Algorithmic pricing, are consumers being duped?

Would you be willing to pay more for a fresh beverage on a hot day? Perhaps yes, but what if the price mark-up were to be determined without you knowing it? The concept of dynamic pricing for consumer goods and services has been a staple since the 1980s (just think of when you book a seat on a plane), but in the digital age, it has moved to the next level, with algorithms. The new paradigm brought by algorithmic pricing though poses a series of questions, about ethics on the one hand, and about accountability on the other. Peter Seele, Full professor of Business Ethics and Director of the Ethics and Communication Law Center (ECLC) at the USI Faculty of Communication Sciences, discusses these issues in an article published in December in the top-ranking Journal of Business Ethics.

The move towards “personalised” pricing fuelled by algorithms or other forms of automation are not entirely new. Back in 1999, for instance, the idea of a temperature-sensitive vending machine came up to the then CEO of Coca-Cola. Though the machine never made it to the market, it made waves in the industry and, two decades later in the realm of online commerce, algorithms are now “observing” customers and setting prices dynamically, and even personalising them according to identified customer features.

There are certain benefits that come with this evolution, as the possible reduction in waste of the resources and time employed in producing, marketing, and storage. Not only customers and firms, but also society and environment, stand to benefit from this effect. But, on the downside, what about immaterial costs like giving up the idea of equality by “price discrimination”? Besides the “silent invasion” into the privacy of consumers, there are other issues at stake, such as the paradigm shift in the decision-making process of mindful customers, who could be subject to more stress, uncertainty, ambivalence and feeling of having been duped or snubbed.

“I am particularly happy that we managed to put together a team of international scholars – including a PhD student at USI who, with this article, is provided with good prospects for an academic career  – with backgrounds in Marketing, Computer Science, Management and Business Ethics – to tackle this interdisciplinary challenge of algorithmic pricing”, says Prof. Seele.

The full article is available at https://link.springer.com/article/10.1007/s10551-019-04371-w