The study will also look at how businesses are applying personalised pricing through different mediums, such as search engines, apps or comparison tools, and "explore whether and how personalised pricing makes use of personal data points such as a consumers address, marital status, birthday and travel history", the UK government said.
The government has commissioned the research, which will be supported by the country's main competition and consumer regulator, the Competition and Markets Authority (CMA).
UK business secretary Greg Clark said: "UK businesses are leading the way in harnessing the power of new technologies and new ways of doing business, benefitting consumers and helping them save money. But we are clear that companies should not be abusing this technology and customer data to treat consumers, particularly vulnerable ones, unfairly. The research we are undertaking will help us better understand how we can ensure businesses work in a way that is fair to consumers."
Andrea Coscelli, CMA chief executive, said: "With more of us shopping online, it’s important that we understand how advances in technology impact consumers. This personalised pricing research will help us stay at the forefront of emerging technology, so we can understand how best to protect people from unfair practices where they exist. We will also use the results of the research as part of our ongoing efforts to help vulnerable consumers."
The CMA recently said that the risk of businesses colluding with one another over the price of goods and services would diminish if there was extensive use of personalised pricing algorithms in digital markets.
Competition law expert Alan Davis of Pinsent Masons, the law firm behind Out-Law.com, said the CMA's economic research paper had identified 'limited evidence' of the use of personalised pricing but that a recommendation from the report had been to replicate previous studies into the practice 'using UK data'.
He said it appears, therefore, that the new research project the government has announced "is to test further whether personalised pricing is more prevalent that the CMA’s initial testing and analysis showed".
Davis said that the research could also feed in to the market study that the CMA has commenced in response to the loyalty pricing super-complaint submitted by Citizens Advice, along with a further market study by the Financial Conduct Authority (FCA) into personalised and loyalty pricing for car and home insurance policies.
In its previous research paper, the CMA said that the use of pricing algorithms could benefit consumers, including by reducing transaction costs for businesses, reducing market frictions and in giving consumers "greater information on which to base their decisions". However, it acknowledged that there are concerns that algorithms could in some circumstances "facilitate collusive outcomes" and increase the price of goods and services for consumers, though the CMA also concluded that the risk of businesses colluding with one another over the price of goods and services would diminish if there was extensive use of personalised pricing algorithms in digital markets.