Delta Air Lines recently 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 AI 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 AI pricing models lack transparency and could unfairly take advantage of financially unsophisticated people.
The history of custom pricing
