American consumers are experiencing more than just frustration with rising costs; they are expressing confusion and concern regarding the advanced, high-tech methods through which major retailers and restaurant chains are setting prices. The increasing use of artificial intelligence (AI) tools in pricing has brought terms such as “dynamic pricing” and “surveillance pricing” into public discussion, leading many shoppers to question if different individuals are paying different rates for the same items.
The Rise of Algorithmic Pricing Technologies
Retail environments are seeing a rapid transition from physical paper tags to electronic price displays. These digital labels allow stores to update prices electronically. AI tools are utilized by businesses to predict consumer reactions and determine optimal pricing strategies. While consumers are already accustomed to fluctuating prices when booking services like flights, hotels, and rides, the prospect of daily purchases being governed by invisible algorithms and personal data has heightened public anxiety.
These pricing systems generally fall into three categories:
- Dynamic Pricing: This involves adjusting prices in immediate response to shifting market conditions, including supply and demand. Examples include airlines adjusting ticket costs as departure times near, or “surge pricing,” such as when ride-sharing fares increase during periods of high demand.
- Digital Price Labels: These electronic displays, which are becoming more common in major U.S. retailers like Walmart and Whole Foods, replace traditional paper tags. While some consumer advocates worry these labels could be used for personalized or surge pricing, technology firms note that retailers typically update these prices on a predictable schedule, often weekly, as shoppers value consistency.
- Personalized Pricing (or Surveillance Pricing): This practice entails offering varied prices and discounts to different customers based on data points like their geographical location, income, or online browsing history.
Industry Response and Consumer Concerns
The management consulting firm Kearney notes that there is “major tension” regarding which party—the corporation or the shopper—will ultimately control the power associated with these algorithms and AI usage. Some businesses argue that consumer apprehension is rooted in misunderstandings about how their technology functions. For instance, Walmart CEO John Furner stated in a recent blog post that the digital price tags save employee time and keep prices current, asserting, “We price the product, not the person.”
However, suspicions are fueled by a lack of transparency regarding the consumer data collected and how it is utilized. Critics point to social media posts that falsely suggest electronic shelf labels at Walmart scan shoppers’ faces or cellphones to create individualized prices. Because of these transparency issues, legislative and regulatory bodies are taking notice.
Regulatory Scrutiny and Legal Actions
At the state level, action is being taken: According to the National Conference of State Legislatures, lawmakers in at least 30 states have considered legislation this year aimed at addressing personalized and algorithmic pricing.
The Federal Trade Commission (FTC) has proposed an enforcement policy warning companies that failing to disclose the use of personal data for individualized pricing could violate consumer protection law. Furthermore, the FTC released a staff report in January 2025, finding that intermediaries offering tools to customize prices and promotions had worked with a minimum of 250 clients, including retailers of clothing and groceries.
Legal action has targeted these practices:
- In 2022, California prosecutors sued Target, claiming the retailer’s app showed lower prices before shoppers entered the store but increased them once inside. Target eventually settled for $5 million and agreed to cease using geofencing technology to raise prices.
- Legislative restrictions have been passed in Maryland, New Jersey, and Connecticut. The laws in Maryland and New Jersey specifically address groceries, though exceptions exist for certain loyalty discounts, while Connecticut’s law covers a broader range of retail purchases.
In the realm of algorithmic pricing, one significant challenge was the 2023 anti-monopoly lawsuit filed by the FTC against Amazon. The agency challenged an internal algorithmic tool named Project Nessie, alleging Amazon used it to identify products whose prices could be raised while competitors were likely to follow suit, thereby generating over $1 billion in excess profits. Amazon has stated that the allegations “grossly mischaracterize” the tool, which it claimed was designed to prevent unsustainably low price-matching practices.
The adoption of AI has intensified this field. A 2023 survey by Simon-Kucher, a global consulting firm, which polled over 2,200 business leaders across 28 countries and 39 industries, revealed that 41% reported using AI software to gather market intelligence, including competitor pricing, and another 28% reported using it for “real-time price optimization”—the process of selecting prices to advance business goals such as maximizing profits or liquidating unsold goods.
