The Price is Rigged

0:00By now you know that companies will do just about anything to jack up prices on you. And AI is offering them an additional itch. Delta Airlines is bragging about how they're going to boost profit margins with a new AI algorithm that determines how much you will personally pay for your next ticket. Thanks, AI. It's almost Christmas time. But when I was searching American Airlines website, I'm at the screen where I'm submitting my credit card information and the flights went up over$100 a flight. This is price gouging. It's not dynamic pricing. It's price gouging. They are charging different amounts based on what they believe you will pay for your groceries.

0:40Dynamic pricing, surveillance pricing, lots of terms that mean companies set prices based on what they know about you. And they know a lot. That's coming up on Today Explained. I might not have money for food or to hang out with my friends, but I always have money for candles. I always have money for candles. Okay, let's see here. Today. Today. Explained. Explained. I'm Noelle King with Derek Kravitz. He's an investigative journalist at Consumer Reports. And Consumer Reports recently investigated Instacart. Why, Derek? Yeah, so Instacart bought a small AI company a few years ago called Eversight.

1:24And as a result, they are far and away the most sophisticated tech company in retail. And so many companies are investing in AI, but specifically Instacart uses AI in a way that supercharges or turbocharges their data collection and their use of data for individual shoppers. And they're huge. They've grown to now roughly 300 million orders on pace for 2025. So we really just wanted to know how much AI is driving grocery store prices through a service like Instacart. How can grocery retailers use this technology to set prices that you see in app or online? Welcome, welcome, welcome. You have found your way to the Consumer Reports Grocery Pricing Webinar.

2:18So we recruited hundreds of volunteers from across the country to hop on video calls with us. What has begun? Virginia. Denver. Yo, Gene, thanks for being with us. And we all shopped live, right? We all shopped for the same exact items from the same exact grocery stores at the same exact time. Enter the word Honeycrisp. H-O-N-E-Y-C-R-I-S-P. Trying to control for as many variables as we could to understand how Instacart is using this tech, this AI, to inform their grocery prices. Sarah is getting charged$2.44 for an apple. Can anybody beat Sarah? $2. Brian, winner, winner, chicken dinner. What we found were, you know, 75 % of the products we tested had algorithmically changed prices.

3:08Everything from$0.07 on the low end all the way up to$2.56 on the high end. And some of the products had really large price variances. Skippy Peanut Butter had a 23 % price variance between the low and the high. And that adds up to real money over time when we extrapolate that out over the course of a year using Instacart's own estimates for how much Americans spend on groceries in a given year. That's the difference between$1 ,200 for a household of four. We'll keep on it. We'll figure out what we can do and how we can guide you all through it. And again, thank you all so very much. 901 Eastern Standard.

3:48So we'll sign off now. What are you saying when you say prices were algorithmically changed? What was actually happening? You know, a lot of people liken it to like A-B testing. And when I say that, I mean, you know, they're toggling one price,$5,$0.10,$0.15 more, and then another price,$5,$0.10,$0.15 less, and trying to figure out that perfect mix of price points that will compel you, the shopper, to buy those products. If you're more willing to pay more money to buy alcohol or sweets on a Friday, late on a Friday, and you group all those products together on a Friday, for a company, they understand that purchase history and they understand that they can charge you more based on that purchase history.

4:38And they can sell those insights, that information and data to retailers as a really valuable bit of information on you, the shopper. And of course, retailers want that. And they see the ability to make more money, especially in a business like grocery that has really low margins historically. This means something. This one, two, three percentage points means hundreds of millions of dollars in additional revenue. And that's the difference between making a profit or not. Okay, so your investigation finds out what Instacart is doing, and then you call up Instacart and you say, guys, we know what you're doing.

5:15What does Instacart say? So they did say, you know, look, this is something that we're pretty open about. We've been telling our business clients for years, this is happening. It's online. It's out there. And look, we still believe that it's negligible price differences, small, limited time and randomized. And really, at the end of the day, it helps grocery retailers and us know which products people care most about and trying to, you know, in the attempt to try to make groceries more affordable for more Americans. You know, our data showed something a little bit different. Very few people in our testing got the lowest price possible.

5:57When we looked at it, 8 % of our testers got the lowest available price on products. And everyone else, 92 % got something higher. And, you know, generally speaking, when we look at the marketing materials and things that are out there by Instacart for their grocery clients, it's all in an attempt to maximize profits and to, again, get a little bit more sales revenue or a little bit more profit margin. And really, that means you're either buying more or you're paying more per item, right? So it's usually a combination of both. Okay, so Instacart is able to do this because they have this small AI company, Eversight.

6:36and Eversight AI is clever and it's figuring all this out. Is it just Instacart? Are other companies doing this to us? Other retailers are doing it, yeah. And the more technologically savvy they are, the more likely they are to be using this at a scale that really affects more Americans. When we looked at a grocery retailer called Kroger, which is actually the second or third largest retailer by most metrics, They own a bunch of different banners, King Soopers and Fred Meyer and QFC and all these grocery chains around the country. We found that they actually use a lot of personal and demographic data on their customers, and they drive a lot of people through their free loyalty program.

7:22And then with that data, they tailor promotions and discounts to particular people. And they use that personal data, those demographics to dictate who gets what promotion or discount. So we find that, again, a lot of retailers are using this data and using it effectively. And really, it bears out in their earnings and in their quarterly reports if they're publicly traded or even if they're privately held. We see a lot of increase in meaningful profits and revenue for some of these companies. Is this legal? It's a very good question. It's really a gray area. I think everyone we spoke to about this acknowledged that, look, there's no specific federal surveillance pricing bill.

8:11And when I say surveillance pricing, I'm talking about the idea of using your shopping history or your buyer behavior or demographics even to inform the prices you see, whether that's a set final price or a discount or a promotion. There's no federal surveillance pricing bill. Some states now have laws in the books. New York is one of them. They just enacted a law where if someone is algorithmically changing the price you see in an app, whether it's an Uber or a Lyft or a grocery retailer, they have to have a label in the app saying this price is being algorithmically changed. And here's why. It's a disclosure, basically.

8:51But that doesn't inhibit or doesn't prevent them from doing the practice, right? It just shows you that they're doing it. And so other states are figuring this out. We've been talking to a lot of regulators recently who are actively considering new laws. And the FTC even has an active probe into surveillance pricing. So it's an open question. You know what I wonder? I wonder if there is a case for this. So let's say you have two American neighborhoods. One of them is very upper income. One of them is very lower income. And the people in the upper income neighborhood, they spend a lot more because they can spend a lot more.

9:28Lower income neighborhood, they're strapped and food is very expensive. Is there a case for this that says, look, if you're rich, you should be able to pay the$350 for the peanut butter or the$550 for the peanut butter? And if you're in a poor neighborhood, okay, we charge you$250. Yeah, there is a clear case for that, except that most state and even federal laws bar discrimination, price discrimination on the basis of your zip code or your household income or wealth for good reason. That can be proxies for race, ethnicity, various things that we as a country do not believe that you should be discriminated against because of your background or who you are.

10:09We're moving into a very fast-paced, quick use of this really sophisticated tech with now AI involved. And regulators and the American public are playing catch-up. And so we're trying to figure out what this all means and how we should best react to it. You know, one thing that we hear about AI, Derek, is that it is inevitable. This is the future. This is where things are headed. Do you think we are headed toward a future where different people pay different prices for any number of things, peanut butter, airline flights, concert tickets, based on what retailers know that they can and will pay?

10:50So we're already there to some degree. But, you know, one thing that really sticks out, we spoke to Lena Kahn, who was the chair of the FTC during the Biden administration. Now she's advising the new New York City mayor elect, Zoran Mimdani. And, you know, she, when we sat down with her at Columbia Law School, she was pretty clear. We need to have a first order conversation is what she said. We need to think about, do we want our personal data? Do we want things that companies know about us to be used against us in this way? Do we want our own personal data to inform the prices we see? Because if we do, then we're there.

11:35If we don't, then we need to pass some meaningful laws and regulations that speak to that, that address that.

11:48That was Derek Kravitz of Consumer Reports. Coming up, Congress acts. JK, JK, JK. Congress doesn't do anything.

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13:15This is Today Explained. My name is Alfred Ng. I'm a tech policy reporter for Politico. In the first half of the show, we talked about surveillance pricing, companies charging you more because they think or know that you will pay more. And we also heard that the FTC, which protects us from monopolies and other unfair trade practices, launched a probe into this practice. Where does that stand? So the probe was released in the final days of the Biden administration in January, just a couple of days before President Trump had taken over. A new report this year from the Federal Trade Commission confirmed something known as surveillance pricing.

13:56A person's precise location or browser history can be frequently used to target individual consumers with different prices for the same goods and services. It was very much released as, you know, kind of preliminary findings from, you know, a study that they opened up in, I think, July of 2024. So it wasn't a completed study. And the premise was, you know, we hope that the next administration will continue this study. That didn't end up happening. The study was actually ended under the new FTC chair, Andrew Ferguson, in January. Hmm. Okay. So they didn't have very long to do their investigation, but they did have some time.

14:38Do we know what they found? Yeah. They had found from the report that, you know, a lot of these companies that were contracted with, you know, a lot of retailers were making these promises, right, of, you know, we can use AI to basically set different prices for people. They didn't exactly use the term pain points, but that is a term that's been, you know, going around a lot with relations to surveillance pricing, where it's basically what is the most someone is willing to pay for this certain product or something like that, and basically saying we can, you know, set these prices this way so that your company can earn more money.

15:18Do we know how widespread this is? We know that Instacart is doing it. Do we know for sure who else is doing it?

15:27So most of what we know about use of this usually comes from the companies themselves, right? There's no federal requirement to say like, you know, hey, you have to tell us if your company is using this algorithm to set individual prices for people. But, you know, Delta Airlines, for example, you know, people learned about them using dynamic pricing. And I'm saying this air quotes through like their earnings calls, right, where they're telling investors, here are some ways we can see ourselves making more profit here by, you know, setting different prices. Delta Airlines told investors their pilot program to tailor pricing based on an AI analysis was successful.

16:10They've set a goal to have a fifth of all of their fares set by AI by the end of the year. We like what we see. We like it a lot. And we're continuing to roll it out. And they've basically said we don't use personalized data for people to set these prices. And I think that's why, you know, people use terms like dynamic pricing or individualized pricing as opposed to what the FTC called it, which is surveillance pricing. The response to this from consumers, you know, no surprise, is a lot of outrage. I know this sounds legitimately crazy, but I stopped signing up for loyalty programs with companies because of surveillance pricing.

16:49I mean, how crazy would it be if brands jacked up prices based on your previous shopping history, had data on you that said you were desperate and knew that you would spend the money no matter what? Oh, they do. This seems like easy pickings for Congress. Has Congress shown any interest in taking on surveillance pricing? You're right. This does seem like easy pickings for Congress, right? Because it hits on these two issues that are very salient right now, which is affordability and also regulating big tech. And, you know, we've seen lawmakers, both Republicans and Democrats, talking about it being a big problem.

17:28When it comes to legislative solutions, though, that really hasn't been quite the case. Senator Ruben Gallego introduced a bill last week that would ban, you know, surveillance pricing. We as policymakers want to make sure that there is an even playing field between the consumer and the corporations. But he has no co-sponsors on it. He doesn't have any Republicans backing the bill or anything like that. It's one Democrat that's proposed legislation on this. That is fascinating to me because it seems like it would be a big win for anybody who starts banging the drum early and gets everybody else on board.

18:06It does seem like it would be a big win, you know, for somebody to get on this issue early. I know that Senator Josh Hawley, a Republican, has actually criticized, you know, airline CEOs for this practice. Okay, so you don't collect personal information before people can see a price? No, we don't use personal information. You collect it, though. We collect it, but we don't charge you differently. Well, how do I know that? Why are you collecting all of this personal information? What guarantee do I have that you're not using this to set my price? I have no idea how you're setting the price. I just guarantee you we're not.

18:39Well, I think it really comes down to, you know, what is in the terms of the bill, right? Because I know that a lot of lobbyists have worked against these kinds of surveillance pricing bills to say, you know, well, if you pass this legislation the way that it's written right now, we're not going to be able to offer military discounts. or we're not going to be able to offer discounts to teachers or, you know, any of these discounts that like have existed for many years without algorithms suddenly are not able to exist if you ban, you know, setting prices based on people's personalized information.

19:16So no action, very little action at the federal level. I wonder about the states, though, because we talked in the first half of the show about a New York law where a company has to say whether or not they've used customers' data to set prices. That's going on in New York State. New York is a pretty progressive state, all things considered. How has that been received? So in New York, that bill was actually watered down from its original intent. Huh. Originally, that bill was supposed to be an outright ban on surveillance pricing. A lot of lobbying groups, you know, went against it, making the arguments that I mentioned earlier, saying if you pass this, you're actually going to hurt people on affordability, where we can't use discounts, we can't offer discounts to people for, like, frequent flying, we can't offer discounts to, like, potential new customers who've never shopped with us before.

20:12Consumers will be harmed, too, as many businesses are likely to forego beneficial algorithmic pricing altogether, rather than recite a state-mandated script that wrongly requires them to disparage their own offer. And it seemed to have worked because surveillance pricing, as you know, is still allowed in New York State. And all the law does is say that you have to tell people that they're doing this. And even that disclosure law did have some challenges. I believe there was a lawsuit from the National Retail Federation basically saying this violates our free speech rights, right? Like, they're saying that this is compelled speech.

20:52You can't make us say these things as a government entity. Algorithms are created by humans, not computers. And they are an extension of what retailers have done for decades, if not centuries, to use what they know about their customers to serve them better. It's just done at the scale of the modern economy. I believe that lawsuit was thrown out or dismissed because I know that it didn't, like, get very far. But it is interesting that, you know, a lot of companies are, like, trying to fight back against this law, you know, even after already getting it down to the level that it currently is at.

21:33All right. So for the moment, it looks like we will not get meaningful regulation. We will not get a ban. We will not get something that says Instacart, you can't do this. Is there anything we can do to avoid surveillance pricing? I think it's really difficult to try to avoid surveillance pricing as an individual person, right? I think that's why the Consumer Reports study was so fascinating because, you know, whenever I've thought about this, you know, it would be the only way that you would know that you were subject to surveillance pricing is if you were comparing your prices with other people at the exact same time for the exact same product.

22:10and Consumer Reports went and did it with like 400 plus like different participants doing it. And I think that if you as an individual are trying to do it, it's, you know, the least you need is like two phones to figure it out. And then even then it's not like you're able to change the pricing on your own because you don't know why each device or each person is getting a different price, right? where even in the Consumer Reports study, I don't think at least they were able to pinpoint a reason why the prices were different, just that they were. So it's hard to combat that when you don't know what the causes of it are, and in most cases, you don't even know that it's happening.

23:08Politico's Alfred Ng. Miles Bryan and Dustin DeSoto produce today's show. Julie Myers is our editor. Patrick Boyd and David Tattashore engineered. And Laura Bullard checked the facts. I'm Noelle King. It's Today Explained.

23:35Happy 10.