In keeping with its annual Data Privacy Day tradition, the California Attorney General's Office announced an investigative sweep into "surveillance pricing", or the practice of using a consumer's personal information to set individualized, targeted prices for goods or services. Businesses expected to receive inquiry letters include those with significant online presence in the retail, grocery, and hotel sectors. The inquiry will focus how shopping and browsing history, location, demographics, inferential, or other data are used to dynamically adjust prices. 

Why Surveillance Pricing?

In recent years, scrutiny of algorithmic pricing practices has shifted from a niche policy concern to a primary enforcement priority. In 2024, the Federal Trade Commission sought information from companies using of artificial intelligence and consumer data, to target prices for consumers. These efforts were discontinued by the current administration. 

In the resulting federal absentia, states have moved to fill the void. New York recently enacted the Algorithmic Pricing Disclosure Act, requiring conspicuous point-of sale disclosures. California expanded its antitrust statute to prohibit the use or distribution of certain common pricing algorithms to set prices. Further, several states have proposed or passed sectoral laws targeting algorithmic housing or rental pricing (e.g., Colorado and Washington). 

Applying Privacy Law 

Regulators across the nation have put forth different theories for regulating personalized pricing, spanning unfairness, deception, competition, and anti-discrimination. True to form, California is marking Data Privacy Day by applying its hallmark consumer privacy law to the practice. 

Specifically, the Attorney General is leveraging the California Consumer Privacy Act's purpose limitation principle (§ 7002(b)) to argue that surveillance pricing likely violates the law. Under this framework, data processing must be reasonably necessary and proportionate to achieve the original purpose of collection, which must align with the consumer's reasonable expectations (based on five factors enumerated in the regulations). 

If a business fails to explicitly disclose personalized algorithmic pricing, it cannot satisfy the transparency factor of this test, making the practice neither necessary nor proportionate to the reason the data was originally provided. However, even with sufficient disclosure, an open, fact-sensitive question remains: can pricing set using personal information ever satisfy a consumer's reasonable expectations? 

A New Era of Pricing Rules

Consumer awareness of algorithmic pricing will continue to grow as new technologies are deployed, and lawmakers' focus is unlikely to shift away from the issue. California's efforts will likely lead to new wave of enforcement that goes beyond basic transparency and into aligning data use with consumer expectations. Accordingly, businesses must adjust to an ever-growing quilt of pricing rules that will drive operations and compliance for years to come.