SURVEILLANCE PRICING: THE NEW CONSUMER CHALLENGE

E96 SURVEILLANCE PRICING_ THE NEW CONSUMER CHALLENGE

Transcript

Dalton Anderson (00:01.292) Welcome to Venture Step podcast, we discuss entrepreneurship, industry trends, and the occasional book review. For over a century, the price tag was the great equalizer in commerce. But today, the AI algorithm is hunting for your pain point or otherwise known as your consumer surplus. The maximum you're willing to pay before you walk away. This has driven customers into a corner.

And it was recently revealed that Instacart was doing something similar. This willing to pay algorithm that was discussed last week, the loyalty penalty while your Facebook shopping habits are costing you more, revealed that 77 % of the time people are getting charged different prices for the same item. And the estimated impact for a family of four was $1,200 a year.

And this bombshell report was created by Consumer Reports. That episode digs deep into the report that was published and the companies used to create this willingness to pay algorithm or the surveillance pricing piece. In this episode, we're going to be switching gears. We're going dive a little bit deeper into the background of pricing and the future legislation.

in the marketplace.

That's coming soon, who knows when it's coming. But it's introduced, so we'll discuss it a little bit. Okay, so in this episode, wait, hold on, before I do that, I'm your host, Dalton Erison, welcome to Which Step podcast. In my free time, I like to work on my side biz, my backgrounds, insurance, data science, and I don't know, in my free time I like to read, run, do whatever, and also,

Dalton Anderson (02:05.132) obviously research stuff about pricing. So, so funny that this whole thing was all, all created from, or this rabbit hole was all created from me discussing a potential episode with potential guests that is scheduled. And this is some of the things that they talked about and suggested that I look into. And I did, and I found it very interesting. And here I am.

two episodes in. Okay, but pre 1850s, there was no price. Everything was negotiated and it was negotiated off the information that you gave the merchant. So you went into the with your piece of, or I guess you went into the store with your money and you wanted a piece of bread or a loaf of bread. You would negotiate that with your merchant.

The merchant would look at what you had on, probably try to figure out what you do, the urgency that you need the item to determine the price, and how often you come in, probably. And so all that combined, you get a special price, the price just for you. I got this special price just for you, don't worry. And that's how negotiation was done back in the day. That's how you'd buy stuff.

And then a group called the Quakers, if you know them or not, you should. The Quakers came around and the Quaker merchants and John Wanamaker argued against this. They said, I don't want to charge my fellow man a different price for the same loaf of bread. I find that un-Christian. And so they said, we're not doing that. And here's why.

But that's a fundamental difference on how things were done before. And people in fact like the transparency of the price. And so by 1870, that became the norm. It became the norm that items were tagged with a price. The price could go up or it could go down, but that was the price in the store. You no longer had to negotiate the price. And it's the neutral market signal for that item.

Dalton Anderson (04:35.689) which was great because it allowed everybody to be happy. The merchant got the price that they wanted. They might have people that would have paid more, but they have a lot of people that might have paid less. All by the item in the middle. There is some customer surplus, not too much, you know, leaving as much money on the table. But if you did want to change the price, it's a manual change and there's manual labor associated it. So there's probably less testing of the price, this AP testing that

Instacart was supposedly engaged in that we discussed in the last episode.

Okay, so we went from this 1850s era where everything was negotiated individually and the merchant gathered information to provide you with a worthy price. Then we went to an era that was like, era, that was like, we're not doing that. We think it's unchristian, the Quakers and John Wanamaker. That became, or it was really an innovation. It was a moral innovation.

So let's backtrack. Pre-1850s, everything was negotiated. There was an innovation in the marketplace by John Wanamaker and the Quaker merchants. That became a market norm, normal behavior and expectation by the customer by 1870. There was a universal neutral market signal for an item in a given store in that area. So you would know the price of that shop and this shop.

You can compare the price and you can find the shop that you like the most either with service or with just praying out price. Okay. Now we're seemingly going back in time. We're, we have this, we have the same process going on, but in reverse. So we have this AI reversal. So surveillance pricing is

Dalton Anderson (06:36.609) gathering all this information about you, your willingness to buy the item, your affinity with the brand, the urgency of your purchase, your search history, the things you planned on doing, all sorts of stuff. We're just getting started here. And once you combine all that stuff, plug it into the algo, you can find the right price given you use millions of people and

millions of data points, you can find the right price. And what happens in that scenario is you are trying to negotiate without knowingly negotiating. And really the definition of negotiation is two willingness, like parties that are willing to do business together. The willingness part is important. So if you have one party negotiating,

and the other party is unknowingly in a negotiation, that's manipulation. Those are quite different. Really, you can't have an argument with somebody to try to find a solution if you don't even know you guys are talking. So you just have one person that's way smarter than you, way more sophisticated, has more resources, is just taking advantage of you, basically.

That is surveillance pricing in a nutshell. So you could see how people are not too fond of it. And I'm not either. I feel like it's a little icky, icky, Not a huge fan. Okay. So then what was it like back in the day? Did they have issues like this before? And what issues did they have and what did they do about it? Well, they actually did. They had something previously called

value of service pricing. So surveillance pricing has this willingness to pay pricing. And back in the day, they had value of service pricing. And this is how it's described. It's, hey, we're going to put a price on the value of service, but everybody's service is a bit different. It means a bit more to you. And it's so funny. One time I got a crappy

Dalton Anderson (08:57.161) logo made for one of these businesses I had in high school and the guy the guy who did it for me was somebody I went to high school with and I don't know if I'm losing anything but I'm pretty sure I just said high school twice in two sentences and then I repeated myself thinking that I didn't say that but I just might just be tired I don't know I'm pretty sure I said high school twice but anyways

He finishes the project and he's like, yeah. So tell me, what do you, what do you think your company's gonna be worth? And I was like, well, I'm in, I'm in college, so probably nothing much. Like I don't have any revenue. I don't have anything planned. Like I'm just doing this to explore my curiosity and have fun. And he's like, hmm.

So what do you think the price is going to be? You know, what do you think the company is going to be worth? The worth of the company should reflect the price of the logo. I was like, what are you talking about? He's like, yeah, that service that I gave you, it's different depending on what you think the company's worth. And I was like, dude, just give me the logo.

I'll just pay you." And he's like, what do you think it's worth?

And I was like, this is your business. This is your service. You tell me. He's like, no, I'd rather you tell me what it's worth. And I was like, OK, you're asking me $5.

Dalton Anderson (10:43.549) He's like, well, you think that's an accurate reflection of what your business is worth? And I was like, no, you asked me what I wanted the price to be and I told you. So the price is five bucks. And he wasn't thrilled about that. He was pretty bummed.

So we wanted to, I think eventually get into a price of like 50 bucks and the logo sucked by the way. It was so bad. And after I learned how to do illustration stuff and create my own logo, I realized how bad that logo was. And I was just like, Oh my goodness, horrible. But anyways, I that was a funny joke about this value of service pricing. The guy was an absolute goofball trying to

trying to use additional information about the company to charge a different price for the logo and then was complaining that I didn't want to pay what the company's worth even though I had no revenue and no like hardcore plans about past the revenue. And so I was just this whimsical eyed kid trying to have fun and start something and be curious. And he was like, yeah, what's the price?

What do you think it's worth? I was like, what are you doing weirdo? Get out of the closet, get out of the corner, come into the light and just be transparent about what are you doing? He was just being so weird about the price thing. Like just tell me the price of the service and let's move on. I have other things to do. I don't want to negotiate the price of a crappy logo. Let's move forward with this.

And so eventually you got to that price, as I said, but okay, so this value of service pricing, how did that work back in the day? To say that you were some small shop farmer, you only had a means of transportation by train, and there was only one company offering this service in your area, and they would know that. They would say, okay, here you go. So this service to you is essential. So our service,

Dalton Anderson (12:55.359) is very valuable to you. And so what that would mean is they would just charge you absurd amounts because you had no other option of getting the service provided by anybody else because their service was so good. And so eventually the government was like, hold on here. You can't do that. And what came came of this is you are a common carrier. You cannot change

different charge, sorry, you are a common carrier, you cannot charge different people, different rates for the same journey based on identity or power. Interstate Commerce Act of 1887.

So they crack down on it. They didn't allow people to do that anymore. There is no more value of service pricing, which people enjoy. That's kind of nice. I wouldn't like that either. So then there is this other act, the Robertson-Patman Act of 1936. And this focus on business versus business, secondary line industry,

and it's less consumer facing. It's more of business to business facing, but it does deal with physical goods and or commerce. But where it fails is if there is no interaction with a business and it goes straight from one business to a customer and it's not a physical good and you are algorithmically changing the price, then that's where the act

has limitations because it has a commodities restriction and this like meeting the competition loophole. Basically what that means is tech is not a commodity and either you could redefine tech as a commodity, which tech companies aren't going to want to do and might have limitations on even doing that or create a new act that doesn't care if your goods, if you're

Dalton Anderson (15:10.657) commodity, goods or service, you cannot algorithmically change prices.

But some of the arguments against applying the Robertson-Patman Act against Instacart is, hey, we charge a delivery fee and we are not the distributor of these goods and we're just the tech layer. And those are the arguments that Instacart provides. There is some confusion about that given last episode to where

They were algorithmically changing prices with Target, but then they had no formal contract with Target. Target could be lying and or Instacart could be lying. I'm not sure, but both of them are saying different things. And I don't know. Do I believe the person? I don't believe any these corporations, to be honest. But at this at this moment, at this given time, I have more belief in Target not having a relationship with Instacart, given that

Now it's a scandal and a big deal with the FTC.

Dalton Anderson (16:27.693) Sorry, I had to take a quick water break on that one. Getting a little dry over here. Okay. So then we have this Instacart scandal. This continuous experimentation that previously would cost money. Now it doesn't cost money. And you have a lot more data to determine how much are someone willing to pay.

And so there's all these micro tests and you're throwing people into different cohorts of people or cohorts of cohorts of pricing segments and you're determining whether or not they're going to stay in that segment or move segments depending on what they like to do, their demographics, where they live, what things they buy, how often they buy them, all sorts of things like that.

to determine this willingness to pay piece that we discussed in detail last episode. And if we just need another highlight, the consumer report had 437 volunteers, 74 % of the grocery goods were different prices for the same people, or I guess the same geographic area, different people. I keep saying same people all the time. And then the impact of that report is estimated

Family for $1,200 per year, which is quite a lot. It's not a low, low amount, especially given that if without that algorithm, you wouldn't have any difference. But anyways,

Dalton Anderson (18:08.173) They were recently fined $60 million. And so that's progress. I accidentally hit the mic. Fine, 60 mil. Fine, fine, fine. That's cool. That is great. Let's just see. I just want to see. 60 million.

Dalton Anderson (18:34.633) Yep. It's hard to pay $60 million to customers in FTC settlement, which was pretty quick. I don't think I've seen a scandal come out and a settlement be released that fast.

Okay, so legislation. This is one of the questions like, okay, so previous laws don't protect against this algorithm pricing. Very close though, there's some soft arguments like the Bob rule. The Bob rule is, there's a couple arguments, but one of them is the Bob rule and the other stuff that we discussed earlier. The Bob rule essentially is like, if you had a shop and then a guy named Bob comes into your shop,

Bob negotiates the price. Why can't merchants negotiate the price? If a customer can constantly go into a shop and negotiate, why can't we negotiate? And really the difference in this thing that they're talking about is one, you're arguing against basically a supercomputer. And then the other piece is they've got all the information and they're weaponizing it against you.

And then you can't negotiate down. They're only negotiating up. there's a lot of differences. And as I said, negotiation, you need to have two willing parties to do business, to try to find a settlement. You can't have one person negotiating higher prices and then the other person not knowing that they're increasing the prices on you. That's not how that works at all. Okay. So there's a couple of bills.

that I thought they were interesting and that have a potential. I think there's two standout bills and there's a lot of bills. I was surprised at my bills there were honestly, but I think that's really more of a representation and reaction of RealPages settlement slash case. I don't think they've settled yet.

Dalton Anderson (20:45.805) RealPages is the parent company that owns apartments.com.

Dalton Anderson (20:54.093) pages.

Dalton Anderson (21:02.667) Okay, so as of...

Quite recently, they look to be updated November 24, 2025, DepartmentOfJustice.gov. Quite long, I'm not gonna search for it, but it looks like they're moving in a positive direction on that. that was a huge deal to where they found out that there was price collusion being implemented with apartments.com's company utilizing the information from

CoStar, CoStar is this really expensive real estate platform that tells you like prices and estimates of evaluations of properties. Apartments.com is apartments.com. You can rent slash manage your properties on that platform. And then RealPages owns the both of those. And so they got in big, big trouble about algorithmically increasing the pricing.

the prices in the areas that they're operating in, which was not cool, especially how there's so many issues with increased rents. And so they were artificially increasing the rents because they were increasing the rents all at the same time. then if everything's increased, then it actually increases everything in the marketplace. Because if like you have this Quaker situation to where

I don't know the market share of the Quaker merchants back in the day, but say, for example, apartments.com has 20 % market share in some metro area. Well, if 20 % of the properties are increased, say you wake up the next day, they're all increased 20%, then you as a other person or investor, look at this property and say, okay, let's increase our rents.

Dalton Anderson (23:05.542) And then before you know it, this pricing innovation becomes market manipulation. And then you have the federal government suing you, which is great. I love to see it. Okay. So.

I think a lot of these bills are a reaction to the dangers of algorithmically pricing products. And so S232 is from the judicial committee, and this is a new bill being introduced in reaction to what happened with apartments.com, which once again, the parent company, RealPage.

to basically make algorithmic price conclusion illegal. You can no longer do that. That's not cool. We're not allowing that one. Go home. That's fine. One of the bills that I think this is a very high likelihood of passing given that they're very public. There's a case, there's a suit. It's by the judicial committee. The next one maybe has like a moderate chance of passing. And I think

that now that this has come out by Instacart, I think it passes, which is HR 4640.

So this bill is a bill that, well, deals with basically what happened with this car. You can't say that you are the tech layer and that you're a service and you don't deal in commerce and you're not a physical good. So this doesn't apply to me and it's not fair. I should be able to do whatever I want.

Dalton Anderson (25:10.656) Their whole bill is about preventing price gouging and wage fixing. And one of the things that they talk about is similar to what they talked about in the Interstate Commerce Act of...

Dalton Anderson (25:32.14) 1937, that's the Robertson-Patterson Act, 1936, 1887, Interstate Commerce Act, is we don't care if it's a good or a service. If you use personal data to charge two people different prices for the same transaction, it's illegal.

that sounds similar, like if I repeat that, we don't care if it's a good or a service, if you use personal data to charge two people different prices for the same transaction, it's illegal. And then if you close your eyes and you think back in the day and you hear you are a common carrier, you can not charge different people different rates for the same journey.

based on their identity or power. Sounds pretty similar.

So basically, it outlaws the ability for companies to charge the same folk different prices.

Dalton Anderson (26:42.412) Hold on. I did it again. I keep saying same people for some reason. Different people, same price.

I missed a banger on that one. So that, I think after this whole Instacart scandal, maybe gets taken over by the judicial committee, but I'm not necessarily sure if you introduce a bill within one committee and the bill's active, can it change committees? I'm not sure. Maybe I should probably know that. Regardless, we're gonna move on. We're gonna skip over that, go to commercials.

Read Read the commercials right now. Okay. So the next bill is S3387 is the One Fair Price Act. And it basically defines dynamic pricing, which is supply and demand pricing, and then surveillance pricing or the willingness to pay using personal data pricing. And so it says, hey, these are the definitions of these two different pricing methodologies and approaches. Which one are you? And the burden of proof on

justifying the price differences is on the company. And so if you think that you should be using surveillance pricing versus supply and demand pricing, and you want to do that, then you've got to provide the burden of proof.

Dalton Anderson (28:07.277) I think the buck stops there with some of these really interesting bills that are out there.

I think overall this episode was interesting. really liked the background about what pricing was and the interstate commerce act and the Robinson Patterson act. And then pre 18 fifties, there was no pricing and everything was negotiated, which I would not like at all. And then from there, there was the moral innovation of John Wakerman and

the Quaker merchants that said, this is unchristian. We're not doing this. We're not going to charge a fellow man.

different price for a loaf of bread. And then that became a market norm. And now we're reversing trend going back to

a unknown negotiated price, we're not knowingly negotiating. So we're basically just getting taken advantage of. And then Instacart crashes out, has to get a $60 million fine from something that they were experimenting with, which turned out not to be an experiment, which then turned out to be actually a big deal. Groundbreaking report by Consumer Reports. And then after that,

Dalton Anderson (29:33.921) The FTC gets involved, finds Instacart $60 million, and then these bills that were probably fringe bills not going to be passed probably get passed because of the stuff that Instacart did, which is very influential because Instacart's not the only company that uses algorithmic pricing. Others do as well. So I'm wondering how that plays out.

think I'll run an experiment next time I'm with my friends. We'll all order an Uber somewhere or we'll order it, but we'll all try to go to a place all at the same time and see what the price is. Like to get a group of five when everybody's back in town after the holidays. And then I could test that. It seems very interesting. But of course, wherever you are in this world, good evening, good afternoon, good morning.

Thank for listening and listen in next week. Thank you. Goodbye.