Recently, Delta Air Lines announced it would expand its use of artificial intelligence to provide individualized prices to customers. This move sparked concern among flyers and politicians. But Delta isn’t the only business interested in using A.I. this way. Personalized pricing has already spread across a range of industries, from finance to online gaming.

Customized pricing — where each customer receives a different price for the same product — is a holy grail for businesses because it boosts profits. With customized pricing, free-spending people pay more while the price-sensitive pay less. Just as clothes can be tailored to each person, custom pricing fits each person’s ability and desire to pay.

I am a professor who teaches business school students how to set prices. My latest book, The Power of Cash: Why Using Paper Money is Good for You and Society, highlights problems with custom pricing. Specifically, I’m worried that A.I. pricing models lack transparency and could unfairly take advantage of financially unsophisticated people.

The history of custom pricing

For much of history, customized pricing was the normal way things happened. In the past, business owners sized up each customer and then bargained face-to-face. The price paid depended on the buyer’s and seller’s bargaining skills — and desperation.

An old joke illustrates this process. Once, a very rich man was riding in his carriage at breakfast time. Hungry, he told his driver to stop at the next restaurant. He went inside, ordered some eggs and asked for the bill. When the owner handed him the check, the rich man was shocked at the price. “Are eggs rare in this neighborhood?” he asked. “No,” the owner said. “Eggs are plentiful, but very rich men are quite rare.”

Custom pricing through bargaining still exists in some industries. For example, car dealerships often negotiate a different price for each vehicle they sell. Economists refer to this as “first-degree” or “perfect” price discrimination, which is “perfect” from the seller’s perspective because it allows them to charge each customer the maximum amount they’re willing to pay.

Currently, most American shoppers don’t bargain but instead see set prices. Many scholars trace the rise of set prices to John Wanamaker’s Philadelphia department store, which opened in 1876. In his store, each item had a nonnegotiable price tag. These set prices made it simpler for customers to shop and became very popular.

Why uniform pricing caught on

Set prices have several advantages for businesses. For one thing, they allow stores to hire low-paid retail workers instead of employees who are experts in negotiation.

Historically, they also made it easier for stores to decide how much to charge. Before the advent of A.I. pricing, many companies determined prices using a “cost-plus” rule. Cost-plus means a business adds a fixed percentage or markup to an item’s cost. The markup is the percentage added to a product’s cost that covers a company’s profits and overhead.

The big-box retailer Costco still uses this rule. It determines prices by adding a roughly 15% maximum markup to each item on the warehouse floor. If something costs Costco $100, they sell it for about $115.

The problem with cost-plus is that it treats all items the same. For example, Costco sells wine in many stores. People buying expensive Champagne typically are willing to pay a much higher markup than customers purchasing inexpensive boxed wine. Using A.I. gets around this problem by letting a computer determine the optimal markup item by item.

What personalized pricing means for shoppers

A.I. needs a lot of data to operate effectively. The shift from cash to electronic payments has enabled businesses to collect what’s been called a “gold mine” of information. For example, Mastercard says its data lets companies “determine optimal pricing strategies.”

So much information is collected when you pay electronically that in 2024 the Federal Trade Commission issued civil subpoenas to Mastercard, JPMorgan Chase and other financial companies demanding to know “how artificial intelligence and other technological tools may allow companies to vary prices using data they collect about individual consumers’ finances and shopping habits.” Experiments at the FTC show that A.I. programs can even collude among themselves to raise prices without human intervention.

To prevent customized pricing, some states have laws requiring retailers to display a single price for each product for sale. Even with these laws, it’s simple to do custom pricing by using targeted digital coupons, which vary each shopper’s discount.

How you can outsmart A.I. pricing

There are ways to get around customized pricing. All depend on denying A.I. programs data on past purchases and knowledge of who you are. First, when shopping in brick-and-mortar stores, use paper money. Yes, good old-fashioned cash is private and leaves no data trail that follows you online.

Second, once online, clear your cache. Your search history and cookies provide algorithms with extensive amounts of information. Many articles say the protective power of clearing your cache is an urban myth. However, this information was based on how airlines used to price tickets. Recent analysis by the FTC shows the newest A.I. algorithms are changing prices based on this cached information.

Third, many computer pricing algorithms look at your location, since location is a good proxy for income. I was once in Botswana and needed to buy a plane ticket. The price on my computer was about $200. Unfortunately, before booking I was called away to dinner. After dinner my computer showed the cost was $1,000 — five times higher. It turned out after dinner I used my university’s VPN, which told the airline I was located in a rich American neighborhood. Before dinner I was located in a poor African town. Shutting off the VPN reduced the price.

Last, often to get a better price in face-to-face negotiations, you need to walk away. To do this online, put something in your basket and then wait before hitting purchase. I recently bought eyeglasses online. As a cash payer, I didn’t have my credit card handy. It took five minutes to find it, and the delay caused the site to offer a large discount to complete the purchase.

The computer revolution has created the ability to create custom products cheaply. The cashless society combined with A.I. is setting us up for customized prices. In a custom-pricing situation, seeing a high price doesn’t mean something is higher quality. Instead, a high price simply means a business views the customer as willing to part with more money.

Using cash more often can help defeat custom pricing. In my view, however, rapid advances in A.I. mean we need to start talking now about how prices are determined, before customized pricing takes over completely.

Jay L. Zagorsky, Associate Professor Questrom School of Business, Boston University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The world of travel is no stranger to the AI technological revolution, and not only because of the use companies like Iberia have made of it to achieve more sustainable and efficient flights. AI has already been incorporated into an experience that many people experience with anguish: planning summer trips. Whether through an agency or in pajamas at home, planning involves making a long list of decisions that aren’t always easy and that often require speed inversely proportional to the amount of money available. Now it seems that AI has decided that the only decision to make is which of the many existing applications—ChatGPT, Gemini, Grok, Guidegeek, or Layla, among others—we want to use.

The appearance of layla.ai It’s similar to a WhatsApp chat. All you have to do is write your trip idea in the box and click the send button to receive a proposal. For example: “Plan a trip with friends.” Or better yet: “Plan a trip with friends for the weekend of August 30th-31st. We’re five people, between the ages of 24 and 29. We live in Barcelona and have a car available. We want to go to the beach and have a party without disturbing anyone. Maximum budget: €150 per person for the entire trip.”

Users of these technologies often face a dilemma: the more information they provide, the better answers they receive, but in exchange they offer details of their lives to companies that, in some cases, will use this data to train their systems. “The approach I would follow is to provide the minimum amount of personal information,” recommends Josep Curto, an artificial intelligence specialist and professor at the UOC. “But if we want more detailed information, there are applications, such as ChatGPT, that offer the ability to log in and delete chats. This way, we can reap the benefits while protecting our privacy.”

Layla’s response to the request takes just a few seconds to arrive: after asking a couple of questions to clarify our wishes (like the Costa Brava or Costa Dorada, a rural house or a campsite), Layla makes a suggestion. “This trip to the Costa Brava combines the beach, a party at a rural house with a pool, and a tight budget, all just a couple of hours’ drive from Barcelona.” And that’s when the paywall appears. But they offer a three-day free trial, which ARA has taken advantage of.

Layla has listed ten accommodations in various locations on the Costa Brava, the first of which has a “match” With our “90%” plan: a pool, two double beds, a sofa bed, and a terrace, it recommends a beach, a restaurant for dinner, and a bar for breakfast that fit your budget. The app also provides a link to Booking.com to pay for the apartment, and the option to send (with a fee) the plan in PDF format to friends.

But young people earning the minimum wage aren’t Layla’s typical customers. “Our most frequent users are middle- or upper-middle-class families who want to travel to several cities,” explains Saad Saeed, CEO and co-founder of Layla. “Younger people are more spontaneous and flexible. It’s different when we’re talking about a mother with three children. That’s where the complexity begins and where we seek maximum planning.” Saeed denies that companies like his, and AI in general, have come to supplant humans. “Personal validation is still important. We all take into account the recommendations made by family and friends.”

“Tourism is the most human economic sector,” says Natalia Bayona, Executive Director of the World Tourism Organization (UNWTO). Among Africans, tourism currently accounts for 1% of global investment in artificial intelligence, which is expected to reach $360 billion by the end of 2025. “Artificial intelligence can generate greater efficiency: better management of traveler flows, greater personalization of offers, immediate translations for guides…”

Likewise, the UNWTO believes it is necessary to regulate its use to prevent malpractice. This is not only to prevent the improper handling of user data, but also the illegitimate use of celebrities for sponsorship or the creation of images that do not correspond to reality.

A common concern is how algorithms will affect geographies already strained by tourism. “If AI only gives visibility to popular destinations, leaving aside lesser-known but high-value offerings, it could reinforce territorial inequalities,” warns Ainhoa Carballido, director of the Master’s in Tourism Business Management at the CETT Barcelona School of Tourism, Hospitality, and Gastronomy – University of Barcelona. She also emphasizes the benefits it could bring, especially in a “mature destination” like Catalonia: “Predictive systems can help avoid overcrowding in specific locations or adapt tourism promotion to emerging demand, with a more sustainable and efficient approach.”

The fact that Layla sent us to the Costa Brava doesn’t mean the company ignores the problem of overcrowding. “Overtourism is a problem,” says Layla’s co-founder. Saeed argues that AI could facilitate the creation of a system that shows each city’s tourist capacity and its current status before booking. “If tourists received a notification alerting them that the city they want to visit is at 90% capacity, but the city next door, which is also fantastic, is only at 30%, many would change their destination.” He assures that they are working with several governments, including the Spanish government, to find solutions.

However, we must remember that artificial intelligence makes mistakes. Layla has assured us that the restaurant she recommends, in Llafranc, is “close” to Cala Montgó, an hour’s drive away, and it is not uncommon for it to send users to visit buildings and museums undergoing renovations. “These systems are designed to provide answers,” recalls Curto, the AI specialist. “They respond based on the pattern they detect in the data. Since the renovations aren’t part of a strong pattern, the system doesn’t identify it.” The solution, according to Curto, is simple. “Common sense. Don’t believe that, because it responded correctly once, there’s no need to validate the information anymore. Always check the original source. And, as with everything in life, do something like Dr. House: don’t believe anything by default.”