How Much Can We Charge You?
The next frontier of American commerce is an algorithm that knows exactly how badly you need something, and exactly how much more you might pay for it.
A few months ago, hundreds of people participated in a grocery-pricing experiment that I think deserves more attention than it received.
They opened Instacart, looked at products from the same stores, and sometimes saw different prices for the same items. Instacart said the retailers involved were conducting randomized price tests to learn how customers responded to different prices. After criticism, the company ended those experiments. This summer, Instacart went further and promised that customers shopping the same store at the same time would see the same item prices. The company also said personal information and shopping behavior would not be used to determine those prices.
That is a reassuring policy.
What bothers me is how believable the alternative has become.
Most of us are already accustomed to prices moving around. Uber charges more when demand rises. Airline tickets seem to change every time you refresh the page. Hotel rates fluctuate by the night. Concert tickets move with demand. Online stores test discounts and promotions constantly.
We have gradually accepted the idea that a price does not have to be fixed.
The next step is much more consequential: a price that changes based on the person looking at it.
For most of my life, a gallon of milk had a price. You could look at the sticker, decide whether it seemed reasonable, compare it with another store, and make a choice. The person standing beside you saw the same number.
Technology creates the possibility of something very different. The store can know what you bought last week, where you live, which products you repeatedly purchase, how often you shop, how long you looked at something before buying it, and how you responded the last time the price went up.
The Federal Trade Commission has studied what it calls “surveillance pricing,” where businesses can use detailed information about customers to help determine prices or promotions. That information can include location, demographics, shopping history, browsing behavior, and other signals gathered as we move around the internet.
Once a company knows enough about you, a very tempting question appears.
How much will this particular person pay?
That question makes sense from the perspective of a business trying to maximize profit. It feels very different from the perspective of a family standing in a kitchen trying to figure out what groceries they can afford this week.
We Have Built an Extraction Economy
I keep coming back to a larger feeling I have about the American economy.
We have become unbelievably good at extracting money from one another.
Spend a normal day paying attention to how many little charges follow you around. There is the subscription that automatically renews. The service fee. The convenience fee. The processing fee. The resort fee. The delivery fee. The priority delivery fee. The platform fee. The insurance add-on. The extended warranty. The tip screen that appears before anyone has actually done anything.
Then there are introductory rates that creep upward, memberships that become difficult to cancel, and services that slowly move useful features behind higher-priced tiers.
Most of these charges are small enough that we tolerate them. That may be part of why the system works so well. Three dollars feels irritating. Seven dollars feels manageable. Twelve dollars a month can disappear into a credit card bill.
Across an entire household, though, those little extractions pile up.
Housing costs more. Insurance costs more. Healthcare costs more. Food costs more. Utilities cost more. Cars cost more. Childcare costs more. A growing number of businesses are also getting much better at figuring out how to capture whatever money remains.
Technology has supercharged that process.
A generation ago, the person selling you something knew relatively little about you. They usually did not know your income, your browsing history, your location, what you purchased yesterday, what you searched for at midnight, or how urgently you needed the item sitting in front of you.
That ignorance offered consumers a kind of protection.
A store had to set a price that worked for a broad group of people. Today, we hand enormous amounts of information to companies every day. Our phones know where we are. Loyalty programs know what we buy. Apps know what we search. Credit cards know where we spend. Websites know what we clicked and how long we hovered over it.
Artificial intelligence can pull those pieces together faster than any person ever could.
That capability can be useful. It can help stores manage inventory, reduce waste, predict demand, improve delivery routes, and recommend products.
It can also become an extraordinarily efficient tool for figuring out how much money a company can squeeze from each customer.
Imagine buying baby formula every week. The retailer knows you purchase the same brand regularly. It knows you tend to complete the purchase even when the price rises a little. It may know there are few competing stores near your home.
The old question was, “What should we charge for this formula?”
The new question can become, “How much can we charge this customer?”
Those questions lead to very different marketplaces.
Groceries Are Different
There are some places where I think society should be especially careful with this technology, and groceries are near the top of the list.
You can decide that a concert ticket is too expensive. You can postpone a vacation. You can skip a luxury purchase.
You still have to eat.
Families are already sensitive to small increases in food prices because groceries are purchased constantly. A few extra dollars on one trip may seem minor. A few extra dollars every week across dozens of items becomes real money over a year.
That burden also lands differently depending on how much financial breathing room a family has.
Someone with several million dollars in savings barely notices another dollar on eggs. Someone with eighty dollars left until payday notices immediately. The item is identical. The meaning of the price is completely different.
This is where the wealth gap becomes more than a statistic.
Wealth buys room to move.
Savings let you absorb an unexpected bill. Home equity gives you options. Investments create security. Cash in the bank allows you to walk away from a bad job, deal with a broken car, start a business, or survive a difficult month.
When nearly every expense in life takes another bite, people lose some of that room.
Their choices become narrower. Their margin for error gets smaller. A missed paycheck matters more. A rent increase matters more. A medical bill matters more. A grocery bill that rises another thirty dollars matters more.
This is why I hesitate to describe the issue simply as corporate greed. There does not need to be a secret meeting where powerful people decide to hold everyone down. The incentives of the system can produce the same pressure on their own.
Every company wants slightly more revenue. Every app wants another subscription. Every platform wants another fee. Every retailer wants to understand what its customers will tolerate.
Taken individually, those decisions may seem perfectly rational. Taken together, they can create an economy where ordinary people feel as though every institution they encounter has a hand somewhere near their wallet.
That feeling has political consequences.
Why This Becomes a Question of Freedom
We often talk about freedom as something guaranteed by laws and constitutions. Economic freedom is more ordinary than that.
It is having enough money saved to say no.
It is being able to leave a job you hate because you can cover the mortgage for a few months. It is having enough margin to start a business. It is being able to turn down another shift and spend Saturday with your children. It is knowing that one unexpected repair will not send your family into debt.
Financial breathing room gives people independence.
An economy that steadily removes that breathing room leaves people more dependent on employers, creditors, landlords, insurers, platforms, and government programs.
That should concern people across the political spectrum.
Progressives should worry about personalized pricing because it can deepen inequality and give large corporations even more leverage over households.
Conservatives should worry because the system depends on enormous collections of personal information and gives powerful companies the ability to monitor and influence private economic decisions.
Anyone who believes in functioning markets should care about price transparency. Markets work best when people understand the transaction in front of them.
If I walk into a farm stand and a pint of blueberries costs eight dollars, the arrangement is simple. I see eight dollars. You see eight dollars. The family that arrives ten minutes later sees eight dollars.
There is something refreshingly fair about that dumb little cardboard sign.
BLUEBERRIES: $8.
The sign does not know where you live. It does not know your income. It does not know that you searched for blueberry recipes last night or that your children love blueberries or that you bought three pints the previous weekend.
It simply tells you what the blueberries cost.
We may eventually come to appreciate how important that simplicity was.
We Should Draw the Line Early
Government is starting to pay attention to these questions. The FTC has investigated surveillance pricing and requested information about how consumer data can affect prices. States are also beginning to write laws restricting the use of personal information to charge different consumers different prices for identical products.
I think this is one of those areas where we should establish boundaries before the technology becomes so common that reversing it feels impossible.
Companies should be free to compete. They should experiment with prices, offer discounts, manage inventory, and develop new products. Technology should help make commerce more efficient.
Consumers also deserve a basic degree of fairness and privacy.
A company should have limits on how deeply it can study a person’s private life in order to discover the maximum amount that person can be pushed to pay for necessities.
Food is an obvious place to start. Medicine should be another. Housing deserves similar scrutiny.
As algorithms become better at predicting our behavior, we are going to face this question in more parts of daily life. Someone will always be able to make a persuasive business case for using more data. Someone will always discover that a little more personalization can produce a little more revenue.
The larger question is what kind of economy we want to live inside.
I want one where businesses make money by creating things people value, serving customers well, and competing to earn their business. I want families to have enough left over after the bills are paid to build savings, take risks, raise children, and gain some independence from the institutions around them.
There should still be some space between what a person has and what a corporation can figure out how to take.
Instacart ended its grocery pricing experiment and adopted a clear policy against personalized item pricing. I think that was the right decision.
The technology remains. The incentive remains. The enormous pools of consumer data remain.
Somewhere, someone will eventually ask whether all that information can be used to answer the most profitable question in modern commerce:
How much will this person pay?
We should spend some time deciding how much we want them to know before they get very good at answering it.
Justin
Opinion Desk
Watching the Checkout Line, Still