How Add-On Fees and Personalized Pricing Trap Consumers by Christopher Beam

The ubiquitous rise of add-on fees and personalized pricing has turned buying stuff into a game you can’t win. In today’s marketplace, consumers face a dizzying array of add-on fees and personalized pricing tactics that make it nearly impossible to determine the true cost of goods and services. Christopher Beam’s eye-opening article, “Welcome To Pricing Hell,” exposes the deceptive practices that have turned buying into a game rigged against the consumer.

Discover the hidden traps of modern pricing and learn how to protect yourself from falling victim to these deceptive tactics.

Genres

Consumer advocacy, investigative journalism, economics, psychology, marketing, technology, personal finance, behavioral science, social commentary, consumer rights

Christopher Beam’s article delves into the pervasive rise of add-on fees and personalized pricing in today’s marketplace. He exposes how companies employ sophisticated algorithms and data mining techniques to exploit consumer behavior and maximize profits. Beam argues that these practices have created a “pricing hell” where consumers are left guessing the true cost of goods and services.

He cites examples from various industries, including airlines, hotels, and online retailers, to illustrate the deceptive nature of these pricing tactics. Beam also explores the psychological impact of these practices, which often leave consumers feeling frustrated and powerless. The article concludes with a call for greater transparency and regulation to protect consumers from these predatory practices.

Review

“Welcome To Pricing Hell” is a thought-provoking and well-researched article that sheds light on a growing problem in today’s marketplace. Beam’s writing is engaging and accessible, making complex economic concepts easy to understand for the average reader. He effectively uses real-world examples to illustrate the impact of add-on fees and personalized pricing on consumers.

The article’s strength lies in its ability to expose the deceptive nature of these practices and the psychological toll they take on consumers. However, the article could have benefited from more in-depth analysis of the legal and regulatory frameworks surrounding these practices.

Overall, “Welcome To Pricing Hell” is a must-read for anyone who wants to understand the hidden costs of modern consumerism and how to protect themselves from falling victim to these deceptive tactics.

Recommendation

Imagine trying to book a plane to go to an important event, such as a funeral, only to see that airline prices have skyrocketed. As companies gain more access to your data, you may find they charge you more when an algorithm determines your need for a product or service is higher. Christopher Beam, a writing fellow at The Atlantic, does an illuminating deep dive into the dynamic pricing “hell” that he sees emerging, pushing consumers, companies and economists to reflect on whether such practices are actually fair.

Take-Aways

• As data-driven personalized pricing grows ubiquitous, consumers are speaking out.
• While many economists praise dynamic pricing for its efficiency, a select few are critiquing its lack of fairness.
• If you want to limit personalized pricing “hell,” support regulations that protect your data.

Summary

As data-driven personalized pricing grows ubiquitous, consumers are speaking out.

The controversial practice of “dynamic pricing” — raising prices based on real-time factors such as a surge in demand — is ubiquitous today, and consumers are getting fed up. In fact, when the fast-food company Wendy’s announced that it might shift to a dynamic pricing model in 2025, this triggered a massive backlash from the media, the public and competitors. For example Burger King took the opportunity to differentiate themselves from Wendy’s, announcing: “We don’t believe in charging people more when they’re hungry.” However, brands are leveraging dynamic pricing, ranging from Amazon to airlines, while doing so in increasingly complex, individualized ways, using consumer data to personalize fees.

“Perhaps you don’t want companies calculating the precise amount of money they can squeeze out of you based on your personal data or a surge in demand. That’s a perfectly natural way to feel. Unless, that is, you’re an economist.”

Personalized pricing is taboo, yet becoming more widely practiced. For example, an exposé in 2015 revealed that The Princeton Review increased prices for students living in zip codes with a higher demographic of Asian residents. One of the main ways brands can access personal data — which they analyze to determine your “willingness to pay” via machine learning algorithms — is through their apps When you download a brand’s app, you’re often sharing information that ranges from your purchase history to your financial information, browsing history, location, and even your “audio information” (if you use voice-to-text features). Using your data, brands can label you a “lower value customer,” who they can’t profit as much from, which may result in a loss of access to the deals brands use to target more desirable customers. While consumers tend to view this type of treatment as unfair — even predatory — economists often praise dynamic pricing as an efficient and rational response to scarcity.

While many economists praise dynamic pricing for its efficiency, a select few are critiquing its lack of fairness.

According to Columbia University’s Adam Elmachtoub, an associate professor of engineering focusing on pricing and fairness who works for Amazon, personalized pricing doesn’t have to be “evil”: If companies used personalized pricing to charge those with less money lower prices, dynamic pricing could benefit the poor, he argues. He points out that when universities offer certain groups of students financial aid, or companies charge poor countries less for medicines, they’re engaging in personalized pricing in a societally beneficial way. He argues that while data-driven personalized pricing might be new, personalized pricing practices aren’t entirely novel. For example, car salesmen have long worked out consumers’ willingness to pay in negotiations to determine the price of their cars.

“In a world of scarce resources, perhaps rationing by time is fairer than rationing by price. We all have different amounts of money, after all, whereas time is evenly distributed.”

Not all economists share Elmachtoub’s positive perception of personalized pricing. For example, Nobel Prize-winning Princeton economist Angus Deaton, whose work centers around poverty, says that proponents of dynamic pricing focus too much on efficiency and not enough upon fairness. He argues that a better approach to allocating resources during scarcity is “rationing by time,” not price. Elmachtoub also fails to account for the fact that those in wealthier socio-economic brackets often benefit from some of the best deals, given that they have the financial literacy required to bargain with confidence. In fact, many universities actually appeal to the financial discernment of the wealthiest members of society, recruiting students from wealthy families by offering lower fees.

If you want to limit personalized pricing “hell,” support regulations that protect your data.

The director of the Consumer Financial Protection Bureau, Rohit Chopra, expresses concerns that dynamic pricing will become less transparent in the future with the use of AI insights. When using algorithms that humans at the company don’t understand, consumers are often left in the dark about algorithmic pricing decisions. “I worry about a hotel website knowing that you absolutely must travel to get to a funeral that has recently been scheduled, or a situation where your kid urgently needs some medicine or supplies,” says Chopra.

“Ultimately, preventing the dystopia of perfect price discrimination — or some more realistic approximation of it — means cutting off companies’ access to the data they use to determine how much to charge us.”

Government has made some limited attempts to regulate prices. For example, in the United States, the Federal Trade Commission, Consumer Financial Protection Bureau, and the White House have issued new guidelines and rules, such as the Biden administration’s limits on surprise fees at car dealerships and caps on late fees. Industry groups, such as the US Chamber of Commerce, are fighting back, with some arguing that if they can’t charge excessive fees, they’ll accrue more costs, which will increase inflation. One of the most effective ways to protect consumers from price discrimination and the unfair use of personalized information is by removing brands’ access to their data. In April of 2024, lawmakers proposed a new bipartisan bill, limiting the extent to which companies can collect consumer data, offering “a glimmer of hope” to anyone hoping to escape the emergence of what many view as an emerging “pricing hell.”

About the Author

Christopher Beam is a New York-based writing fellow at The Atlantic.