Proposed bill on ‘surveillance pricing’ will hurt consumers

The cost of living is going up and it’s especially bad here in Illinois. Not only is inflation in our state worse than the national average, prices in Chicago are rising faster than even in most other metro areas.

So you can understand why Illinois lawmakers are considering a bill called the Algorithmic Pricing Transparency Act, meant to protect consumers from so-called “surveillance pricing.” Surveillance pricing uses artificial intelligence to build a profile on a user’s online activity and charge what this data suggests he or she will pay.

Surveillance pricing might sound like a recipe for more inflation, but the problem is this bill would only make things worse. Instead of lowering prices, it would raise them and leave Illinois consumers with fewer options.

The legislation would require companies to disclose when prices are generated through algorithms and regulate how personal data is used in pricing. It would allow consumers to opt out of surveillance pricing altogether and instead receive a “baseline” price.

Supporters argue the bill only targets surveillance pricing. Other forms of so-called “dynamic pricing,” which adjust prices in real-time without gathering personal data, are still fine.

In practice, however, the modern economy is more complicated than that. Dynamic pricing uses a number of tools that incorporate a wide variety of information to determine how much a product should cost. If Illinois tries to draw a bright line where one doesn’t exist, it could make pricing more difficult as businesses risk running afoul of the law.

Illinois is already ranked as having one of the worst business climates in America, with 218 businesses having left the state in 2023. The Algorithmic Pricing Transparency Act would only make this worse.

If the bill becomes law, many companies likely would comply and change their pricing models. This is where the bill’s even worse unintended consequences begin to take shape.

Across the modern economy — from airlines and hotels to retail and housing — pricing systems are used to respond to real-world conditions like supply, demand and inventory. Often this works in consumers’ favor. Travelers flying out of O’Hare routinely see wide downward swings in ticket prices because airlines need to fill seats that would otherwise go empty.

Illinois hotels regularly adjust prices based on demand, offering lower weekday or off-season rates to boost occupancy. Research shows this kind of pricing flexibility can increase occupancy by 10% to 20% by offering discounts that attract more price-sensitive travelers.

Retailers rely on similar tools. The flash sales and clearance discounts you see at stores rely on pricing systems that adjust in real time. Studies have found these tools can increase sales by 5% to 10%, often by lowering prices to move inventory that might otherwise sit unsold.

Even ride-sharing services, a familiar part of daily life in Chicago, use dynamic pricing not just to raise prices during peak demand but lower them during slower periods to encourage more rides and reduce wait times.

These systems adjust prices not just up but down, benefiting not just the business but the consumer. In other words, everyone wins when dynamic pricing is used properly. Remove that flexibility and companies won’t respond by offering more discounts. They’ll respond by setting safer — meaning higher — default prices.

Don’t expect the “baseline” price provided for by the Illinois bill to be a bargain. Even worse, over time, that new higher price will become the safe price — the one companies fall back on — including for consumers who might otherwise have received a lower, targeted price.

The result will be higher prices for everyone. A law meant to protect consumers will end up eliminating many of the discounts that help them save money.

Illinois lawmakers need to take a closer look at what this proposal actually does. It’s already hard enough to do business in our state — and it’s hard too for families to afford the cost of living. Let’s not make things worse with a bill that’s loaded with unintended consequences.

• State Rep. Marty McLaughlin, a Republican from Barrington Hills, represents Dist. 52 in the Illinois House.