<\/p>\n
Mining vast troves of data, AI is setting prices for everything from airline tickets to groceries. The tools are getting smarter as they learn our shopping habits. They\u2019re also getting personal, generating prices and offers that hinge partly on what the AI thinks you\u2019re worth as a customer and would pay.<\/p>\n
How this works varies by industry, but it\u2019s becoming pervasive. Delta Air Lines has started using AI to set fares for some domestic tickets. Retailers such as Home Depot and Kroger are using AI to analyze data on consumers and then tailor prices based on the AI\u2019s knowledge.<\/p>\n
Royal Caribbean CEO Jason Liberty said recently that AI is managing \u201c15 million price points” a day, displacing human revenue managers. \u201cOur AI tools are getting smarter and smarter so that we\u2019re able to curate what is relevant to that consumer,” he said on an earnings call in October.<\/p>\n
Consumers are in the dark about AI\u2019s machinations. Companies are loath to discuss details of their pricing algorithms. Partly that\u2019s for competitive reasons. A consumer and regulatory backlash is also brewing over AI being used for unfair trade practices and illegal forms of price discrimination.<\/p>\n
The technology is certainly powerful: AI has the potential to turbocharge \u201cpersonalized pricing,” a method of charging different prices to different sets of consumers or individuals. Personalized pricing isn\u2019t new. We already pay different prices for many things\u2014airline tickets, home insurance, groceries\u2014based on our consumer data or ability to haggle in real life (in the case of a car, for instance).<\/p>\n
AI\u2019s twist is that it is constantly getting smarter. The computing is powerful enough\u2014thanks largely to Nvidia\u2019s chips\u2014that AI can blend our data with the dynamics of a marketplace, tailoring prices to individuals or groups more narrowly. AI is also a high-tech crystal ball, capable of guessing what you might be willing to pay at a point in time, and customizing an offer to you.<\/p>\n
\u201cConsumer data isn\u2019t just fueling personalization; it\u2019s redefining pricing,” says IDC research manager Adam Wright. \u201cWith AI tools mining billions of data points in real time, prices can now better reflect demand, loyalty, and context, which creates a new frontier in dynamic pricing.”<\/p>\n
If AI helped everyone gets better deals\u2014while pumping up corporate profits\u2014there wouldn\u2019t be much concern. But academic studies indicate that AI-powered algorithms, working competitively, wind up raising prices for everyone. In 2019, academic researchers in Europe concluded that AI algorithms \u201cconsistently learn to charge supra-competitive prices,” resulting in tacit collusion. More recent research has found similar findings.<\/p>\n
Some Democratic politicians see AI as a potential tool for \u201csurveillance pricing,” the idea that companies are closely tracking consumers and charging more to some individuals or groups based on personal data. The Biden administration started investigating the practice, though the Trump administration dropped the probe. Under Republican control, the federal government appears unlikely to set rules for AI-based pricing.<\/p>\n
Some states are trying to put up guardrails. New York state recently passed a law requiring companies to disclose if they\u2019re using algorithmic pricing. California state lawmakers have proposed regulations, though they didn\u2019t make it to a vote. The Trump administration, meanwhile, is trying to stop such moves, recently directing the Department of Justice to sue states that issue AI-related regulations.<\/p>\n
Publicly, companies are walking a tightrope. While they\u2019re eager to show investors that they\u2019re making good use of AI, they risk antagonizing consumers and lawmakers if it appears that they\u2019re using the software for unfair or discriminatory trade.<\/p>\n
Delta drew wrath from Democratic senators after the company said it was expanding its use of AI for pricing. Delta subsequently said it isn\u2019t using AI to set personalized ticket prices.<\/p>\n
\u201cI think what\u2019s most important is that it\u2019s done in a noncreepy way,” said Royal Caribbean\u2019s Liberty at a recent conference, adding that the company\u2019s AI tools aren\u2019t being used to monitor customers\u2019 habits but instead to predict what they might like.<\/p>\n
Yet experts see a disconnect between how companies say they\u2019re using AI\u2014fairly for all\u2014and its potential to charge some consumers more than others.<\/p>\n
\u201cThe way this is being pitched to investors is that, through hyperpersonalization, companies will be able to significantly raise revenue and margins\u2014that they\u2019ll be able to charge the maximum each consumer is willing to pay,” says Samuel Levine, former director of the Federal Trade Commission\u2019s Bureau of Consumer Protection in the Biden administration.<\/p>\n
Airlines are integrating AI tools, aiming to improve operations and bolster revenue with more-personalized prices and offers.<\/p>\n
Delta is partnering with an Israeli software company called Fetcherr that has created 4-D models of the market\u2014combining supply\/demand information with consumer and corporate data. The models can adjust and set prices far faster and more accurately than older software. Fetcherr says its \u201clarge market model” can uncover \u201chidden” revenue, boosting sales by an average 10% while cutting manual processes by 60% compared with traditional software.<\/p>\n
Wall Street loves that idea. AI should \u201cdrive [a] pricing tailwind in 2026,” said TD Cowen analyst Tom Fitzgerald in a recent note.<\/p>\n
Much of the software is still in training mode, but it\u2019s likely to get more powerful as it incorporates more data and learns from its mistakes. Delta initially had a target of using AI to price 20% of its domestic tickets by year end, but the figure is now likely to be closer to 5%, according to a person familiar with the matter.<\/p>\n
Whether consumers see higher or lower prices is debatable. But some research indicates that the algorithms can push through higher prices.<\/p>\n
Today, products you see on Amazon.com, Expedia, TikTok, and other sites are ranked not just by how useful they are to you, but also by prices pegged to rival sellers in the marketplace. Knowing more about your preferences, AI may recognize that you\u2019re less price sensitive and show you higher-priced goods first. You may see lower-priced goods ranked higher if you\u2019re profiled as more price sensitive.<\/p>\n
That might seem to level the playing field in aggregate. But a recent study by Carnegie Mellon University business professor Param Singh and other researchers concluded that personalized rankings, using AI-algorithms, increase prices overall for consumers by an average 29%, or 13% after accounting for the economic benefits of more convenience.<\/p>\n
\u201cWhen algorithms personalize how products are ranked for each user, they tend to learn to charge higher prices overall,” Singh says.<\/p>\n
AI chatbots also appear effective at boosting revenue. Customers using Amazon\u2019s AI-powered Rufus tool are 60% more likely to make a purchase, said CEO Andy Jassy on the company\u2019s earnings call at the end of October. Rufus is on track to drive an extra $10 billion in annual sales for the company, he said.<\/p>\n
Even if you don\u2019t buy something with Rufus, the chatbot can use the context it gains about you from chats for a period of 28 days (assuming you don\u2019t opt out), according to Amazon\u2019s privacy policy. The privacy notice says it uses your personal information to recommend products and services.<\/p>\n
OpenAI\u2019s ChatGPT is moving into e-commerce, too. Companies such as Walmart, Etsy, and Shopify have launched partnerships with ChatGPT to capture sales through the app. The chatbot can use information from your queries to personalize your shopping.<\/p>\n
OpenAI said in a statement to Barron\u2019s that ChatGPT\u2019s results are selected independently and aren\u2019t influenced by ads or its partnerships. If a consumer specifies a budget, the chatbot will focus on that, but if price isn\u2019t mentioned, it may home in on other factors.<\/p>\n
Behind the scenes, AI is learning far more about how consumers shop. Home Depot partners with AI-pricing firm Revionics, for instance. The tools could be used to track and analyze a contractor\u2019s recent purchases of building materials, for example, and provide a bundled discount for the next phase of the job. Home Depot\u2019s privacy policy says consumers may see a \u201cdifferent rate” based on the value of their personal information.<\/p>\n
Revionics told Barron\u2019s that its software doesn\u2019t use individual consumer data but considers factors such as historical sales data and competitive prices. It said its clients \u201cleverage science to find prices that will win the loyalty of their target customers,” adding that it often recommends price cuts.<\/p>\n
Consumers may also be guinea pigs as companies use AI and other software tools to experiment with prices. And discounts may be far less prevalent than markups.<\/p>\n
Instacart, for one, recently charged up to 23% more to different consumers for the same grocery items at the same store, according to an investigation by Consumer Reports and Groundwork Collaborative. Almost three-quarters of grocery items were offered at multiple price points, the report found. A dozen Lucerne eggs at a Safeway store in Washington state went from $3.99 to $4.79, for instance.<\/p>\n
While consumers might not notice a few pennies here and there, it can add up. The report found that the same basket of groceries at a Seattle-area Safeway on Instacart ranged from $114.34 to $123.93. Only 8% of shoppers got the best deal, and the cost swings over a year could add up to $1,200 for a family of four, the report said.<\/p>\n
Instacart, in a blog post, said a very small group of retailers use its AI-enabled software, called Eversight, \u201cto run limited online pricing tests.” Prices never change in real time and the tests \u201cnever use personal, demographic, or user-level behavioral data,” the post added.<\/p>\n
Democrats are sounding alarms, saying the technology is proliferating and increasing prices for consumers. \u201cCompanies like Instacart are using artificial intelligence to rip off consumers by charging different shoppers different prices for the same exact items,” Senate Minority Leader Chuck Schumer (D., N.Y.) said in a statement on Dec. 14.<\/p>\n
Democrats have tried to marshal the federal government into regulating the technology. The FTC under the Biden administration issued a report in early 2025 on surveillance pricing, including AI. FTC staff found evidence of at least 250 companies adopting the practice, using vast amounts of consumer data to set prices, from purchase history to geolocation data and email communications. The Trump administration dropped the probe.<\/p>\n
New York is now at the forefront of regulatory efforts. Its new law, which took effect in November, requires companies to disclose to consumers if they\u2019re using \u201calgorithmic pricing,” allowing companies to charge \u201csome consumers more than others depending on factors like their location, income, and previous shopping habits,” said New York Attorney General Letitia James in a statement.<\/p>\n
Yet variable pricing isn\u2019t illegal, and how New York will enforce the statute isn\u2019t clear. Industry groups oppose such laws, arguing they will prevent companies from using algorithms to lower prices and offer discounts. \u201cWhat our members do for the most part, which is to tailor promotions\u2026is something that is not only benign but helpful,” said Stephanie Martz, general counsel of the National Retail Foundation, which opposed the law.<\/p>\n
A similar argument helped kill a measure in California to regulate algorithmic pricing. Industry groups argued that the regulations were unworkable and could harm consumers; a watered-down bill never made it to a vote.<\/p>\n
While the U.S. may be far from regulating AI pricing, other countries are moving ahead. China has issued draft proposals to curb algorithmic pricing, citing risks of collusion and price fixing among large e-commerce platforms like Alibaba Group Holding. Algorithmic pricing is now an antitrust enforcement priority in the United Kingdom and European Union, with the EU launching multiple probes into the practice.<\/p>\n
For many companies, the lack of regulation, revenue opportunity, and learning power of AI are too compelling to pass up. Firms risk losing sales if they don\u2019t deploy the tools. AI already appears to be lifting revenue for companies and, as it works deeper into chatbots and e-commerce sites, it\u2019s likely to become a more powerful sales agent.<\/p>\n
If all of the companies in a market use AI algorithms, heightening competitive pressure, consumers could benefit from lower prices, more convenience, and productivity gains. It could also help companies find the highest prices that consumers are willing to pay. Either way, just know that the next time you shop, AI probably has you pegged.<\/p>\n
Write to Callum Keown at callum.keown@dowjones.com<\/i><\/p>\n
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