Dr. David P. Anderson of Texas A&M University joins us to examine how artificial intelligence could transform the way businesses set prices. From personalized discounts and targeted offers to the possibility that different consumers may be shown different prices for the same product, this conversation explores the opportunities and concerns surrounding AI-driven pricing.

Transcript:

Jeffrey Snyder, Broadcast Retirement Network

Three, two, one. We’re gonna welcome back to the program, Dr. David Anderson of Texas A&M University. Dr. Anderson, it’s great to see you again. Thanks for joining us this morning.

David P. Anderson, PhD., Texas A&M University

You too, thanks for having me with you.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, absolutely. A couple of things I wanna talk to you about. The first, I wanna get your read on, you know, there was a UN report saying that food prices are gonna continue to go up.

We have seen it here in the States, food prices still really challenging for so many Americans. What’s your perspective on, and what are you seeing particularly in the beef area?

David P. Anderson, PhD., Texas A&M University

Well, you know, prices have, you know, we all know prices have been record high. I think one of the interesting things that’s happening is we’ve sort of had a price correction at the live animal side where prices have declined pretty sharply in the last three months. And when I say sharply, you know, down 20% for cattle going from a feedlot to a meat packer and declines for the younger animals as well.

I think we also see some falling prices a little bit at the wholesale level as we measure kind of the cutout value, which is the value of kind of the primal cuts of that carcass. We also see some declining prices in the wholesale market for, you know, the 90% lean, the 50% lean, the various lean to fat ratio that we see at the grocery store and ground beef. And so at the wholesale level, we’re seeing some lower prices.

And I think that’s something we will see, you know, maybe help us out as consumers out a little bit at the grocery store too.

Jeffrey Snyder, Broadcast Retirement Network

Gosh, we need it. Let me ask you about fuel. I know you’re not a fuel economist, but fuel is one of the inputs that goes into food prices.

Diesel costs have been up. That’s what a lot of trucks, in order to get from point A to point B, C, D, et cetera, you need fuel. How has that been impacting the prices, at least as you see it?

David P. Anderson, PhD., Texas A&M University

I think that’s one of the things that in, it has a delayed effect and it really comes down to how fast can the transportation, the trucking, the moving, moving everything from where we produce it to where we buy it, all us consumers buy it, how fast those can be passed along, whether it’s through surcharges or things like that. I think that takes more time. I’ll give you a good example on the cattle side for folks producing cows, producing cattle.

This kind of cuts two ways. One is it increases their costs of doing the work on the ranch, both gasoline, diesel prices, just the work of getting out there and raising animals. The other thing it does though, is it reduces the price they get for their calves that they sell.

That’s because they’re gonna take those calves to an auction market, or they’re gonna sell direct to someone, but those animals are gonna be trucked somewhere. They’re gonna go to a feed lot, let’s say, or they’re gonna go out to another ranch to graze over the winter, to graze grasses there. And so, somebody is gonna pay that freight and what usually happens is we see that show up in terms of lower calf prices.

So they’re really getting hit two ways, lower prices for the animals they sell and higher costs. So I think from a fundamental level, it’s interesting to think about how that’s affecting there beyond just how we get that stuff to where you and me buy it.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, well, I mean, it’s an input cost, not only to, I guess, the grocery stores, but as you said, the cattle men and women, the farms, et cetera, they have to pay for fuel and that all gets added into the overall cost. Let me ask you, I know you just completed or working on completing some work on tariffs. It’s been a while since you and I have talked about it and candidly, it hasn’t really reared its head too much in the national press lately.

What’s the impact there as it relates to food and maybe beef because I know we’re importing some of our beef now, at least some of the cuts, some of the animals, I guess, because we’re short.

David P. Anderson, PhD., Texas A&M University

You know, we import, we do import beef. We also export beef and the key is it’s different cuts. The majority of what we import are lean beef trimmings that we turn into ground beef.

And so we’re set to import a record amount of beef this year. The old record was last year, but we’re importing more because our prices are high. Our production’s falling, the demand is there.

And so we import more. On the tariff side, there was an executive order a month ago that announced we would allow the importation of 300,000 metric tons over the next 90 days. So we’re about 30 days into that at a zero tariff, essentially, before the tariff rate quota kicks in, which kicks the tariff higher once we get that trigger amount.

So we’re into that and I think what that really means is not a whole lot for beef prices, quite honestly, because we were going to import a lot of that beef already, but it’s gonna come in with no tariff. Now, you know, how that lower net price, net of the tariff, that price being lower, how does that filter through the whole system? You know, probably not a whole lot that we’re gonna notice, quite honestly, but it is more imports that we have coming in with just changing tariff rules and regulations.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, yeah, I mean, it seems to be oftentimes on the fly, I guess, in response to certain inputs. That trade is certainly not my area of expertise. Dr. Anderson, I wanna segue. There was a recent lawsuit related to the use of artificial intelligence, which is pervasive everywhere in our society now. I’m sure you see it in school. I’m sure, you know, it’s everywhere, it’s everywhere.

You can’t get away from it. But there’s a lawsuit that is out there charging that McDonald’s franchisees are using AI in order to set prices. And I wanna get your perspective of that.

I really don’t understand what the thesis here of the suit is, so maybe you can help me there, but also give your perspective on what this all means.

David P. Anderson, PhD., Texas A&M University

Yeah, so I think underlying this is this idea, kind of an economic idea of what is somebody’s willingness to pay for something? And you think of all of us, we have different desires, different things we want. We may have a different willingness to pay for the same item.

And so what’s happening is through the use of AI, artificial intelligence, data, and that technology, companies are able to use that data to try to figure out what each person’s willingness to pay is for an item and how they can charge the highest price they’re willing to pay. And it comes down to not only is it just like, you know, pricing, say you go get a Uber, if everybody wants an Uber, you know, the demand is more and the charge is higher. It’s not just that.

This is actually using your own personal data that companies collect and compare you to similar consumers and try to figure out in this huge amount of data and modeling they’re doing, can we charge you a higher price for the same thing?

Jeffrey Snyder, Broadcast Retirement Network

So can we do that on the fly? And so it was seen to me, and again, I’m not an attorney, I’m not an economist, but it seemed to me, it’s pretty invasive to use, basically using, you’re creating, you know, an imprint of what someone is doing. I mean, you’re modeling it, right?

So we all have our preferences and you’re modeling that. So is that necessarily illegal? And I guess you’re not an attorney either, as far as I know, but is that illegal or just untoward?

I mean, is it inappropriate? I’m trying to figure out where this all could go.

David P. Anderson, PhD., Texas A&M University

Well, I think a lot of people are struggling with that, but I think companies see it as a way to boost their profits. They can do this. Yeah, I think near as I can tell, this is a gray area legally, but I think it comes down more to what are we as a society going to accept?

What are we going to allow? And can we get to some kind of consensus on what sort of the rules of the road are going to be? What are we going to allow?

I think we think of it as we’re going to go to the store, the price is posted, it’s on the sign at the fast food place, wherever we’re going, this is the posted sign. It’s not like we exist in a place where we’re bargaining for every item that we buy. And that’s in a way that data and technology is, and AI aided work is moving us to this sort of bargaining thing, but us consumers have zero power except to walk away.

So I think this really becomes a thing as a society and is what are we going to accept? What are we going to decide the rules of the road are? And if we can’t figure out what that is, then we’re not going to do anything and we’re going to keep seeing more and more of this.

Jeffrey Snyder, Broadcast Retirement Network

So I think I’d be okay if, let’s just say for example, everyone starts buying bananas at a grocery store. I would expect in real time, the price of bananas to go up because that’s just, the grocery store has to go out and buy more bananas. They’re going to pay a higher price because demand is higher.

What I think I’m wrestling with on a privacy level is, I don’t know what the large language models are doing, the AI is doing, I don’t know how it’s looking at me. Is it saying I’m a middle-aged male who lives in Charlotte in this area? And it expects that my socioeconomic income is X, Y, and Z.

That’s where I think I would have a problem with that.

David P. Anderson, PhD., Texas A&M University

And it knows what I’ve searched for. It knows what I’ve bought at other places that might be comparable items. So there’s a lot of statistical modeling that goes on to try to figure that out.

I think a great example of, you talked to your banana example, a great example of that is eggs. HPAI hit, wiped out a lot of our egg-laying hens, cut the supplies and prices went up. And now prices are down because we’ve responded to high prices by expanding the egg-laying hen flocks and we got a lot more eggs and prices are lower.

But this is a highly, this is a pretty invasive use of your specific data to us as people and what they think we’re gonna buy and what they think they can charge us for it.

Jeffrey Snyder, Broadcast Retirement Network

And I would say take it a step further. I mean, so I agree with you that, but this is not uncommon to the cookies that are on every one of our web browsers, whether it’s on your phone, right? They know what David Anderson or Jeff Snyder or Jane Doe or John Doe is searching for.

And then mysteriously you get an ad for a new guitar if I was searching at PRS, or you’re watching a video or a Netflix movie with your wife and your grandson and all of a sudden you get served an ad. That’s very similar here. So I have some concerns about that, but going back to as an economist, I would think that you like real-time data as much as you can get it because it’s the most accurate instead of looking quarterly or semi-annually or annually at data.

So I think it would make, if you just used it without the privacy features that we’re talking about enabled or you’re not getting this private information, that would be helpful to a business or someone like yourself who tracks and does a lot of research.

David P. Anderson, PhD., Texas A&M University

Absolutely. I think the research or the data that we have, what we’ve seen from this so far is they talk about double digit increases in profit from using this information and being able to model this. And so the ability to do that and make changes sort of in a much quicker or more real-time mode I think is a real profit driver for companies.

I might point out something else. It’s not just what we search for, what we might be buying, what we buy at the store and it goes through the scanner and all of that stuff. For those of us who might use delivery services, DoorDash, you pick up your groceries at the store, they bring them out to you and put them in the car for you or they deliver them to your house.

That’s another way we’re doing this online, we’re buying these things. And that’s not a free transaction, there’s costs associated with that. And so again, with what we buy in those things, it becomes kind of what we buy and what we’re interested in getting in the models and the data even less transparent.

And I think that probably gives more of an opportunity to kind of fine tune what individuals are priced that I’m not paying the same price as somebody else for the same thing.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, I think the consumer power kind of is diminished under this approach. And I wonder if someone is gonna build an app kind of like a GasBuddy where you can find where gas is priced as an example. Dr. Anderson, we’re gonna have to leave it there. It’s a fascinating discussion if it wasn’t so scary. Great to see you as always. Thanks for joining us and we look forward to having you back on the program again very soon, sir.

David P. Anderson, PhD., Texas A&M University

Hey, thanks. Thanks for having me with you.