions.

- McKinsey & Company: A top consulting firm providing strategic and operational advice, including technology-based solutions.

- Task: A software company specializing in AI and data analytics, serving major clients such as McDonald’s and Starbucks.

- Revionics: A firm focused on AI-driven pricing solutions, with a client base that includes Home Depot, Tractor Supply, and grocery chain Hannaford.

- Bloomreach: A provider of e-commerce and digital marketing solutions, serving clients like FreshDirect, Total Wine, and Puma.

- Pros: Recognized as Microsoft’s internet service vendor of the year, known for its advanced AI-driven pricing and sales technologies.

Regulatory Focus and Concerns

FTC Chair Lina Khan expressed significant concerns about surveillance pricing in a recent statement, highlighting potential risks to consumer privacy. “Firms that harvest Americans’ personal data can put people’s privacy at risk,” Khan remarked. “Now firms could be exploiting this vast trove of personal information to charge people higher prices.” Khan characterized surveillance pricing as part of a “shadowy ecosystem of pricing middlemen,” indicating concerns about transparency and the regulation of these modern digital practices.

The FTC’s inquiry will focus on several key areas:

- Product and Service Details: Examining the types of products and services offered by these companies in relation to surveillance pricing practices.

- Data Collection Practice: Investigating how these companies collect and use consumer data to influence pricing decisions.

- Client Information: Identifying the clients of these technology and consulting firms who utilize their services for pricing strategies.

- Usage and Impact: Analyzing how clients apply these technologies and the resulting effects on consumer pricing.

Regulatory Authority and Process

The FTC’s investigation falls under its Section 6(b) authority, which permits the agency to collect data for research and analysis without initiating specific law enforcement actions at this stage. This authority allows the FTC to gather comprehensive information about industry practices, which will inform potential regulatory measures or policy recommendations.

Corporate Responses and Next Steps

As the investigation progresses, CNBC has sought comments from the companies involved in the FTC’s information requests. Mastercard has publicly acknowledged the FTC’s inquiry and pledged its cooperation, stating, “We will cooperate with the FTC in this process.”

Conclusion

The FTC’s investigation into surveillance pricing represents a significant regulatory effort to address the emerging concerns associated with AI-driven pricing strategies and consumer privacy. As the agency examines the practices of these major technology and consulting firms, the outcomes of this investigation could have far-reaching implications for pricing transparency and data privacy in the digital economy. The findings will likely influence future regulatory approaches and set new industry standards in the evolving landscape of consumer data usage and pricing practices.