Some States Are Targeting a Tactic Corporations Use to Raise Your Grocery Prices

One online grocery shopper got charged $3.99 for a box of Wheat Thins, while another — buying from the same store at the same time — got charged $4.89.

A consumer watchdog detected this price discrepancy during an investigation last September in Seattle. The grocery app Instacart used an artificial intelligence-powered algorithm that charged customers differently for each item by as much as 23%, Consumer Reports and Groundwork Collaborative found. Instacart has since stopped offering grocery retailers the technology.

With many Americans struggling to afford the basics, consumers and state lawmakers alike are becoming more concerned about how retailers are using algorithms — many of which rely on personal data — to price products.

Businesses have used algorithmic pricing for years to determine how much consumers are willing to pay for products and services. They use automated systems that set general prices based on supply, demand and competitor prices. These algorithms, which require little human management, rely on both public and personal data.

Now, some companies are using personal data to set individualized prices for customers, a tactic known as surveillance pricing.

As online marketplaces expand their use of pricing algorithms, some lawmakers and consumer advocates worry about personal privacy and higher charges for shoppers. To address the concerns, lawmakers in several states are proposing measures that would require companies to disclose their use of personal data or to prohibit the use of surveillance pricing.

“I don’t have control over the price of bread or eggs or milk,” said Oklahoma Democratic state Rep. Cyndi Munson, who introduced a bill that would regulate how food retailers use algorithmic pricing and ban surveillance pricing. “But we do have some say on how corporations are going to operate in our state.”

In recent years, several high-profile investigations of online retailers have revealed how prices set by algorithms could result in consumers paying more.

Several lawsuits have been filed in federal and state courts alleging that companies such as RealPage are giving corporate landlords algorithms that allow competitors to collude on rent prices. Last year, the U.S. Department of Justice also sued six of the nation’s largest landlords for participating in algorithmic pricing schemes that harmed renters.

In another instance, Target reached a $5 million settlement with California district attorneys after officials alleged the prices of certain items changed when a customer using the Target app on their phone walked into a retail location.

But the proposals appearing in state legislatures across the country — especially those targeting grocery stores and supermarkets — could hurt consumers more, said Jason Straczewski, group vice president of government relations and political affairs at the National Retail Federation, a trade group.

In attempting to address affordability concerns, state lawmakers are introducing proposals that would make it harder for grocery retailers to offer discounts and compete with other stores, Straczewski said. Building a new regulatory structure that businesses have to comply with will also be costly, he said.

“There are numerous laws that protect consumers from deceptive practices in the retail space,” he said. “And unfortunately, I think the uncertainty with the tech that’s out there is driving this.”

A Flurry of Bills

In November, New York became the first state to regulate the use of algorithmic pricing by requiring entities that use the technology to display a disclosure that reads: “This price was set by an algorithm using your personal data.”

This year, lawmakers in at least 11 states are considering similar legislation that would require businesses to inform consumers of their algorithmic pricing practices that use personal data. Several lawmakers also want to crack down on surveillance pricing.

Several bills, including a measure in Utah, focus solely on requiring businesses to disclose when they use a consumer’s personal data to set prices. One measure in Illinois would prohibit algorithmic pricing discrimination, and a second one would require businesses to disclose if their prices were set using surveillance pricing and allow consumers to opt out of surveillance pricing.

While most people are aware that companies use their personal data, many consumers do not know how it affects prices, said state Rep. Eva-Dina Delgado, the Democrat who sponsored the Illinois algorithmic pricing discrimination bill. In addition to requiring companies to disclose the use of algorithmic pricing to consumers, it also would prohibit the use of algorithmic pricing to gather and make decisions based on ethnicity, national origin, age, disability and sex.

“This legislation is something that restores basic price transparency, and that is probably one of the most effective tools we have to keep prices down and to make sure that consumers are able to shop around and make good decisions,” she said.

Bills in other states would move beyond disclosure to ban the practice of surveillance pricing.

New Jersey is the latest state where lawmakers advanced personalized algorithmic pricing legislation. The Senate Commerce Committee on March 16 approved a measure that would bar supermarkets from using algorithms to adjust the prices paid by individual shoppers.

State lawmakers in Maryland, Minnesota and Oklahoma also are specifically targeting food retailers that use personalized algorithmic pricing. The measures would prohibit the use of surveillance pricing to determine the costs of products for individual shoppers.

Affordability has been a pressing issue for many Americans across the past few election cycles, said Munson, who introduced the Oklahoma bill. People are unsatisfied with high prices at grocery stores — and are still waiting for them to cool down, she said.

The Oklahoma legislation would also prohibit food retailers from using electronic shelving labels — digital price tags that can be updated remotely and make surveillance pricing an in-store possibility. A bill in Nebraska would do the same, as well as ban the use of surveillance pricing by all businesses.

Legislation in Tennessee would ban personalized algorithmic pricing altogether. The bill, sponsored by Republican state Sen. Paul Bailey, would make it illegal for businesses to engage in dynamic pricing set by an algorithm that uses personal data.

But this kind of legislation is dangerously broad, said Amy Bos, vice president of government affairs at NetChoice, a trade association of online businesses that includes Amazon, Google and Meta.

The Tennessee bill defines personal data as “any data that identifies or could reasonably be linked with, directly or indirectly, a specific consumer or device.” This definition of personal data could apply to almost anything — such as a customer’s purchase history, retail memberships and much more, said Bos, who testified against the measure. Businesses would be responsible for navigating these restrictive conditions, which could harm customers with loyalty programs and prevent businesses from offering promotions, Bos said.

Instead of regulating algorithmic pricing, she said, many of these states could benefit from privacy protections.

“In conversations with lawmakers and talks about their concerns, I think what they’re looking for and needing is a privacy law,” she said. “They’re concerned about what data is collected and individuals not knowing what is being collected and how it’s used. That’s a need for a privacy law.”

A Growing Practice

In online marketplaces, surveillance pricing has become a growing concern because it’s become easier for businesses to track a customer’s purchase history over time, said Ioannis Stamatopoulos, an associate professor at the University of Texas at Austin. As a result, companies could use that information to tailor prices to each individual customer.

But this practice does not provide many benefits for businesses or their customers, he said. And as Instacart’s experiment shows, charging different prices for people living in the same neighborhood or household is unpopular with consumers.

This type of pricing, however, is often not used on a wide scale, he said. It’s difficult to determine how much each person in a grocery store is willing to pay for each item because of gaps in inventory knowledge and fluctuations in demand — and the guarantee that it will “piss people off.”

“I understand that affordable groceries are extremely important,” he said. “I understand that regulators want to make sure they protect customers — somebody has to be in the customer’s corner. But I do think this is not energy well spent. I think this energy would be much better spent trying to understand if there’s collusion between suppliers or other closed-door deals that keep prices up.”

But surveillance pricing — in addition to algorithmic price fixing and junk fees on retail and delivery apps — is how corporations are able to squeeze more dollars out of consumers, said Erion Malasi, the Illinois policy and advocacy director at the Economic Security Project, a liberal advocacy group.

“I think we’re seeing a change in the way that people shop online,” Malasi said. “As we experience a more unaffordable economy, people want to see their government stand up for them.”