Is tech making things more expensive? Pricing exploitation 101

Egg prices have been a point of contention on and off for the past couple of years. You may have even spotted an outrageous price on a digital price tag at your local grocery store. If you ordered online—perhaps scrambling for the best egg prices—the algorithms working behind the scenes might have sensed your desperation and increased prices for you accordingly. 

Avian flu certainly played a role in the recent hike in egg prices. But not as much as companies would like the public to believe.

Pricing exploitation is nothing new—and certainly isn’t limited to eggs. Throughout history, companies have exploited their monopolies on goods, people’s need for essentials like housing and food, and events like pandemics and wildfires to increase prices beyond what is necessary, overcharging consumers to increase profits.

However, new technologies are enabling companies to commit pricing exploitation at a speed and scale not seen before. Not only that, this tech helps companies conceal the fact that they’re participating in exploitative pricing, making it harder to expose these practices and get justice when harmed. To tackle this issue, we need to start by understanding how companies are using tech to make things more expensive.

Price gouging

Price gouging is when companies raise prices beyond what is fair to rake in profits. It’s typically done during a crisis when an item is scarce or direly needed—like charging more for masks during a pandemic.

Tech enables companies to change prices on a dime—even if you’re shopping in person—making it easier than ever for companies to price gouge.

Price gouging during an emergency is illegal in California. But it’s difficult to legally say when companies are reacting to changes in supply and demand versus when they’re price gouging, especially if there aren’t price controls on a particular good. 

In the case of recent wildfires in Los Angeles, though, it was evident that landlords took advantage of people’s desperation to find housing by price gouging—especially since the government explicitly capped rent increases at 10%.

Price fixing

Some companies overcharge through price fixing. This is when sellers of a good/providers of a service can set the price of a good because they have a monopoly or because they conspired together with other sellers to set a price.

These risks are higher as markets become more concentrated and algorithms make it easier for businesses to coordinate prices without direct communication. This wrangles power away from consumers, making it harder for them to shop around for a good deal. 

Price fixing is illegal, but policy is only as good as enforcement. In the early twentieth century, we developed anti-trust laws to break up monopolies, but they continue to exist, a constant uphill battle. Why? A lack of political will, corporate lobbying, and an endless supply of trust-busting cases are just a few reasons.

As for collusion, it can be difficult to prove. For example, RealPage is a property management software company that uses a combination of public and private data to suggest rent prices to landlords. Before tools like RealPage, landlords had to make under-the-table deals to fix rents. 

Now, landlords in one area can all utilize the same software and/or a shared set of data to set prices. While this isn’t collusion through explicitly communicating to raise prices, it can be tacit collusion—an agreement about coordination of conduct. In this example, landlords are following the same pricing strategy. 

Surge pricing

With surge/dynamic pricing, companies can increase prices by taking advantage of demand and/or external conditions that create demand to charge consumers more. 

The best-known example of surge pricing is when rideshares are more expensive after a big event. Rideshare platforms charge more because the demand for cars is high as crowds of people are all vying to get home at the same time.

Now, though, grocery stores and fast-food chains are looking to get in on surge pricing—using digital price tags as an opportunity to charge people more at common meal times and when they get off work. This disproportionately impacts people with less flexible hours and people who depend on fast food, like many low-income people.

Online, companies can also change prices based on data that they have on you, such as your age, location, or how many times you’ve refreshed a page, presumably desperate to purchase something. 

Surveillance pricing

This is also an example of surveillance pricing—which can be downright disturbing. With surveillance pricing, companies use information that they have about you—location, buying habits, demographics—to set a price that is personal to you. Sometimes, this means a good deal; other times, it could mean jacked-up prices on the things you need the most. 

This practice is highly suspect. Are women getting charged more? What about low-income people? People of color? Most companies aren’t transparent about their dynamic pricing models, so it’s hard to know. However, researchers and advocates suspect discrimination. With these groups already being economically marginalized, we need further investigation and legal protections.

So where are they even sourcing this data from? Social media, phone games, headphones, and even cars constantly collect data from us. This data gets passed around through data brokers so that, for example, your search history on Facebook could be then shared with Target.

In states like California, consumers have some privacy protections, including the right to opt out of sharing data. But all of these protections are incomplete, leaving loopholes, especially as these technologies outpace the laws regulating them.

People power to prevent pricing exploitation

While companies have many tech-backed pricing exploitation tricks up their sleeves, that doesn’t mean all is lost to the algorithms. Individually, you can take action to protect yourself from surveillance pricing and spread the word to others about how they can do the same.

In the court systems, people from Seattle to Houston are filing—and even winning—price-gouging lawsuits against companies.

In our governments, cities like Berkeley are working to ban algorithmic pricing software that enables landlords to collude. States like Colorado are developing comprehensive AI legislation that tackles consumer rights, including privacy. 

And we at TechEquity are championing bills in California to ensure that people can afford the everyday necessities of life. Sign up for our newsletter to stay up-to-date with our work and learn about opportunities to help pass these bills.