Are you paying more online without ever knowing it?

Jordan Every so often an issue comes across our desk at The Big Story that makes me reconsider all the recent experiences I’ve had in any given area. I’ll give you an example. Like many of you, during waves of this pandemic, when it seemed particularly dangerous to shop in person, I have shopped online. I’ve relied on digital retailers for everything from groceries to household items, to subscriptions to streaming media, and digital news and books and everything else that has kept us sane during these, by now, I guess, totally precedented times. And yes, sometimes the prices of those things changed. Who hasn’t gone back to order another bag of that coffee they really liked and found it costs a buck more or a buck less now? I assume that that depends on how many bags the retailer has on hand, how long until the next order comes in, shipping costs, supply chain issues, whatever else. That’s fine. It happens. Prices change. Where I start to do a double take, though, is when I learn that the buck more or buck less for the coffee is not about who the retailer is and what their costs are, but about who I am and where I am. This is called dynamic pricing, where you pay a buck more than I do for the same coffee from the same retailer at the same time because you happen to live in a poorer neighbourhood. Or I pay a buck more than you for one book because the algorithm knows how much I like that particular author and knows I won’t want to miss this one. Do we know when this kind of stuff is happening? Nope. Is it happening far more than any of us think? Oh, probably. Is it illegal? Not at all. At least not yet. Should it be? Let’s discuss that.

I’m Jordan Heath-Rawlings, this is The Big Story. Vass Bednar is the executive director of MPP and Digital Society at McMaster University. She is the author of a blog that examines the digital economy called regs to riches , including in one of her recent posts, dynamic pricing. Hi Vass.

Vass Bednar Hey.

Jordan why don’t you start by telling me where did dynamic pricing begin? And I’m going to say I feel like my first encounter with it was buying sports tickets to the good matchups.

Vass Bednar Yeah. So where’d it begin? I mean, in an online context, prices have always had some element of dynamism, and the sports example is a really good one. Another one that people are very familiar with is airplane tickets, right? There’s a finite amount of them, and based on the demand for that route or the amount of time you’re booking ahead, you might get a slightly different price. However, the kind of dynamic pricing that I also want to point to is maybe we could call it hyper-dynamic. Or it’s often referred to as personalized pricing. And that’s where in an online context, the price that is advertised to you is for you and only you. And it could be based on all sorts of things, the type of device you’re using, the shopping you’ve done in the past with that particular site, your geography, et cetera. So it’s kind of like your sports example, but I don’t know, to be sporty, on steroids? Does that help us with the analogy?

Jordan No, it does. But it’s also kind of reversed, right? Because when you’re talking about sports and airplane tickets, the prices are changing based on what I’m buying, be it a Thursday night match up against the Royals or a prime time Sunday match up against the Boston Red Sox. But what you’re talking about with this hyper dynamism is prices changing not based on what I’m buying, but on who is buying it.

Vass Bednar Yes. Who and also potentially when. So we see these examples. I mean, examples through Amazon end up being the most maybe popular or dominant in terms of examples you can find in online chatter. There was recent research on looking at Tinder, actually, that the Mozilla Foundation teamed up on with Consumers International, and it found that people could be charged up to five times more for the same service.

Jordan What do they base that on on Tinder? On your attractability?

Vass Bednar I guess, your willingness to pay for certain features or what other people have paid in the past. But again, what it does is it sort of challenges consumer expectations. Is it reasonable for us to expect that you are getting the same price for paper towels advertised to you online as I am? And in very many cases, we probably are, but in other cases, we aren’t. And we have no way of really knowing that with any clarity. And we can’t haggle or bargain with the algorithm because there’s no opportunity to understand the forces that are setting those prices.

Jordan This is a pretty broad question, but do we know which businesses online are using this kind of system and which aren’t? Is there any clarity there?

Vass Bednar I mean, all kinds of firms are slightly modifying prices in different ways. And again, maybe it would be more helpful for me to kind of distinguish between first degree price discrimination, which I’m trying to talk about. Something that gets us closer, tt’s very data driven, to a calibrated price that is based on your probability and willingness to pay, et cetera, et cetera. Or secondary degree pricing, it’s a little bit more blunt, but it’s still kind of pseudo personalized. Those can come from discounts from loyalty programs. Different people have a different price. And then third degree is more like military discount or seniors discount or student discount. So there’s a different price available for people of a particular group. But that price is the same for everyone in those groups. It’s not kind of recalibrated.

We see in a brick and mortar context, that some grocery stores, this is a US example, but are starting to use electronic price tags, and they’re ostensibly going to use those to lower the price of produce as it gets older, which is really cool, right? It’s really efficient. But those prices could also be used to express even more of the volatility of pricing that we see in the market. And food is not the best example. I mean, we are used to, I don’t know if we learned it in school or what, but people have an understanding that based on maybe the fanciness of the type of grocery store you’re going to or its geography or the uniqueness of the product, that there’s going to be some variability in that price. And that’s different from you going online and buying a book and me getting a different price, higher price, because I read a lot and read more than you, and the algorithm knows that I’m probably going to buy this book. So why not charge me a couple of dollars more? That’s where it starts to become closer to, I think, a form of arguably, algorithmic discrimination.

Jordan How much of this is done using algorithms and how much of it is done… manually seems like the wrong term, because I realize it’s not actually going to be set manually. But how much is done by a system that simply, to your point, when the groceries get older, lowers the price?

Vass Bednar So for the type of pricing that I’m trying to raise the alarm on that kind of hyper personalized pricing, it’s all about the algorithms. It’s all about this very interesting big data story where firms can use as much information as possible to price their products efficiently. From a firm perspective, from a business tactic, this is arguably, for them, pro competitive. They’re going to sell more product and they’re going to earn more from certain groups, and they’re going to earn a little bit less from other groups, but they will increase the likelihood that somebody is purchasing that. That kind of hyper dynamic pricing. And it also creates in the competition landscape for companies that can price more effectively, gives them a bit of an advantage, I guess, over maybe like a smaller, independent firm that doesn’t have that kind of ability to be so dynamic or sensitive to the consumer.

Jordan I’m going to play Devil’s advocate for just a second and ask you what’s wrong with this? Like, if I’m a retailer and I want to sell a particular kind of good, I should be charging more to the people who will pay for it. This is the free market at work, right?

Vass Bednar In theory, yes. But I think there are a couple of elements that are wrong about it from a consumer protection standpoint. One, basic transparency. People don’t know when this is happening. Explainability. They don’t know why. Why am I seeing that price? They have no agency they don’t have an ability to I pointed to earlier, negotiate with that algorithm. They don’t have the ability to opt out, and frankly, they should be better able to opt in. There is a version where this isn’t an algorithmic hall of mirrors, that this is a hyper, perfectly priced, efficient marketplace where students, recent graduates are paying less for milk because they’re fresh out of school and people who are salaried are paying a little bit more. And that’s kind of offsetting. Fine. But that’s not the universe that we’re looking at, and that’s not the universe that we’re trying to build.

So I think at the very basic level, you’re asking me how often is this happening and when? Well, we should be asking companies of all sizes about their pricing tactics. And when I read kind of consumer magazines online or kind of trade narratives around what best practices are, what’s like a smart, new, data driven thing? That’s where the personalized pricing stuff comes up quite a bit. When I look at public policy circles in Canada, it’s not as popular a topic.

Jordan You mentioned the student and the bag of milk example, and I said bag of milk I guess because this is a Canadian podcast.

Vass Bednar It is Canadian, yeah. Was that a good one? Should I go back to Tinder?

Jordan No, I like the bag of milk because that’s my question on the flip side of that coin, which is like, if this algorithm is working right, then it is a matter of squeezing more money from those who will pay can afford to pay, don’t even worry about the fact that their milk costs $5 instead of $4. You use the example of postal codes or your neighbourhood, and the digital retailer can tell what neighbourhood you’re logging on from. And theoretically, if you’re in a rich neighbourhood, even if you’re poor, you’ll get a higher price. But wouldn’t that also apply in reverse? And if you’re from a poor neighbourhood, you’ll get a discount?

Vass Bednar I mean, maybe. If you’re from a poor neighbourhood, you’re probably even more price sensitive. And you’re probably having a real hard time in this data driven e commerce situation where you might be trying to order goods online. You might be trying to budget for the holidays, to buy toys for your children and people in your family. But when you get the Amazon catalog, they don’t even list prices anymore.

Jordan They don’t?

Vass Bednar They don’t. So markets are becoming increasingly unknowable. I like your point about the efficiency. Yes, there’s a version where there’s this very precise calibration that’s maybe more fair and equitable. But again, this isn’t about being fair and equitable. This is about squeezing as much money as possible from every customer. And back to people, that basic consumer protection. What are our basic entitlements? The Globe and Mail has a proprietary algorithm or algorithmic system called Sophi.io. They built it in house. I think they sell it to others. But what it helps the Globe and Mail do is create a dynamic pay wall. So they’re basically trying to predict both when to put something behind a paywall that you really want to read so that they can convert you to being a subscriber. Why is that important? When they convert you to being a subscriber, you might get a very different price than me. You might get a different price than is listed online.

Jordan I pay a lot for the Globe and Mail, and now I’m getting mad.

Vass Bednar I pay a lot of money for newspapers too, and I’m super happy to support them. And I’m also happy for them to use tools that are more efficient for their business model. What doesn’t make me happy is whether the consumer actually knows that this practice is happening. One, I want better awareness and knowability, let’s solve for the knowability. But I don’t want to just keep telling people, oh, here are all these tips and tricks that you can take on in your spare time, of which you have none, to kind of game those algorithms or evade them. I don’t think that’s the right solution. I think there’s a stronger role for kind of basic policy guardrails to at least get at the transparency, accountability and explainability.

I’m not saying ban the practice or make it illegal. I’m just trying to raise the question. One, are you aware it’s happening? And two, is it discriminatory? Right? Is this a form of algorithmic price fixing that is inherently anti competitive? I’m not sure other people are much smarter on these issues than me. I’d love to be talking about it more.

Jordan I want to talk about the policy in a second. But first, just because you mentioned it and because I had it on my list, how can people get around this? How can I tell if Amazon is giving me a dynamic price or if this is just the price of whatever I’m buying? How can I get the other price if I want it?

Vass Bednar Fighting tech with other technologies, right? There are a couple of browser plugins that are actually Amazon specific. One of them is called ‘Keepa’. And in Regs to Riches, I have a little chart that just shows the volatility of the price, not of a bag of milk and not of your Tinder subscription, but of a Lego flower bouquet, like something that I think is pretty shelf stable. You know what I mean? Something else called ‘CamelCamelCamel’ is an Amazon price watcher. So there are tools that will give you an alert, not how to get a cheaper price targeted for you, but it’s based on the timing that there might be a period of time where the price is cheaper.

We came out the gate talking about sports and travel. There was a website, a very young man made a website called Skiplagged in the US, and it helped people find loopholes for cheaper airline tickets. And basically the hack was that it’s cheaper to buy a flight that has like a stop often and get off at that stop instead of continuing on to your final destination, counter intuitive, because there’s two stops instead of one. So it’s an indirect flight, but you kind of make it a direct one. I hope I didn’t make that too convoluted. It was sued by United Airlines, not successfully, but a major airline actually sued this person for that tool, which to me suggests that businesses don’t really want consumers to be able to hack that.

Other things people can do, clear their cookies, use a different device, there’s lots of little tips online and sure there are best practices. But again, I don’t think people, especially in this period of inflation, especially when we’re seeing more price gouging than before, I don’t really think it’s appropriate to only champion to people that they take on these practices. I think we need to do a little bit more to bring the practice to light

Jordan What kinds of regulations do exist around competitive pricing and before we get to how they could account for this, when was the last time they were even updated? Because I know this is something we talk about all the time when we talk about emerging digital trends.

Vass Bednar Yeah. I love to talk about how old legislation is. We do have different tools related to pricing broadly. We see Canadian officials taking on drip pricing. I think it actually might end up being officially banned when we see some forthcoming amendments to the Competition Act, perhaps in the budget bill. Drip pricing occurs when the advertised price is different from the final price. Maybe a common example is like when you’re browsing Airbnb bookings and then they’re adding on the service fee and they’re adding on the cleaning fee and all that stuff at checkout. And the price seems so much different than what was advertised. So that’s a form of deceptive pricing. That is unfair.

People are looking more at price gouging, especially in a pandemic context. Roughly 26% of recent price inflation can be attributed to higher corporate profits. That comes from a recent report from the Canadian Center for Policy Alternatives, CCPA. And in the pandemic, we had different provinces introduce legislation to crack down on pandemic price gouging. So it’s not that we’re totally asleep at the wheel when it comes to pricing. And in a report that I did, a working paper with Ana Qarri and Robin Shaban, we suggested that unacknowledged personalized pricing could be a form of deceptive marketing because you’re not being, at that most basic level, you’re not being told that that price is being calibrated in any particular way. So that default assumption, that it’s that shelf stable price that everyone’s paying for Tickle Me Elmo back in the day, just for a bit of a 1995 reference there, 1996.

I think we have a good opportunity to consider, one, talking more to consumers about their expectations and kind of hopes for this. Two, speaking to firms about where the guardrails should be if they are using a practice like this. Which, again, it’s not illegal, but just because it’s not illegal doesn’t mean I have to like it. The fact of the matter is, more and more often, some customers are receiving other prices than others.

So without boring you too much, if I could just point to two, I think policy opportunities.

Jordan Please, yeah.

Vass Bednar This is a bit of a wild card. One is federally the Consumer Packaging and Labeling Act. I like to try to work with the tools that we already have instead of just like slapping on another layer of legislation. But this is an old piece of legislation and it currently dictates, like what a firm must tell a consumer on a label about that product. So if price is an aspect of labeling, we’re advertising that product. That price of the product promotes the sale of the product, then is something like that catalog with no price, is that a product that’s fundamentally unlabeled?

The second it’s a little older, but it’s provincial, it’s called the Discriminatory Business Practices Act, and it exists to prevent discrimination in Ontario on the grounds of race, Creed, color, nationality, ancestry, place of origin, sex, or geographic location of persons employed or engaging in business. I think we could update it not only to care about dealings between businesses, but also when servicing consumers in a digital age. I think it’s an interesting place to think about algorithmic discrimination.

Jordan Couldn’t we challenge it right now based on the geographic location part of that?

Vass Bednar Right now, that act is kind of a B to B Act. So it’s about businesses not discriminating amongst other businesses. And I’m sort of saying that given that we’ve agreed it exists, what about we shouldn’t discriminate when servicing consumers. And then lastly, so those are two Canadian examples, any creative legislators out there want to take a run, those ideas, they come for free. There’s a proposed piece of legislation in the US called the Filter Bubble Transparency Act, and it’s a bill that would require that Internet platforms give users the option to engage with the platform without being manipulated by algorithms driven by user specific data. So, hey, it’s pretty provocative. Who knows if it will go anywhere? But if it does catch on, again, our expectations as consumers are changing. This is not a historically new practice. We are used to some price deviations in marketplaces all the time, but it is increasingly precise, I think increasingly deceptive and I think it’s hurting Canadians. I think it hurts our ability to budget, especially in a really expensive and volatile time.

Jordan You’ve been talking about this for a while. You wrote a piece about it. You must be discussing it casually with friends and acquaintances. And I’m not asking for data. But just how many people know this is going on when you bring it up in casual conversation, especially with like, Amazon or something else, and how surprised are people?

Vass Bednar Okay, I like this default assumption that I have friends and that of the friends I do have, they want to talk about this with me.

Jordan Well, fair enough.

Vass Bednar No, I’m kidding. I do bring it up. People are often surprised. People are often surprised, even the Amazon examples. People seem to understand that the price of a good may change based on the supply or the demand, but there’s not always an appreciation that there’s a different calibration for them as a shopper. Netflix has come up recently. One friend messaged me, hey, am I getting a personalized price from Netflix? No, but what they were getting was Netflix changing how their pricing, yes, the price is going up a little bit, but if you have X amount of additional users, you’re paying something. So, yes, that’s an example of there’s different prices for different consumers, but it’s based on something that is transparent and knowable, and you can calculate.

So again, back to consumers, there’s a big discovery aspect, and then there’s those bigger conversations like, can we agree that it’s a form of deceptive marketing or price fixing? And it’s important because it’s not just big tech companies that engage in this practice. I mentioned Amazon a couple of times. They’re the most familiar, but they’re by no means the only firm doing this, which is why it’s really important to consider the behaviour itself, not just the share of the market and not just the impact on competitors.

Jordan Is there anybody out there aside from you fighting the good fights, educating consumers about this? This seems like the kind of issue that I’m going to reveal my cluelessness, because I don’t know the names of any of these organizations, but like consumer advocacy groups, the Better Business Bureau in the States, I don’t know. Who’s telling people this is happening?

Vass Bednar So in Canada, we generally have weak consumer protection groups, unfortunately. So we don’t have a super strong consumer voice. There is an unknowability aspect to this practice. I can’t tell you for sure that you got that different price for those paper towels. Apparently, we’re just buying paper towels and milk and going on Tinder and hoping for the best and going to a sports game, I guess.

Jordan Paper towel, Tinder and milk, huh?

Vass Bednar I guess. However, it’s well covered. It was well covered in a really excellent New York Times Magazine article that sort of highlighted that the price of, maybe this is why I keep saying paper towels, is fluctuating almost as often as the price of Bitcoin. So again, that is separate and distinct from this hyper personalized pricing. It is just calibrated for you. Whereas there’s this other layer of increasing volatility that can be calibrated online, where maybe you and I are seeing the same price for paper towels, but it was a different price an hour ago. And it’s going to be a different price in an hour. That creates when should we buy versus what should we buy? And once again, in this context of inflation and price gouging, I do think price matters more than ever. And I wonder if being able to advertise a stable, uniform price will become something that’s maybe trendy from a marketing aspect. We’re not going to discriminate, this is the same price for these shoes that everyone gets. Is that okay? Is that what we prefer? Is that more aligned with our expectations?

Jordan Last question. Just because I want to ask it and it’s not intended to sound cynical, we’re talking here about new changes to old legislation or new legislation to prevent this sort of thing. This is such a dynamic, no pun intended, situation. Can the kind of legislation that Canada’s government passes ever keep up with these kind of tech innovations?

Vass Bednar Yes. I think it can keep up. I think we can keep up. Here’s what I’ll leave you with. I know it seems like I’ll be pessimistic, especially since I pretend that I have no friends, but I’m very optimistic for Canada because I think we have like a big consolidation prize is my joke, not consolation prize, coming up. We’ve been taking a wait and see approach on so many digital issues and kind of doing our homework and taking our time. But when I look on the horizon, our kind of policy Horizons, we have a huge opportunity because I think we’re going to be seeing potential new Privacy legislation. We held consultations last year on the Copyright Act on the gig economy. We’ve seen foreshadowing that there’s going to be a consultation on the Competition Act and on these pricing issues, we’re seeing provinces getting more involved, too. We’re starting to get that all of government full court press.

So that makes me optimistic because I think our consolidation prize is that Canada can actually get things right for a digital economy by concurrently updating the legislative infrastructure that governs the economy. That’s what keeps me going, keeps me typing, keeps me reading and keeps me asking good questions and tossing out ideas in the hopes that we can improve those pieces of legislation, no matter how old or new they are.

Jordan Episodes that end on a positive note is what keeps me podcasting. So thank you, Vass.

Vass Bednar My pleasure, my pleasure. Thanks for having me.

Jordan Vass Bednar, and you can find the article we’re discussing, as well as many others at regs2riches.com. And that was the Big Story, you can find us at thebigstorypodcast.ca and on Twitter at @TheBigStoryFPN. You can email us to say hello by literally emailing hello@thebigstorypodcast.ca. And you can find us in every podcast player, Apple, Google, Stitcher, Spotify. Apple, as you know, lets you leave reviews, which I hope you do because I read them. Spotify does not. But if you haven’t been on there in a while, it does now let you rate shows. So even if you don’t listen to us on Spotify, you can still go there and rate us. Nothing is stopping you.

Thanks for listening, I’m Jordan Heath-Rawlings. We’ll talk tomorrow.

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