Colorado’s Surveillance Pricing Bill Got Its Veto

The Zero-Sum Thinking Behind It Didn’t

Last week, Governor Jared Polis vetoed the surveillance pricing bill passed by the Colorado legislature in May. Before the veto, I wrote a post here at Front Range Economics laying out an argument for why the bill should be vetoed. As much as I’d like to think tagging Governor Polis in my notes on the post got him to read it and influenced the decision, that probably didn’t happen (a new blog with fewer than 50 subscribers is not moving the needle on policy, yet).

The governor’s previous veto on a similar bill was a good indication of what he would do here. Not only did Polis make the right decision, in my opinion, but he also laid out reasoning that shows he has thought about this issue and came to a conclusion informed by the economics of the behaviors the bill targeted. His objection centered on the bill’s breadth, which he wrote captures “any technology that incidentally influences a price or wage amount” and, because of that broad sweep, “would punish differentially lower prices, not just higher prices.” That is the same overbreadth problem I focused on in my original post. His full veto letter can be read here.

Before and after the veto, sponsors and other proponents of the bill strongly disagreed with this line of reasoning:

Rep. Javier Mabrey - “Everybody is talking about how concerned they are with the rising cost of living, and this bill was about preventing companies from spying on us to price gouge us. I don’t know how anyone can credibly make the case that it’s a good thing for the biggest companies in the world to know everything about us in how they set our prices.”

Sen. Iman Jodeh - “We all lose when large corporations can set different prices for different people based on sensitive data they’ve collected.”

Rep. Jennifer Bacon - “Right now, Coloradans aren’t participating in a fair market, they’re playing against a supercomputer designed to extract as much as possible from them. When corporations use personal data to decide what you’ll pay or what you’ll earn, that’s not supply and demand, it’s exploitation.”

Lee Hepner of the American Economic Liberties Project - “[Polis] might have the most pathetic legacy of any outgoing Dem governor. His career will be over soon, and our work is just beginning.”

I am not entirely surprised at this reaction. But the more negative reactions I saw online about the veto, the clearer it became that this is another instance of zero-sum thinking underlying the arguments in favor of bills like those against surveillance pricing. In this post, I’ll argue that some of the basic insights from economics can help move us away from this way of seeing the world to better appreciate the benefits of exchange.

Zero-sum thinking vs. the positive-sum nature of exchange

Let me first define what I mean by “zero-sum thinking.” This is a way of seeing the world, or at least some interactions (particularly those in markets or involving large corporations), where one party in an exchange can only gain at the expense of the other. There is some recent academic work by Sahil Chinoy, Nathan Nunn, Sandra Sequeira, and Stefanie Stantcheva measuring how pervasive this thinking is in the United States, where it comes from, and how it shapes people’s policy preferences. We also see this thinking in a variety of political issues from AI and data centers to big business and markets more generally.

In the context of the surveillance pricing bill, zero-sum thinking manifests in much of the framing of the problems the bill’s proponents are trying to tackle. For example, Representative Mabrey has been quoted as saying, “Coloradans don’t want to be spied on and scammed,” in reference to the bill. The argument implicit in this framing is something like the following. In a digital world where companies collect data on consumers from their internet activity, including purchase histories across websites, ads they click on social media, and even browsing habits, those companies have a leg up on individual consumers. With that data and now with the help of AI, these companies can then more easily exploit consumers and increae their profits. So, if companies engage in surveillance/individualized pricing and increase profits, it must be because they are screwing over consumers, in this case through higher prices.

The problem with this view is that it misunderstands the nature of voluntary exchange. At the simplest level, where we imagine a single buyer and a single seller, we can see how exchange (when voluntary) makes both parties better off. Suppose I am going through my closet to get rid of some old clothes. I have a nice jacket that I haven’t worn in a while and want to get rid of it, but not so much that I am willing to just donate it. I think, I won’t take anything less than $50. The jacket is still in good condition, and if I can’t get at least $50, I’ll keep it in my closet. So, I put it on Facebook Marketplace or eBay or something at $75. Maybe I don’t get $75, but there’s room for someone to low-ball me a little and I still get a price I’m willing to sell at. Out there somewhere there is someone looking for a nice jacket and he doesn’t want to pay $200 for a new one but would be willing to pay up to $100 for a used one in good condition. In this exchange, we have a bargaining range on price that sits between my minimum sell price and the buyer’s maximum purchase price (between $50 and $100). Any price agreed upon within that range will make us both better off.

So, the potential buyer comes across the listing for my jacket at $75. He thinks it looks pretty good and the price is decent but wants to negotiate a little. He sends me an offer of $65. The offer looks good enough to me and I accept. Where are we now? The jacket in my possession was worth $50 to me. I receive $65 and am made $15 better off. The buyer was willing to pay up to $100 for a similar jacket but only had to give up $65, so he got $100 worth of a jacket at the cost of $65. He is $35 better off than before the exchange. Although this is a simple hypothetical example, it gets at the core of how voluntary exchange works. People only accept the terms of trade if they expect to be made better off, and in turn surplus is created. And this is only the weak case of positive-sum trade. If we extended the example to account for production and specialization, the gains would be even larger. But for the sake of a simple example, let’s stick with pure exchange.

Now, I don’t want to dismiss the possibility that something like surveillance pricing can shift the distribution of the surplus created through exchange. Suppose I somehow knew that the potential buyer in the example above was really willing to pay up to $100. What might I do when I see the $65 offer? I would probably counter with something higher, maybe $90. Suppose the buyer accepts. Now, I am made $40 better off and the buyer is only made $10 better off. Notice that the total surplus of the exchange is the same ($50), but now I have a larger share of the surplus. Something like this is certainly possible in exchanges where large companies have better information on consumers. But what I want to point out is that the trade, though its terms are worse for the buyer than the original trade, still leaves both of us better off.

This, I think, is the strongest version of the proponents’ concern, and it deserves to be taken seriously. Senator Jodeh’s quote above is referring to this kind of shift in who captures the surplus. But notice what the jacket example shows: even when the seller knows the buyer’s maximum and captures more of the gains, we do not all lose. The trade still made both of us better off. And when economists have measured personalized pricing in the real world, the results don’t match the worst case either. In a field experiment by Jean-Pierre Dubé and Sanjog Misra, personalized pricing raised the firm’s profits and shifted some surplus its way, but over 60 percent of customers actually faced lower prices than they would have under a single uniform price. Some people may lose out, but the authors warn that it is not clear cut that policies restricting personalized pricing help consumers.

Some may look at this situation and still feel it represents an injustice. Why should large corporations be allowed to systematically rewrite the terms of trade and transfer more surplus to themselves? However, it is not clear to me how legislation can work against that injustice without also distorting or discouraging many other mutually beneficial trades that are not deemed unjust. That was the core of my argument in the original post, and it is the core of the governor’s veto letter too. The cost of that seems much higher than the potential surplus transfer that can occur in principle.

Conclusion

Zero-sum thinking can cloud what people view as useful or beneficial policy. But thinking a bit more about how exchange works can help clarify the risks well-intentioned policies pose for everyday exchange. The jacket example above is not entirely realistic. Most market exchanges we engage in today do not involve back-and-forth negotiation between buyer and seller. Even absent direct negotiation, big business’s access to large swaths of consumer data may enhance awareness of consumer responses to different pricing strategies. They may now know you are willing to pay more for your groceries than they are charging, but they also have a better idea about how sensitive their consumers are to price changes and may find it better for business to keep prices uniform. And that data may also help them price in a way that creates more mutually beneficial exchanges that otherwise would not occur.

To the extent that zero-sum thinking on these issues remains common, I believe we will continue to see attempts, like this bill, to tackle the problems implied by the zero-sum framing. That will be true whether politicians actually hold this thinking or not. The more politically popular these ideas are, the more opportunities there will be for politicians to capture votes by promising to pass legislation to address the problem, whether that be surveillance pricing or something similar (see the failed attempt this session to control prices in stadiums and other venues). The sponsors of this bill are not being subtle about it either. The day of the veto, Representative Mabrey promised “we’ll be back next session.” I believe him. And the next version of this bill will not land on the same desk.

Zero-sum thinking, however, is not entirely pervasive. Colorado’s own recent record shows lawmakers here can recognize positive-sum policy when the gains are easier to see. In 2020, the legislature created an occupational credential portability program making it easier for workers licensed in other states to work in Colorado, and it passed without a single no vote in either chamber. In 2024, lawmakers legalized accessory dwelling units in many metro areas around the state and opened up land near transit for denser housing, reforms built on the idea that more housing makes both builders and buyers better off. These reforms share a premise the surveillance pricing bill rejected. Exchange creates gains for both sides. The closer we come to seeing pricing the way people are starting to see housing and (some parts of) labor markets, the lower the risk of new laws that distort mutually beneficial exchange.