Preventing the Perils of Personalized Pricing

A Proposed Regulatory Code for Personalized Pricing Algorithms

Abstract

Due to the expanding digital marketplace, more consumers have been, and continue to be, subject to price discrimination, whereby consumers are charged different prices for a similar item sold by the same vendor. To perform price discrimination, sellers implement personalized pricing algorithms (“PPAs”), which use artificial intelligence (“AI”) to analyze consumer data to set prices that achieve the maximum amount of profit. The fact that PPAs are benefitting sellers in the digital marketplace suggests that a market failure exists that warrants attention and regulation. Moreover, price discrimination can significantly harm consumer welfare and competition in the digital marketplace, especially when PPAs operate on biased data. However, Canada currently has no regulations against PPAs or price discrimination. This paper provides an overview of PPAs and suggests the implementation of an ex-ante, rules-based regulatory code inspired by the frameworks of the United States and the European Union. By prohibiting the collection and use of personal data, mandating disclosure and consumer consent and requiring ongoing PPA assessments, the Code aims to prevent the perils of personalized pricing in the digital marketplace.