Out of the Ordinary: Regulating Misleading Reference Prices Under Algorithmic Pricing

<div> Misleading savings claims have long been prohibited under the ordinary selling price (OSP) provisions of Canada’s <i>Competition Act</i> and its predecessor legislation. These provisions protect competition and consumers by ensuring that advertised discounts are anchored in genuine reference prices that can be substantiated.&nbsp; </div> <div> <span><br> This paper examines whether the OSP provisions remain coherent and administrable in the context of personalized and dynamic pricing powered by algorithms. The OSP regime notably requires ordinary price representations to be substantiated either (1) by evidence of substantial sales at the reference price (the </span><span><i>volume</i></span><span> test) or (2) by offering the product at the reference price in good faith for a substantial period (the </span><span><i>time</i></span><span> test). Both tests work best in an environment of relatively uniform and stable posted prices, assumptions strained by algorithmic pricing systems. The paper therefore asks how the OSP tests should apply when prices and promotions are individualized, opaque, and dynamically changing.</span> </div> <div> <span><br> To answer this question, the paper reviews the legislative history of the OSP provisions alongside relevant jurisprudence and commentary. It also draws on modern behavioural economics insights to explain how reference pricing can bias consumer decision-making and how algorithmic systems could potentially exploit these biases at scale. Finally, the paper discusses how the OSP regime could be interpreted and applied in this context. It concludes that the OSP regime can handle these developments but that firms using algorithmic pricing tools should approach OSP claims with caution.&nbsp;</span> </div> <div> <br> </div>