State Lawmakers Seek to Regulate AI Pricing

A few months ago we reported on state legislation targeting “predictive pricing,” the use of “data analytics, machine learning and algorithms to anticipate market demand and adjust prices in real time.” Some of those measures are progressing through the legislative process, while new ones have also been introduced, suggesting that algorithmic pricing legislation may have become a new frontier in states’ ongoing efforts to regulate artificial intelligence.

One of the measures we mentioned in our April story was California SB 259, which would prohibit businesses from using data from consumers’ mobile phones and other devices to set prices on products or services.

The bill, introduced by Sen. Aisha Wahab (D), is aimed at outlawing a scenario in which rideshare companies like Uber and Lyft charge customers more because their mobile phone batteries are running low.

“Our devices are being weaponized against us in order for increased profits and it has to stop,” Wahab said in a recent committee hearing.

“A low battery will give consumers a higher price when they use ride-hailing services. When a consumer uses the latest model cell phone they will be quoted prices that are higher because they are assumed to have a higher socio-economic status.”

SB 259 has sailed through the California Legislature thus far, despite opposition from a wide array of business interests, who argue that the proposal incorrectly assumes the collection of device data is inherently predatory or unfair and, therefore, would stifle innovation.

The California Chamber of Commerce and other industry opponents of the bill have argued that “businesses rely on data and use algorithmic pricing to understand market conditions and respond in real-time to competitive changes, such as by personalizing deals, offering discounts, and optimizing prices based on demand.”

“Restricting this flexibility by prohibiting the use of certain data or technologies only impairs their ability to respond to market changes, leading to less competitive pricing and reduced consumer benefits, and leading to higher baseline prices for everyone, rather than lower prices under certain times and conditions if you allow businesses to respond to market conditions,” they said.

New Twist in AI Regulation Draws Supporters and Detractors

Wahab’s focus on device data appears to be a new twist on legislative efforts to reign in AI-powered pricing, which allows businesses to charge what they think specific customers can pay, but is increasingly coming under fire from policymakers and the public alike.

“Bespoke pricing is turning the tables on consumers, and returning some power to them will be challenging,” wrote George Slover, senior counsel for competition policy at the Center for Democracy & Technology, in Time magazine.

“Consumers and their public interest advocates are up against the vastly superior financial, technological, data, and lobbying resources of industry. But one way or another, we need to confront bespoke pricing, so that the online marketplace will still work for consumers.”

Others argue that algorithmic pricing will be a boon to consumers. Craig Zawada, the chief visionary officer of AI-powered SaaS pricing solution PROS, says that algorithmic pricing can enhance the customer experience by giving buyers exactly the price they want without lengthy and cumbersome negotiations.

As he wrote on the PROS.com website in October, “research indicates that two-thirds of B2B buyers prefer to buy from companies whose prices are algorithmically determined, trusting it more than opaque negotiation processes. AI automates the pricing and discounting process, providing much greater pricing precision and efficiency.”

A report last year from the Boston Consulting Group found that AI pricing allows companies to invest in the types of products that drive customers to their stores and can help ID which items “should have the same competitive price online and offline.”

Lawmakers Addressing Algorithmic Pricing in Third of States

At least 17 states have introduced legislation this year that deals with algorithmic pricing, particularly in relation to rental housing, according to the LexisNexis® State Net® legislative tracking system. New York has enacted a bill (SB 3008) requiring disclosure when such pricing is used.

Legislators Particularly Concerned About AI-Driven Rent Prices

Wahab’s bill appears to be unique with its focus on device data influencing pricing. But there’s plenty of other pending legislation across the country addressing AI pricing matters in general, with many focused on the intersection of AI and housing prices.

• In California, there are at least four other pending measures dealing with the topic. AB 325 would modernize the state’s antitrust laws to bar companies from using pricing algorithms to coordinate prices in secret. SB 52 would regulate the use of AI-driven pricing in home rentals. SB 295 would require companies with more than $5 million in revenue to report on their pricing algorithms. And SB 384, also by Wahab, would ban companies from using software that would allow them to secretly share private pricing data with competitors.

• New York, similarly, is considering a multitude of AI-pricing bills. AB 1417 and its companion measure SB 7882 would bar residential housing managers from using software to collude on rental prices. AB 3930 would regulate the use of AI in determining rental housing prices and home mortgages. AB 4427 would prohibit the use of external consumer data to determine insurance rates. AB 4991 and its companion SB 2697 would prohibit landlords from using an algorithmic device to set rent prices. AB 6765 and its companion SB 7033 would broadly ban algorithmic pricing discrimination in the Empire State. SB 1573 would prohibit feeding historical or contemporaneous housing prices into an algorithm to recommend rental prices.

• In New Jersey, legislators are considering at least three proposals related to AI pricing. AB 4872 and its companion measure SB 3699 would prohibit competing rental property owners from colluding to elevate rental prices. AB 4916 would prohibit the use of algorithmic devices to set rent prices as well as the sale of such devices. SB 3657 would also outlaw the use of algorithmic systems to influence the price and supply of rental properties.

• Other pending proposals aimed at regulating the use of software and algorithms in housing prices include: Illinois’ HB 1427, Hawaii’s HB 831 and its companion measure SB 157, Michigan’s HB 4538, and North Carolina’s HB 970. 

• Other pending proposals to regulate AI and algorithmic price setting in general include Ohio’s SB 79 and Pennsylvania’s HB 1779.

AI Pricing Upends Long-Held Economic Principles

AI pricing figures to remain a major topic for legislators for the foreseeable future, if simply because it represents a dramatic sea change in how our economy operates.

As Slover explains in Time: “For more than a century, sellers have posted a list price for their wares, available uniformly to all consumers, who are individually anonymous to the seller when the price is posted. Sellers have used market research to determine demand and adjust the price accordingly. Consumers who would have been willing to pay more than the list price get the benefit of what economists refer to as the ‘consumer surplus.’”

“With bespoke pricing,” Slover writes, “the seller turns the tables on consumers. Corporations will be able to obscure the prices they offer; meanwhile the individual consumer will be an open book. Over time, sellers can reduce the consumer surplus to zero.”

The potential benefits to businesses are undeniable. But so is the potential harm to consumers, which likely will make battles like the one over Wahab’s bill on mobile phone battery data a common sight in state capitols across the country.

—By SNCJ Correspondent BRIAN JOSEPH

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