Fifteen Eighty Four

Fabrizio and Mateusz live in the same jurisdiction. They enter the same website at the same time, search for the same product, but each person pays a different price. They each paid a personalized price.

Will this be the new normal? Should we be worried?

What are we talking about?

Algorithmic pricing has become one of the most vivid displays of digital capitalism. The development of data collection and automated data analysis techniques gives unprecedented knowledge to companies. Algorithmic pricing opens up new avenues for companies to anticipate consumer behaviour, such as consumer price sensitivity. It has vindicated a perennial dream to understand detailed consumer preferences and predict one’s willingness to pay and monetize this understanding with granular prices through the practice of algorithmic price personalization.

What do we worry about?

With great (algorithmic) power comes great responsibility. Or to put it more precisely: a great deal of concerns about ethically and economically accountable algorithmic pricing  can hardly be resolved given the classical price theories. They revolve around three foundational problems:

1. Equality – Algorithmic pricing is based on the much more intense differentiation of prices between clients than at the more conventional settings. Can the law distinguish between price differences that are within the range of acceptable market strategy (e.g. pricing train tickets differently during peak and off-peak hours) and those constituting unlawful discrimination?
2. Privacy – Algorithmic price calculations involve unprecedently deep insights into a consumer’s private life both on and off the market. To what extent should traders be allowed to commodify their clients’ lives by personalizing prices?
3. Exploitation – The algorithmic pricing schemes are intended to grasp the “consumer surplus”, i.e. the additional amount consumers may be priced because a firm can more precisely identify their willingness to pay it. Is it fair that those who like or can pay more (or both) for something should pay more for it on the market?

Good news: not unregulated

The exciting promise of a new profit venue implies that, if left unregulated, price personalization will likely become the ‘new normal’ in the consumer economy, at the very least in the digital world.

But is algorithmic price personalisation left unregulated?

The contributors to this volume prove otherwise. But are regulatory frameworks around the globe fit for purpose? That is, are global leaders, such as the European Union, creating regulations that properly address the three problems (as stated in the previous section) created by algorithmic price personalization?

The concept of the volume

The Cambridge Handbook of Algorithmic Pricing and the Law is the first comprehensive account in the English-language literature to answer these questions. It accommodates an interdisciplinary collection of texts on price personalization as a multifaceted social phenomenon.

The book is structured in three parts. The first part provides an in-depth description of algorithmic price personalization from the various perspectives in which the phenomenon operates. The texts primarily address the question of the essence of the ethical concerns raised by algorithmic price personalization (Aditi Bagchi) and the intellectual history of fixed prices which are prevalent within the brick-and-mortar consumer economy (Giacomo Tagiuri). This part of the book also includes chapters on the economic aspects of price personalization (Pedro Brinca, João Ricardo Costa Filho, and Luis F. Martinez) and the basics of personalization from an IT and data science perspective (Qiwei Han). A separate chapter allocates price personalization against the broader spectrum of contract terms personalization, which is increasingly abundant in certain market sectors such as insurance and financial services (Antonio Davola, Fabrizio Esposito, Mateusz Grochowski).

The second part of the publication is devoted to algorithmic price personalization in European Union (EU) law. This distribution of emphasis and dedication of an entire block within this publication reflects the special place the European Union holds in personalized pricing regulation discussions. It is the one liberal market economy in the world that witnessed the introduction of direct regulatory instruments addressing algorithmic pricing: the disclosure duty in the Consumer Rights Directive coupled with a right to opt-out from algorithmic decision-making vested by the General Data Protection Regulation (GDPR). This solution and its context in EU consumer law are discussed in two chapters: on pre-contractual information obligations for personalized pricing (Agnieszka Jablonowska, Francesca Lagioia, and Giovanni Sartor) and on price regulation in EU consumer law and its relation to personalized pricing (Mireia Artigot Golobardes and Fernando Gómez Pomar). A separate contribution was devoted to discussions of the need, limits, and methods of personalized price regulations from the perspective of EU competition law against a comparative background (Valeria Caforio and Mariateresa Maggiolino).

The third part of the book is devoted to selected legal systems of other countries in which the problem of algorithmic personalization of prices has been the subject of discussion or regulatory attempts. This part includes Brazil (Meyerhof Salama and Leda Batista da Silva), Canada (Pascale Chapdelaine), China (Jiangqiu Ge), India (Pratiksha Ashok and Sunitha Abhay Jain), and the United States (Haggai Porat). The texts in this section show price personalization in a broader context, as a global phenomenon in which regulation is highly contextual. Although the mechanism of algorithmic price calculation itself is largely universal regardless of the country, local considerations in terms of constitutional law (including fundamental rights in particular) and more fundamental ideas about the law-market relationship may be important in deciding how to regulate this issue and what shape this regulation should take in practice.

The main angle: impersonal price as a cornerstone against laesio algorithmica

The intuition behind this editorial project is that price personalization is primarily a contractual problem – a problem of price fairness – caused by the incredible granularity enabled by big data analysis. Hence, our introductory chapter proposes to look at price personalization from the traditional lenses of laesio enormis. While legal systems have traditionally been reluctant to allow the judicial review of prices by reserving it for the most apparent cases (enormous harms), price personalization forces us to enter into a reality of possible ‘micro exploitations’ – the laesio algorithmica.

Before concluding that price personalization should be tolerated because the social costs of fighting them would be higher than the benefits, we believe that it is imperative to search for the best possible regulatory framework to make traders behave.

We propose the following benchmark: the right to choose the integer impersonal price. This price is impersonal because it is the price a ‘perfect stranger’ would be offered. It is an integer because it has not been manipulated to be coupled with personalized discounts.

Suppose you were asked by a seller to pay more than the perfect stranger but were also allowed to pay like the perfect stranger. Normally, you would not pay more. Thus, it seems possible to introduce a simple framework to make traders behave. In editing this volume, we learned that some jurisdictions are closer to our benchmark than others, but that such regulatory frameworks can and – we submit – should be done.