Is discriminatory pricing illegal? Should it be?
Every lawyer can complete the question ‘is it legal if…’ with an anecdote that could find its place in a deck of Cards Against Humanity. On occasions, however, a question comes along that, because of its obscurity or significance, worms its way into the lawyer’s mind where it writhes and wriggles until pacified with a sufficient answer. This was the case last week when Rachel, a colleague of mine, approached me a with a peculiar legal grievance.
Rachel had been planning a holiday. She had scoured the web for her ideal hotel – the perfect equilibrium of cost and comfort. However, upon proceeding with a booking, the price would surge and displace the balance. This pattern repeated itself until Rachel, through either defeat or acceptance of these whimsical online pricing models, paid the inflated price. The salient questions are, firstly, what causes this observed sudden hike in the price and, secondly, is it legal.
Dynamic Pricing versus Discriminatory Pricing
There are two types of strategic online price variation; dynamic pricing and discriminatory pricing. Dynamic pricing simply involves adjusting the price of a product or service according to current market demands. The concept is nothing new, but companies can now utilize artificial intelligence and big data to determine the maximum viable price of a product or service at any given time. Whereas the taxi industry has always charged a premium at certain hours, UBER can now adjust rates according to the weather, congestion, the number of cars in service and so on. Hence, a ride on a rainy day will cost you more.
Dynamic pricing is generally a force for good and, at least to date, has tended to enhance market competition. The ethics of discriminatory pricing are more dubious. Rather than adjusting price according to market or environmental factors, discriminatory pricing involves varying the price according to the characteristics of the individual consumer. In its purest form, it involves charging each consumer the maximum price he or she is prepared to pay.
Discriminatory pricing can be used as a tool for bad. For example, suppose that an individual, owing to some disability, is dependent on ride sharing services for his travel to and from work. No doubt he would acquiesce to an inflated price – after all, the ride is essential for his daily operations, it is more valuable to him than his peers. The iniquity occurs when the ride sharing service detects this and implements what would be, in effect, a disability surcharge. While I use this example for the sake of exposition, note that it is not too far-fetched. Businesses are constantly profiling our spending habits according to information we volunteer – such as our age, occupation, post code, spending habits, search histories and so on. These variables can then be used to predict other characteristics such as socio-economic status. It merely takes one misguided algorithm for e-commerce platforms to implement different prices based on these variables. Already, travel sites have strategically directed Mac users towards more expensive hotels, insurance sites have charged more from individuals who are less likely to comparison shop and short-term loan companies have actively targeted users whose search histories reveal signs of financial desperation.
Is Discriminatory Pricing unlawful?
Generally, price discrimination is not illegal. At least, not anymore. Australian law has a peculiar history regarding price discrimination. For a time, discriminatory pricing was prohibited under section 49 of the Trade Practices Act 1974, the predecessor to what is now the Competition and Consumer Act 2010. Under section 49, a corporation was prohibited from charging different prices for like goods or services. Yet section 49 was doomed for its incidental effects – it prohibited selective discounting and was criticized for stifling overall market competition. Section 49 was repealed by the Competition Policy Reform Act 1995, roughly a decade prior to the introduction of online price discrimination.
Australia’s legislative framework is yet to adapt to the threat of online price discrimination. Currently, only the most egregious forms of discrimination are unlawful. Fortunately, a disability surcharge would be caught out by State anti-discrimination laws. Additionally, competition laws – specifically the prohibition on misuse of market power – would capture extreme forms of anticompetitive pricing. Yet within the loose limits of anti-discrimination and competition laws, businesses are free to engage in a broad scope of unfair pricing tactics. In fact, even a blatant violation of these limits is likely to go undetected. For example, suppose a website charges a premium on consumers of a certain age – a clear violation of the Age Discrimination Act 2004. The task of detecting this violation becomes increasingly difficult when age is just one of a string of variables in a complex pricing equation. When Martin Shkreli increased the price of a lifesaving medication by 5,000%, he was quickly touted as ‘the most hated man the world’. Yet Shkreli did the very thing that pricing algorithms are intended to do – he implemented the maximum viable price, taking into account the conditions of the market and the features of the buyers. How are we to respond to price discrimination that is faceless, automatic and buried among legitimate e-commerce tactics?
Managing the threat
Think you’ve been subject to price discrimination? We want to know about it. Share your experience in the comments section.
 An article by the wall street journal revealed that Orbitz, a US online travel site, strategically showed Mac users different, and sometimes costlier options than Windows visitors see (view article here: https://www.wsj.com/articles/SB10001424052702304458604577488822667325882)
 See https://www.npr.org/2015/05/08/403598235/being-a-loyal-auto-insurance-customer-can-cost-you
 See https://mic.com/articles/128057/this-is-how-payday-lenders-dodge-google-target-the-vulnerable-and-exploit-the-poor#.XA4h21zsl