Inside the Ethics of Steering Consumers Online

 Inside the Ethics of Steering Consumers Online  

February, 14 2025 | By Dean Sevin Yeltekin

From personalized search results to algorithm-driven product recommendations, online steering is shaping the way we shop. But at what cost? In a recently published paper in the Journal of Ethics and Information Technology, Professors Andras Miklós and Jeanine Miklós-Thal  of Simon Business School examined the ethical and economic implications of this increasingly prevalent practice. In this Q&A, they share insights from their research, shedding light on the delicate balance between personalization, fairness, and consumer autonomy in the digital marketplace.

Sevin Yeltekin: What is “online steering” and how does it differ from price discrimination?

Jeanine Miklós-Thal (JM-T): Online steering is the practice of personalizing internet search results based on data about users. For example, steering occurs if two users of a shopping website who enter the same search term, say “tennis shoes,” at the same time are shown a different order of search results or a different set of products. Such personalization can be based on a user’s browsing and search history, the user’s location, the user’s operating system, or any other characteristics that were either observed by the website, inferred from the user’s own behavior, or inferred from the behaviors of other users with similar observed characteristics.

Steering is a common practice on the internet. Search engines like Google as well as online retailers and shopping intermediaries such as travel websites personalize search results. And research has shown that steering is highly effective in influencing consumer decisions.

Andras Miklós (AM): Steering differs from price discrimination in that consumers do not pay different prices for the same good or service. Under (third-degree) price discrimination, a seller divides consumers into two or more groups based on observed or predicted consumer characteristics and then charges different prices for the same good to the different groups. Under steering, search results -not prices- are personalized.

This distinction is important because firms like Orbitz have used the argument that they did not in fact charge different prices for the same product to different consumers as a first line of defense in reaction to revelation of price steering on their sites.

SY: This paper mentions that one of the ethical concerns with online steering is its potential for sellers to benefit from steering at the expense of consumers and overall social welfare. Is this the case, and how can consumer steering lead to more benefits for consumers as a whole? 

JM-T: One potential ethical concern with online steering is that consumers who are predicted to have high purchasing power (or willingness to pay in a particular product category) are steered away from cheaper products towards more expensive options. If that is the case, the effects of steering can be similar to those of price discrimination: some consumers gain because they pay lower prices,  but others lose because they pay higher prices. Whether overall social welfare and consumers as a whole benefit or lose will depend on the details of the demand and supply conditions in the specific market, but economic theory tells us that, in many situations, we can expect that overall social welfare will fall.

This rather negative prediction misses an important function of steering, though. Firms have the ability and the incentive to steer consumers towards products that they like. Steering can thus improve the “matching” between a consumers’ preferences (their individual likes and dislikes) and the goods they buy. Unlike in the case of price discrimination, this means that all consumer groups can benefit from steering, even those who end paying higher prices because of the personalization. Steering can benefit not just overall consumer surplus and social welfare, it may benefit every single consumer.

SY: While steering can benefit consumers overall, what are some ethical concerns it raises?

AM: Benefiting consumers is an important aspect of steering from an ethical perspective, but it is not the only ethical consideration firms should consider. We show that steering may take unfair advantage of some consumers, and it may also violate consumers’ autonomy. 
For example, when firms use online steering to sell more expensive products to consumers who would be just as happy with cheaper ones, they capture more surplus at the expense of consumers. If firms are not open about steering, they unfairly benefit since consumers who are being steered by online platforms cannot take measures to protect themselves in a process of negotiation. This feature stands in contrast with more transparent cases of price discrimination in the physical world. In addition to being unfair, steering can also undermine consumer autonomy. If steering is too opaque for consumers to monitor, it can be a form of manipulation in which firms deceive consumers into thinking that their options are narrower than is actually the case. Such practices fail to show adequate respect to consumers as autonomous agents.

SY: Transparency is a key aspect of your ethical analysis of online steering. What kind of transparency do you think businesses should provide to consumers about the algorithms behind personalized search results?

AM: If you take seriously the idea of consumer sovereignty, namely, the idea that businesses should provide consumers with the products and services the latter want, then it follows that firms should better be upfront about steering consumers. Otherwise, consumers may make their choices under the illusion that online shopping intermediaries are providers of ‘objective’ information about products. Steering may thus breach the trust of consumers.

We argue that transparency requires that consumers are made aware of the fact that they are being steered, it’s not enough that they benefit from steering. Ultimately, consumers should have a basic understanding of how they are being steered. To the extent possible, they should be told what type of data and inferences are used and how that data translates into the presented search results. This transparency condition demands more than common search result filter options, like “Best Fit” or “Recommended,” which are too opaque for consumers to make sense of them.

SY: How do you see the future of online steering evolving, especially with the increasing influence of artificial intelligence and machine learning in consumer-facing industries?

JM-T: I expect steering to become more personalized, more dynamic, more predictive, and more seamlessly integrated across a user’s multiple devices. One development in the future of online steering that I am particularly excited about is anticipatory steering, whereby an e-commerce vendor proactively makes personalized product suggestions even before a consumer starts searching. These developments will amplify the potential benefits from steering for consumers.

As AI becomes more integrated into consumer-facing industries and steering gains further importance, so do the concerns about transparency that we raise in our paper. I expect that there will be increasing calls for transparency in how AI systems make decisions, not just in online steering, but in a wide range of applications. We might even see more tools for users to manage and personalize their own steering algorithms, which would help to ensure more ethical and transparent usage of AI.

SY: In light of your analysis, do you think businesses should be more proactive in educating consumers about the data-driven nature of their online shopping experiences? How might this impact consumer trust?

AM and JM-T: 
In a word—absolutely !

Andras Miklós is a Clinical Associate Professor at Simon Business School at the University of Rochester.  

Jeanine Miklós-Thal is the Fred H. Gowen Professor of Economics and Management at the Simon Business School.

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