Why Can Consumers Be Charged Different Prices for the Same Product Online?

Algorithms make online pricing more fluid by altering who sees which prices

Why Can Consumers Be Charged Different Prices for the Same Product Online?
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October 6, 2016

Cost-conscious shoppers have many strategies for saving money: shopping only during sales and clearances, couponing, and comparing prices at different retailers. These techniques often enable shoppers to get the most value for their dollars online as well as in physical stores. However, what happens when an online retailer provides two different prices for two different shoppers looking at the same product?

The answer is found in the same technology that marketers use to try to tailor ads to users' specific interests: the algorithm.

The practice, says Consumerist, is known as dynamic pricing. Retailers use algorithms to make online pricing more dynamic—more fluid—by changing which customers see which prices for any given product. And in spite of tools such as third-party sites that provide price tracking services, it is very difficult to determine the exact differences and how people are affected by them.

There are numerous factors that affect the "true" or "actual" price of a product, such as the time of day. Amazon, for instance, sometimes updates its prices as often as every 15 minutes, so consumers may pay more for a product before lunch than they would have for that same product if they had waited until after lunch.

Other factors have been more discriminatory. In 2012, travel site Orbitz was discovered to be showing Mac users higher prices than it showed PC users. Research has also revealed instances when Staples' website has displayed higher prices on identical products to consumers who are browsing from areas with lower incomes, as well as when credit card issuers such as Capitol One offer different cards and terms to users based on the ZIP code in which the users are visiting the site.

And using factors such as location to set prices can lead to big problems. Last year, ProPublica discovered that the Princeton Review's practice of charging for online SAT prep services and materials according to customer ZIP codes had inadvertently led the company to charge customers located in areas with high Asian-American populations more than it charged other customers on average, even when controlling for income.

Other factors involved in setting online prices include consumer browsing history, the ad trackers and cookies present, how the user navigated to the site, the device being used, the other apps on the device, the network the device is on, the OS the device is using, and the browser being used.

These make it difficult for consumers to conduct wide-scale, carefully controlled research and comparison of prices. And it is just as difficult to track the accuracy and consistency of results, given the frequency with which prices can change—think second by second rather than day by day.

What can be done about such price discrimination? Unfortunately, very little, thanks to the speed of the Digital Age.

"In the end," says Consumerist, "while all that data might allow you to find out more specifically about how price discrimination is happening, pricing, websites and companies can all change faster than rules and researchers can, so getting a clear picture of, well, anything really is hard to do."

The U.S. does not regulate dynamic pricing, so such discrimination is currently legal. And regulation of such practices will probably not happen any time soon, either: although the Federal Trade Commission (FTC) has been seeking research and information about the problem for years, there have been no guidelines or rules proposed yet.