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The National Retail Federation (NRF) filed a lawsuit to block the implementation of a New York state law, set to take effect on July 8, requiring retailers to tell customers that they use algorithmic pricing.
The law — which was passed with little debate as part of the state’s budget bill, and signed by Governor Kathy Hochul on May 9 — requires any retailer that sets prices using virtually any information about its customers to place a disclosure next to each affected product saying, “This price was set by an algorithm using your personal data.”
In the May statement, Hochul pointed out the consumer risks of increasingly sharing information like browsing behavior, location, and purchase history in today's marketplace.
“Today's technology means corporations are able to collect mountains of personal data, feed it into algorithms, and generate a price that's individual to a consumer,” said Hochul. “This practice, which the FTC has dubbed surveillance pricing, means a company could be charging you and your neighbor different prices for the same product, based on your individual willingness to pay. This practice is opaque and strips consumers of their ability to comparison shop and plan for the price of goods and services.”
Hochul said it’s “first-in-the-nation legislation that requires businesses to disclose clearly” to consumers when a price was set by an algorithm using their personal data, subject to certain exceptions.
NRF Argues That Algorithmic Pricing Could Actually Drive Prices Down
In its lawsuit, the NRF argued that grocers have long offered coupons at checkout for items similar to those purchased, and that coffee shops have offered rewards cards giving repeat customers every tenth cup free.
The suit noted that an online merchant might offer a promotion to a customer who leaves a product in an online shopping cart for a number of days, then change it based “on what competitors charge, seasonal price adjustments, or intuition.” Using algorithmic pricing, “[Merchants] simply do it with greater sophistication and on a much-larger scale,” the suit stated.
The suit further cited studies showing that algorithmic pricing based on market conditions has proven to be a “powerful role in driving prices down” because it allows firms to be more responsive to supply and demand.
NRF’s complaint said, “Despite this, the State of New York will soon require many retailers to affix a misleading and ominous warning to any price set by an algorithm using any information that could be linked to a customer… Although the state is free to express its opinion that algorithmic pricing is dangerous, it cannot force businesses that disagree to do so.”
A Gartner survey from October 2024 found 68% of consumers feel taken advantage of when brands use dynamic pricing, 80% agreed that brands that have consistent pricing are more trustworthy, and 42% would be willing to spend more on a product if consistent pricing was guaranteed.