The Office of Fair Trading is to launch an investigation into how the habits and personal information of web users are used to target internet advertising.
Competition regulators said they had been prompted to launch the study, which could ultimately lead to an industry code of practice, because of a need to "update the understanding of consumer harm that arises from potentially misleading advertising and pricing" on the internet.
The OFT inquiry, entitled "Advertising and Pricing market study", will look at a number of areas of online pricing and advertising including price comparison websites and the use of personal data in website advertising.
"It will evaluate which advertising and pricing practices are most detrimental to consumers, taking into account the growth of the use of the internet for online shopping, information provision and advertising," said the OFT.
The OFT added that there is a strong chance that the final decision on the scope of the study – which is calling for submissions from interested parties until 18 September – is likely to include an examination of behavioural advertising.
"We are also considering including the use of personal information in advertising and pricing," said the OFT. "In particular, we may look at behavioural advertising where information on a consumer's online activity is used to target the internet advertising they see. We may also examine the practice of tailoring prices to individual consumers on the basis of their personal data."
Behavioural advertising has been seen as a potentially lucrative revenue generator by companies looking to make use of web interactivity to learn more about users' browsing habits and personal information in order to better target ads and products. One of the most controversial companies in this sector is .
Phorm has attracted criticism from campaigning groups and .
Phorm's technology has been the subject of numerous investigations.
In September the City of London police announced that they had completed an investigation of Phorm and found no evidence of illegal activity, paving the way for the new ad targeting trial to begin.
Similarly a government investigation, by the Department for Business, Enterprise and Regulatory Reform - now Business, Innovation and Skills - reached the conclusion that Phorm did not breach European laws on data protection.
However, Phorm is now at the heart of .
The controversial company is also currently the subject of a Crown Prosecution Service investigation into privacy breaches, although .
Heather Clayton, senior director of the OFT's consumer market group, said: "The way that businesses advertise and price goods and services constantly evolves, and we need to keep up to date on how consumers view these adverts, and the types of advertising and prices which may mislead. Before starting our study, we want to understand from consumer groups, businesses and other organisations which areas they think we should focus on."
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