California lawmakers take on ‘surveillance pricing’ as FTC retreats

You pay $75 more for your hotel room than the guest in an identical room next to yours. A friend is charged an extra $10 while online shopping for the same item. The difference in these prices isn’t a result of simple supply-and-demand economics, but rather algorithms that analyze customers’ personal data in order to maximize what an individual will pay. 

“Traditional pricing is based on market forces. Price discrimination is different,” explains Justin Kloczko of the advocacy group Consumer Watchdog. “It’s based on you: Did you keep that tab open on your phone for some medication you are thinking of buying? Does the retailer know you prefer expedited shipping? Congrats, you’re going to pay more than someone else who isn’t considered to want the product as badly.”

These aren’t hypothetical scenarios: Retailers and platforms are doing this right now, a practice that critics call “surveillance pricing.” The issue was a focus of the U.S. Federal Trade Commission under former Chair Lina Khan.

In the final days of the Biden administration, the FTC released a study showing that third-party companies use AI tools to help retailers boost revenue by as much as 5%, either through cost savings or by hiking prices for customers. But under President Donald Trump’s new FTC chair, Andrew Ferguson, the agency seems unlikely to pursue the matter. Ferguson abruptly shut down the public comment period on surveillance pricing in January, and just last week Trump illegally fired the two remaining Democratic FTC commissioners, both of whom had championed studying the issue.

With the federal government in retreat, California lawmakers are stepping up with a series of bills aimed at stopping companies from charging you based on who you are and what they know about you.

The practice relies on intermediary companies hoovering up your personal information as well as data about your online and offline habits, and using AI to predict what price you’ll pay. “Based on your private data, they may decide that because it’s your payday, you’d be likely to pay more,” explains Victoria Noble, a staff attorney at the Electronic Frontier Foundation, which sees surveillance pricing as a problem attributable, in large part, to failures in—or the absence of—privacy legislation. “Or when you need something the most, such as in an emergency, you would also likely pay more.”

California’s legislative package takes aim at different ways that AI is being used to set prices. One bill, advanced by Assemblymember Chris Ward and cosponsored by Consumer Watchdog, would block retailers from using a consumer’s personal information to adjust prices; another is aimed at algorithms that personalize prices based on “explicit or perceived characteristics gathered from personal data.” Yet another bill would prohibit algorithms from setting rental property prices and would allow tenants to sue landlords who use such technology.

It’s not just consumers who are being targeted. A bill from California Assembly Majority Leader Cecilia Aguiar-Curry addresses algorithmic price-fixing, which involves competitors using AI to collude to set higher prices. “AI price-fixing is anti-competitive, restricts supply, and artificially inflates prices,” she says, citing a case where, between 2022 and 2024, “the price of frozen french fries rose by almost 50%, even though the underlying costs declined” after manufacturers used a software program called “PotatoTrac” to share pricing data. A group of restaurant owners sued the manufacturers, alleging anti-competitive behavior. 

As the California Legislature, where Democrats control both houses, weighs these bills, it remains unclear whether Governor Gavin Newsom, who has occasionally vetoed AI-related measures (including a notable safety-related bill last year), would support such legislation. Also unclear: how watered-down the bills might be before they make it to his desk. But if passed, they could force companies operating in California to charge everyone equally, at least within the state’s borders. 

Now is the time to intervene on algorithmic pricing, say advocates. “These technologies will only become more invasive,” says Kloczko of Consumer Watchdog. “AI is trying to hack our minds so it can predict our desires and fears in order to get us to buy more things for as much money as possible.” 

Regulators are just starting to understand how widespread these practices are and how they impact the everyday lives of consumers. The FTC investigation started under Khan’s leadership found about 250 businesses across retail sectors use consumer information to set prices. Companies track behaviors from location to mouse movements, and even monitor what products you leave unpurchased in online shopping carts to decide what to charge you.

“Initial staff findings show that retailers frequently use people’s personal information to set targeted, tailored prices for goods and services—from a person’s location and demographics, down to their mouse movements on a web page,” Khan wrote in a statement last year. 

But now the FTC is pulling back on the issue. After Ferguson shut down the request for information and public comment periods for surveillance pricing and several other issues, Alvaro Bedoya (one of the two commissioners fired by Trump last week) criticized the decision, saying, “Chairman Ferguson seems uninterested in the challenges that regular human beings face.”

Aguiar-Curry says federal inaction makes state action crucial, especially in California, the home of major tech companies: “It’s more important than ever for California to lead on policies that make living more affordable,” she said. “Whether we have partners in Washington or not, protecting consumers and small businesses from illegal and unethical business practices is good policy and makes good sense.”