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WTF?! In a groundbreaking move, the Federal Trade Commission has launched an investigation into Mastercard's use of artificial intelligence (AI) for surveillance pricing--a practice that uses consumer data to manipulate individual pricing. The FTC's action comes in response to growing concerns about privacy and fairness in digital commerce.
The FTC unanimously voted to open an investigation into so-called "surveillance pricing." It already ordered eight companies, including Mastercard, to provide detailed information about their surveillance pricing practices. These orders mark a significant step in the FTC's efforts to regulate the increasingly complex intersection of technology and consumer rights.
Mastercard's surveillance pricing strategy reportedly involves using AI to analyze vast amounts of consumer data, including purchasing habits, location data, and even social media activity. Vendors then use the data to adjust prices in real-time, potentially charging higher prices to consumers deemed more likely to make more expensive purchases. Critics argue that this practice is invasive and creates an unfair marketplace where pricing is not transparent.
"Firms that harvest Americans' personal data can put people's privacy at risk. Now firms could be exploiting this vast trove of personal information to charge people higher prices," said FTC Chair Lina M. Khan. "Americans deserve to know whether businesses are using detailed consumer data to deploy surveillance pricing, and the FTC's inquiry will shed light on this shadowy ecosystem of pricing middlemen."
The other companies listed in the order include Revionics, Bloomreach, JPMorgan Chase, Task Software, PROS, Accenture, and McKinsey & Co. The FTC's investigation spawned from multiple consumer complaints and advocacy groups that have been increasingly vocal about the need for greater transparency in how retailers use people's data.
The Commission invoked Section 6(b) of the FTC Act to compel the eight companies to cooperate in its surveillance pricing probe. The 6(b) orders require companies to disclose detailed information about their data collection and pricing algorithms. The FTC is particularly interested in understanding how these companies use AI to make pricing decisions and whether these practices are deceptive or unfair under the FTC Act.
While Commissioner Melissa Holyoak supported the investigation with her "yay," she felt compelled to issue a statment noting that she does not agree with the "surveillance pricing" terminology.
"Public statements that accompany the issuance of these orders describe their focus not on targeted or personalized pricing, but on "surveillance pricing," Holyoak said. "This term's negative connotations may suggest that personalized pricing is necessarily a nefarious practice. In my view, we should be careful to use neutral terminology that does not suggest any prejudgment of difficult issues."
The FTC expects the probe to take several months, during which the involved companies must comply with the orders and provide the requested information. Depending on the findings, the FTC could take further action, including imposing fines or other penalties, to ensure compliance with consumer protection laws.
This investigation highlights the growing need for regulatory oversight in the age of AI and big data. As companies continue to innovate, regulatory bodies like the FTC must keep pace to protect consumer interests and maintain market integrity. The outcome could set a precedent for how AI-driven pricing strategies are regulated in the future, potentially leading to more stringent guidelines and greater transparency in the use of consumer data.
Image credits: Kite Rin, Valeri Luzina