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ACM argues for greater transparency of the black box of computer-controlled prices

Summary

  • ACM conducted a market investigation to gain more insight into how computer-controlled prices work and what their consequences are.
  • It is often unclear to consumers how prices are formed. That lack of insight leads to uncertainty, higher ‘search costs’, and it harms consumer confidence.
  • That is why ACM calls for greater transparency.

From online stores to events and gas stations: computer-controlled pricing is used in more and more sectors. Computer-controlled pricing means that pricing algorithms set the price on the basis of various factors. As a result, the price of a product can vary tremendously, which means that some consumers pay less than others. It is often unclear to consumers how these pricing algorithms work, and what factors influence the price. That lack of insight leads to uncertainty and misconceptions about the way in which prices are formed, and harms consumer confidence. In addition, the ‘search costs’ for consumers go up. These are some of the findings from the market investigation of the Netherlands Authority for Consumers and Markets (ACM) into computer-controlled consumer prices. That is why ACM argues for greater transparency, and calls for a public debate on how to use pricing algorithms responsibly.

In order to gain more insight into how computer-controlled consumer prices work and what their consequences are, ACM used the Dutch market for airline tickets as an example. The aviation sector is illustrative of the effects that can occur in other sectors where pricing algorithms are used. Prices for airline tickets change fast and often, as a result of which consumers pay different prices for seats on the same flight.

Findings from the airline ticket example

With computer-controlled prices with dynamic pricing, as is the case with airline tickets, businesses continually adjust prices on the basis of factors that change, such as supply and demand, and prices charged by competitors. ACM’s market investigation shows that, on an average flight, one in three tickets have a price of 40 percent or higher above the average ticket price. For a seat on the same flight, 30 to 35 different prices (on average) are charged during the selling period. In addition, it turns out that, at first, average ticket prices go down gradually as the departure date approaches, and subsequently go up sharply from approximately two months before the departure date. This leads to differences between consumers, depending on the time of booking. Also, the ‘search costs’ for consumers go up: it costs more time and effort to book a flight at the best possible price. As a consequence, consumers in vulnerable positions can be affected more, since, for example, they are not able to wait until the price goes down or are less able to determine the right time to make a purchase.

At the same time, the market investigation shows that the use of computer-controlled pricing also offers benefits, such as cost savings for businesses as a result of the automation of pricing-related processes, and a more efficient management of inventory or capacity. For example, dynamic pricing leads to a higher load factor on aircraft. That can lead to lower prices (on average), depending on the total capacity on specific routes and the effectiveness of competition.

Personalized pricing (meaning different prices for consumers at the same time on the basis of individual characteristics or consumer behavior) is used in airline tickets only to a limited extent, and, for example, only as part of loyalty programs. The market investigation reveals that previous search queries and the device that is used do not affect the price at this moment. That means that it is pointless to delete the cookies on your device or to use a different device to book your ticket.

Uncertainty among consumers

On the basis of a consumer study (in Dutch), ACM notes that changing prices increase search costs, uncertainty, and distrust among consumers. By taking into account pricing algorithms when searching and booking airline tickets, consumers (and particularly consumers with financial stress) spend extra time in their search processes. Many consumers also have difficulty comparing prices. Moreover, almost half of consumers (46 percent) wrongfully believe that previous search queries influence the price. A quarter of consumers (25 percent) also believe that the device they use influences the price. The consumer study also reveals that people find personalized pricing unfairer than dynamic pricing.

Martijn Snoep, Chairman of the Board of ACM, adds: "The findings from the aviation-sector example are relevant, because similar techniques are used in other sectors too. Moreover, we expect that, because of AI and the availability of data, businesses will use computer-controlled pricing more often, including personalized pricing. Transparency is needed in order to be able to have a public debate on the desirability and consequences of this development, and how we wish to deal with that with an eye to the functioning of markets and to the prevention of exploitation of people’s vulnerabilities."

Call for greater transparency

Charging different prices for similar products to different customers is, in itself, not prohibited. Yet, current laws do stipulate that businesses must state whether computer-controlled pricing takes place, but not that they need to disclose the factors that play a role in that process. That is why ACM argues for, at least, greater transparency on the part of businesses. Clarity about what does and does not influence prices will save consumers unnecessary search costs, and will raise consumer confidence.

Next steps

ACM invites businesses, consumers, lobby groups, and other market participants, such as price-comparison websites, to respond to the findings from the market investigation as well as to the recommendations presented in the draft report. They can do so until 9 November 2026 by visiting this page (in Dutch). In addition, ACM will organize a roundtable discussion on computer-controlled pricing in the beginning of 2027. In that discussion, participants will address the question on how pricing algorithms can be used in a fair and responsible manner, and how businesses can open the black box of the pricing algorithms in a meaningful way.

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