2. Behavioral Economics and Drip Pricing
The traditional challenge to drip pricing concerns turns on this question: If consumers ultimately know the price before they have to pay it, where is the harm? The contrary argument is articulated in a thesis from the behavioral economics literature: Compared to sellers that offer the price in one lump sum, buyers “end up paying more and searching less” when sellers engage in practices that only gradually reveal the price to the consumer. An alleged anchoring and adjustment dynamic is at play in a drip pricing scenario, where consumers may “anchor” their expectations to the initial price and subsequently adjust their expectation in response to new information. However, such adjustments may be insufficient to correct for consumers’ bias toward the initial price. According to some economists, “price separation” enables sellers to manipulate consumers into transactions that disproportionately advantage the seller.
Certain factors may, it is argued, make the effects of drip pricing more impactful – such as instances where continued search is more difficult, where the subsequent charges add no incremental value, or where the charges are for products or services that consumers would reasonably expect to be already included in the price. Advertising a lower, base price can, at the very least, confuse consumers navigating their search process and distract such consumers away from better prices offered elsewhere. By making it difficult to accurately compare prices across different sellers, drip pricing may thereby weaken competition.
A further response by contrarians might be, of course, that such is advertising. All advertising aims to change consumers’ behaviour – to get them to buy something they otherwise would not.
The FTC considered drip pricing to be a type of “dark pattern” in its “Bringing Dark Patterns to Light” workshop in 2022, which “explored whether interfaces can have the effect, intentionally or unintentionally, of obscuring, subverting, or impairing consumer autonomy, decision-making, or choice.” Other types of dark patterns highlighted in the workshop have also been targeted by the Bureau in its enforcement of misleading advertising and drip pricing cases – for example, urgency cues, such as countdown timers that create pressure to buy immediately, and hiding information in fine print. Whether used alone or in conjunction with one another, dark patterns such as these are alleged to have the effect of harming consumers.
This article does not seek to settle the argument as to whether drip pricing is anticompetitive or gives rise to a genuine consumer protection issue – an argument the authors have not even settled between themselves – but rather to lay out the theory, and outline how enforcement is currently playing out in Canada.
3. Overview of Drip Pricing Enforcement in Canada
Drip pricing had been an area of enforcement for the Bureau long before the recent statutory amendments. Under the general misleading advertising rules in the Act (Sections 52(1) and 74.01(1)(a)), representations to the public may be prohibited if they are made for the purpose of promoting the supply or use of a product or promoting a business interest and the representations are false or misleading in a material respect. The test for misleading advertising considers the general impression conveyed by the representation, as well as its literal meaning. Although drip pricing practices had been captured by existing provisions – as illustrated in the cases discussed below – the 2022 and 2024 amendments provide the Bureau with greater certainty that advertising a price that is not attainable without additional fixed obligatory charges or fees (other than amounts charged by the government) will be statutorily deemed to be misleading.
The first instance of enforcement by the Bureau against drip pricing practices occurred over 13 years ago. In 2011, Bell Canada agreed to pay a C$10 million AMP – the maximum allowed under the Act at the time – for advertising unattainable prices for home phone, internet, satellite TV, and wireless services. The Bureau’s position was that Bell had hidden information about additional fees in fine print disclaimers, which were insufficient to alter the general impression of the advertised price. In one example, Bell’s website advertised a home phone, internet, and TV services bundle for C$69.90 when the lowest possible price for such a bundle (after mandatory fees) was 15% higher than advertised.
Since the Bell case, the Bureau has taken on a number of drip pricing cases and achieved settlements under the Act’s general misleading advertising provision. In 2013, the Bureau investigated furniture retailers Leon’s and The Brick in connection with advertisements related to a deferred payment program. Although Leon’s and The Brick made representations that “You can pay nothing for [X] months!” and “Don’t pay a cent! Not even the taxes! For [X] months!”, consumers were not able to defer the entire cost of their purchases because various fees were due at the time of purchase. For example, a customer wanting to defer payment of a C$1,500 couch could end up owing more than C$350 up front. The Commissioner of Competition did not plead drip pricing as a violation but rather as an aggravating factor in the violation. The case settled in 2018, with Leon’s and The Brick agreeing to donate furniture to charity and establish a compliance program.
In 2016, Comwave Networks Inc. agreed to pay a C$300,000 AMP for its advertisements of internet and home phone services. The Bureau concluded that the advertised prices were unattainable because of additional non-optional fees. In addition to these drip pricing concerns, Comwave had also misrepresented its “unlimited” phone and internet services, which in truth had monthly caps on usage.
Several car rental companies have found themselves on the wrong side of the misleading advertising provision for their use of drip pricing. The result has been millions of dollars in AMPs. In 2016, Avis/Budget agreed to pay C$3 million in AMPs as a consequence of advertising prices and discounts that were unattainable due to various mandatory fees that would only be disclosed at the time of booking. In 2017, the Bureau concluded that Hertz/Dollar Thrifty was advertising prices that did not disclose additional mandatory fees. Such fees increased the consumers’ final prices by 10% to 57% above what was advertised. Hertz/Dollar Thrifty also advertised discounts that implied that consumers would receive a certain percentage off their total bill. However, the discount did not apply to the additional mandatory fees, which still needed to be paid in full. Hertz/Dollar Thrifty was fined C$1.25 million in AMPs for this conduct. Similarly, Enterprise/Discount agreed to pay C$1.7 million in AMPs in 2018. The Bureau’s investigations of these companies found that both Enterprise/Discount were advertising prices did not disclose additional mandatory fees of between 8% and 48% above the initial advertised price.
Following the Hertz/Dollar Thrifty Consent Agreement, the Bureau issued a public statement in 2017 calling on sporting and entertainment ticket vendors to review their marketing practices and ensure they are displaying the “real price of tickets up front.” The public statement specifically called out the practice of drip pricing and warned that the Bureau would be targeting hidden fees as a key part of its efforts to ensure truth in advertising in the digital economy. True to its word, the Bureau commenced legal actions, first against Ticketmaster and then against StubHub, for their respective drip pricing practices.
The Bureau concluded that Ticketmaster’s prices were misleading despite the fact that the amount of the fees was disclosed before consumers completed their transaction. The disclosure of the non-optional fees at a later stage in the purchasing process was deemed inadequate to overcome the Bureau’s conclusion that the original prices were misleading. Ticketmaster agreed to a C$4.5 million AMP in 2019. Likewise, the Bureau found that StubHub’s initial advertised prices did not include all mandatory fees – even when optional filters were applied to show inclusive pricing. At times, these “inclusive prices” allegedly failed to include certain mandatory fees and gave consumers the impression that the inclusive prices would be final. StubHub agreed to a C$1.3 million AMP in 2020.
The final drip pricing settlement before the 2022 amendments came into force was also the largest of its kind. In 2021, FlightHub agreed to pay C$5.8 million after the Bureau concluded that it had actively concealed fees for a range of services, including charges for seat selection and giving the impression that consumers could cancel and rebook flights for no additional charge, when, in fact, such changes were subject to additional fees.
4. Statutory Amendments – 2022 and 2024
Even though it had achieved considerable success with respect to drip pricing enforcement by way of settlements, the Bureau sought an amendment (enacted in 2022) to the Act which effectively deems drip pricing to be misleading – although, somewhat oddly, it is not deemed to be “materially” misleading:
For greater certainty, the making of a representation of a price that is not attainable due to fixed obligatory charges or fees constitutes a false or misleading representation, unless the obligatory charges or fees represent only an amount imposed by or under an Act of Parliament or the legislature of a province.
The 2022 amendment also significantly increased the maximum AMPS that can be imposed on a corporation. Previously capped at C$10 million, the Tribunal may now impose the greater of C$10 million or three times the value derived from the conduct (or, if that benefit cannot be reasonably determined, 3% of the respondent’s annual worldwide gross revenues).
Even though the ink was barely dry on the 2022 amendment, the Bureau sought two additional changes or clarifications by way of yet more statutory amendments, which Parliament adopted in 2024. First, the Bureau proposed clarifying that the exemption to the drip pricing rule only applies to federal, provincial, or territorial sales taxes. Its concern was that the exemption to the drip pricing rule as drafted – “unless the obligatory charges or fees represent only an amount imposed by or under an Act of Parliament or the legislature of a province” – allowed advertisers to “drip” their own costs for complying with various laws onto Canadian consumers in a way that consumers would not expect. For example, in the Hertz/Dollar Thrifty case described above, the Bureau found that some of the fees charged by Hertz/Dollar Thrifty were being described in a way that implied such fees were mandatory taxes or various government surcharges, when in fact these fees were charged by the company in order to recover its own costs. Similarly, Discount was found to have been labelling certain fees as mandatory taxes or government surcharges when such fees were imposed by the company alone.
As a result, the Act was further amended to provide that it is misleading to omit mandatory fees from advertised prices unless those fees (such as sales taxes, for instance) are imposed by government “on a purchaser,” thus eliminating the opportunity for firms to pass their own business taxes and regulatory compliance costs on to consumers without offending the drip pricing provision.
Second, the Bureau noted that the 2022 drip pricing amendments did not explicitly mention the electronic messaging provisions of the Act. It therefore sought and received a further amendment clarifying that the drip pricing provisions apply to all false or misleading representation provisions of the Act, including false or misleading electronic messaging.
Once the drip pricing amendments came into force, the Bureau moved quickly. It has already reached two settlements since the 2022 drip pricing statutory amendment came into force. In a case similar to those involving Ticketmaster and StubHub, TicketNetwork agreed in 2023 to pay an C$850,000 AMP for its drip pricing practices. In 2024, the Bureau’s C$3.3 million settlement with SiriusXM Canada marked the first drip pricing case with respect to subscription services. The subscription price that SiriusXM advertised on its website and via promotional emails and direct mail did not include a mandatory music royalty and administrative fee, which increased the monthly price of the plan by between 10% and 20%.
5. The Cineplex Case
(a) Background
The Bureau not only has reached the two settlements discussed above but has also brought and won a contested case before the Competition Tribunal against Cineplex, Canada’s largest movie theatre chain. The Bureau’s complaint flowed from Cineplex’s practice of charging a service fee for the online purchase of movie tickets, over and above the face value of the ticket. The Bureau alleged that this C$1.50 service fee constitutes drip pricing because it is a fixed, obligatory fee for all purchases on Cineplex’s website or app and is therefore unattainable – making it false or misleading in a material respect. The Bureau further argued that Cineplex’s pricing display process may prevent consumers from realizing that the fee has been added, especially since Cineplex also uses a countdown timer as an urgency cue to increase pressure on customers to promptly purchase tickets.
Cineplex has defended itself, in part, on the basis that the fee does not apply to in-person ticket purchases, nor does it apply to those who are part of its “CineClub” or to promotional coupons such as a “buy one – get one free” offer, nor does it apply to the purchase of additional tickets after the fourth one purchased in a group. In this respect, Cineplex argues that the price is attainable because there is no fee associated with the above purchasing options and, therefore, the service fee is a matter of consumer choice. Cineplex further argued that the online booking fee is contingent rather than mandatory – it applies to a maximum of four tickets per transaction and varies based on whether the purchaser is a Scene+ member (C$1 per ticket, up a maximum of C$4) or a guest transaction (C$1.50 per ticket, up to a maximum of C$6).
In its reply to Cineplex, the Bureau noted that neither the Cineplex website nor the app direct or inform the customer that there is a choice to be made when paying the online fee, or that the consumer may avoid this fee by purchasing a ticket in person. As a result, the Bureau argued that the disclosures are inadequate.
On the lynchpin question of whether the price is attainable, the Bureau noted that in some instances, the in-person box office at Cineplex theatres may be closed, with signs directing consumers to purchase tickets on the website or app, where such purchases will necessarily be subject to the online booking fee.
The Bureau sought an order from the Tribunal to prohibit the price representations, require Cineplex to pay restitution to affected consumers (up to the total amount paid for the products in question), and impose an AMP on Cineplex in an amount to be determined by the Tribunal – which, as a result of the 2022 amendments, may now be a significant amount.
(b) Reasons for the Decision
The Tribunal found in favor of the Commissioner on September 23, 2024. It held that Cineplex’s online ticket prices were misleading under both the general misleading advertising provision and the new drip-pricing provision. Many parts of the decision turned on the particulars of Cineplex’s check-out page, and the decision as a whole is, therefore, highly fact-specific.
When applying the “general impression test,” the Tribunal highlighted two main factors: the attributes of the intended audience (i.e., who is the relevant purchaser?), and how much of the webpage constitutes the representation (i.e., if the consumer needs to scroll down on a webpage to see the representation, but can proceed to check out without scrolling down, has there been sufficient disclosure?).
On the first point, the Tribunal rejected the Commissioner’s argument that the relevant purchaser ought to be the “credulous and inexperienced consumer,” holding instead that the appropriate perspective for assessing the general impression is that of an ordinary citizen. The credulous and inexperienced consumer standard originated in Quebec consumer protection cases, not competition law cases, and the Tribunal clarified that the deceptive marketing provisions of the Act “are concerned with the proper functioning of markets, without distortion from false or misleading representations, for the benefit of consumers and honest competitors and to incite firms to compete on the basis of price and quality.”
The second point included a technical examination of the Cineplex website to determine how much of the webpage encompassed the relevant representation. The disclosure of the online booking fee was only visible if a consumer scrolled to the bottom of the webpage or down on the app. According to Cineplex, “everyone scrolls.” According to the Tribunal, the relevant content in this case is what the ordinary citizen sees without scrolling. The Tribunal found that Cineplex’s webpage was designed to dissuade the ordinary consumer from scrolling down and instead “enables and encourages the ordinary consumer to … continue with the purchase of movie tickets without scrolling down – therefore, without seeing the information about the Online Booking Fee.” The question of scrolling is not a hard and fast rule, however, and the Tribunal accepted the Commissioner’s evidence that consumers will scroll “if they have a reason to do so.” This leaves open the question of whether a representation is misleading on a webpage where the consumer must scroll past mandatory fee information in order to proceed with their purchase. Such analysis will depend on the facts.
Under the general misleading advertising provision, the Tribunal held that the representation of the ticket price without the booking fee was false or misleading in a material respect. The Tribunal also concluded that the way Cineplex advertised the price constituted drip pricing under the new provision because the fee was fixed (despite the fact that it may be waived or reduced for CineClub or Scene+ members) and obligatory (if tickets were purchased online), and, consequently, the ticket price without the fee was unattainable if purchased online.
(c) Remedies
The Tribunal imposed a C$38.9 million AMP on Cineplex, the highest on record in Canada. This amount was equal to the value derived by Cineplex from the imposition of the booking fee from June 2022 to December 2023. The Tribunal chose not to exercise its power to order restitution due to the practical issues it identified in distributing a number of relatively small refunds to thousands of individual customers. Although the Tribunal had the authority to order up to three times the value derived (or C$116.7 million as an AMP), the Commissioner only sought the actual value of the benefit derived, and the Tribunal, “as a matter of fairness,” chose not to impose an AMP that exceeded proven financial gain.
Given that there are certain impracticalities associated with the restitution remedy, it is not clear how the Tribunal will impose such remedies in future cases, or whether the Tribunal will address the administrative process for implementing such a remedy in future cases.
(d) Pending Appeal
Cineplex appealed the decision in October 2024. In its appeal, it contested the Tribunal’s findings under both the drip pricing provision and the general misleading advertising provision. Even if Cineplex is able to convince the Federal Court of Appeal that its practices do not constitute drip pricing, Cineplex could still lose the appeal if the court finds that they were nevertheless misleading in a material sense. In other words, even if the online booking was not fixed, obligatory, or unattainable, the way Cineplex advertised the fee may still fail the general impression test for misleading advertising.
6. Private Damages/Class Actions
Finally, it is interesting to consider whether there may be a viable claim for damages by those who pay more than the “base” price under a drip pricing scenario, rather than just AMPs (which are essentially fines paid to the government) or restitution of the value of the benefits. In this regard, we note that there is an ongoing class action against Air Canada in the province of Quebec, under the Quebec Consumer Protection Act, which contains a provision similar to the Act’s drip pricing provision:
No merchant, manufacturer or advertiser may, by any means whatever, … (c) charge, for goods or services, a higher price than that advertised.
For the purposes of subparagraph c of the first paragraph, the price advertised must include the total amount the consumer must pay for the goods or services. However, the price advertised need not include the Québec sales tax or the Goods and Services Tax. More emphasis must be put on the price advertised than on the amounts of which the price is made up.
In the Air Canada case, which is currently under appeal, the court of first instance decided that, while there may have been a violation of the law because the amount the consumer must pay was not initially disclosed, consumers know the full price when they conclude the transaction and make the purchase. Therefore, consumers have suffered no damages.
In another case brought under the Quebec Consumer Protection Act, against Dollarama and another defendant, Dollarama initially settled for C$2.5 million. The claim related to an environmental handling fee (“EHF”) charged by Dollarama on items such as batteries, lightbulbs, and toys. The EHF covered costs related to the collection and recycling of certain materials and was disclosed in fine print on the price tags of the items to which it applied. As a result of the lawsuit, Dollarama agreed to take all reasonable measures to ensure that the price expressed or advertised for any product subject to EHFs displayed the total price including such fees (before taxes) and that more emphasis was placed on this total price, and to pay the settlement amount.
However, on April 17, 2024, the Superior Court of Quebec dismissed the application to approve the Dollarama settlement, concluding that the evidence was insufficient to determine that a settlement benefitted the class members or served the proper administration of justice. The court held that the plaintiffs should have considered using private methods for resolving the dispute, rather than initiating a class action, which is taxing on the justice system.
7. Conclusion
As we await the results of the Cineplex drip pricing appeal, we return to the question from the title of the December 2023 ABA Pricing Conduct Committee panel: “Drip Pricing & Junk Fees: All Wet, or a Serious Antitrust and Consumer Protection Issue?” Some behavioral economists may caution that such practices unfairly benefit sellers by allowing them to manipulate consumers; however, if consumers ultimately know the price before they have to pay it, can consumers credibly say they were harmed? And, as we noted at the outset, since the whole point of advertising is to influence consumer behavior in favour of the advertiser, what is the difference in kind with drip pricing?
As the Quebec cases demonstrate, these remain open questions not just under the Act but also as a matter of consumer protection. The Cineplex case tested the limits of what the courts will credibly consider an “unattainable price”; however, such a fact-specific analysis does not completely close the door on fees that are dripped with sufficient disclosure to the consumer. We look forward to seeing how this saga plays out at the box office.
