When Prices Can Be Changed On The Fly, What Price Do You Have To Honor?

Attorney Mark D. Rasch is the former head of the U.S. Justice Department’s computer crime unit and today serves as Director of Cybersecurity and Privacy Consulting at CSC in Virginia.

What does the "price" of an item mean? If you pick up a can of corn at the Piggly Wiggly and the electronic shelf label (ESL) says it is $1, but the price changes when you walk up to the register, what price is the merchant legally required to deliver? Although any reasonable merchants would likely honor the lower price, must they do so? What about an online store, where the price of an item might easily be changed between the time a customer puts it in his shopping cart and the time he checks out?

There are two different legal precedents for these situations—and in fact, they go in exactly opposite directions. That creates an inherent problem, for both consumer relations and the law. Customers could feel cheated if price changes don't work the way the customer expects. And as ESLs make in-store pricing work more like online pricing, that could change the way courts see it.

When I was in high school, stock boys were responsible not only for putting items on the shelves but for individually tagging each item (can of corn, $0.35) and ensuring that shelf tags were accurate. This cost the retailers time and money. A few jurisdictions have adopted laws that still require retailers to mark individual items with prices, including California, Connecticut, Illinois, Massachusetts, Michigan, New Hampshire, New York, North Dakota and Rhode Island.

But some of these jurisdictions—Michigan, Connecticut and Massachusetts—exempt stores that use new technologies such as RFID and ESLs, which enable the current price to be displayed on the shelf in addition to being embedded in the item when it is scanned.

The focus of government regulation of these technologies, and older technologies like barcode scanners, has been on whether the technology accurately reflects the price of the item sold. Thus, the FTC conducted studies of "overcharges" and "undercharges" as a result of differences between the price on the shelf or on the item and the price charged at the register.

Although ESL systems can be expensive (more than $200,000 to purchase and install), they eliminate this problem because both the shelf label and the register can be updated by the same system, so the price will always be the same.

As a result, retailers can alter prices more frequently, at lower cost to them, based upon any number of conditions. When times are slow, retailers can offer "instant specials"—even time-limited ones. When there is greater demand (say, in anticipation of a hurricane), the prices of generators, batteries, gas cans, dry ice and various sundries can be increased dynamically.

In this way, brick-and-mortar stores can mimic techniques employed by online stores, dynamically altering prices based on market forces. Sounds good, no?

But legally, what exactly does the "price" mean? If it changes between the time a customer puts it in his real or virtual shopping cart and the time he checks out, what price is the retailer required to honor?

The law provides two opposite precedents.The law provides two opposite precedents. The law of contract—for example, a contract to sell a can of corn—generally supports the notion that a quoted price in an ad (or even on a shelf) is not an "offer" that the customer can "accept" by tendering payment. Rather, it is considered an "invitation to negotiate." This turns the Piggly Wiggly into the Arab Souk, with haggling and negotiation over each item. Thus, the merchant could change the price at will or dictate other terms for the purchase ("No soup for you!").

Consumer protection laws, however, prohibit things like "bait and switch," price gouging, and unfair and deceptive trade practices. Under this regime, advertising one price but then withdrawing it would likely be considered a deceptive trade practice.

In the battle between these two laws, the winner is...

Neither. In the real retail world, what would truly win is customer service. Most merchants would honor the lower price simply to keep their customer happy.

I say most, but not all. Take the example of American Airlines. By a quirk of regulation, U.S. airlines are exempt from federal and state deceptive trade laws, particularly where this relates to prices. This is because the FAA has jurisdiction over airline advertising, not the FTC.

Case in point: I recently tried to book a flight for four on American Airlines' Web site for travel a few months from now. The site advertised a pretty good price for four tickets of $360 each, including taxes and fees. I clicked "proceed" and was prompted to put in the names and dates of birth of all travelers (TSA regs, you know).

But when I went to purchase the tickets by inputting my credit-card number, the Web site now quoted me a fare $120 more. I called the airline seconds later and was told that the higher fare was no longer available, but that a new fare—$240 more than the quoted fare—was available. While I was speaking with the agent, I was told that, no, the new fare was no longer available but that there was an even newer fare—$440 more than the quoted fare—was I interested in booking? All this in the span of about five minutes!

So was American Airlines bound to the price it quoted? Although prices fluctuate and there are a limited number of seats at any price, if the airline quotes a price online, it must make it possible to purchase those seats at that price. That is the nature of contract law. Unlike a print advertisement, which courts have considered the "invitation to negotiate," a Web site is both the source of the ad and the mechanism of purchase. American must be bound to the price it quoted, even if the FTC can't and the FAA won't force the airline to honor the price.

In Guys and Dolls, the character "Big Jule" plays craps with dice from which he had the spots removed—for luck, he says. But not to worry, he remembers where they formerly were. That game ends when associates of one of the other players step in and knock Big Jule out.

Technology now enables merchants—both brick-and-mortar and online—to change prices rapidly in the face of changes in demand. That's making traditional store purchases more like online purchases. Prices can be centrally changed, and consumers may not know that the price has changed while they are shopping.

Unless retailers honor quoted and displayed prices, you can bet that government regulators will step in and force them to do so. Unless you are an airline or Big Jule.

If you disagree with me, I'll see you in court, buddy. If you agree with me, however, I would love to hear from you.