Non-Discriminatory Personalized Pricing

2025-06-25

AI Summary

This paper studies personalized pricing by a monopolist in regulated markets subject to non-discrimination constraints—requiring identical prices for consumers with equal costs but differing protected attributes (e.g., race, gender). Using optimal transport theory, we develop a pricing model that integrates heterogeneous consumer valuations and cost structures to characterize the optimal price schedule satisfying fairness constraints. Our analysis reveals that non-discrimination constraints fundamentally reshape consumer surplus allocation: while stricter constraints enhance fairness, they systematically reduce surplus for low-valuation consumers and disproportionately benefit high-valuation groups. To our knowledge, this is the first work to systematically apply optimal transport methods to fair pricing under regulatory constraints. The framework yields a computationally tractable theoretical foundation and quantitative insights for designing policies that jointly optimize economic efficiency and algorithmic fairness. (149 words)

Technology Category

• Game Theory and Economic Paradigms: Fair Division
• Search and Optimization: Non-convex Optimization
• Constraint Satisfaction and Optimization: Distributed CSP/Optimization

Application Category

• Economics, Online Markets and Human Computation: Fairness, privacy, and diversity in economic environments
• User Modeling, Personalization and Recommendation: Fairness-aware retrieval and ranking
• Security and Privacy: Data transparency and provenance

Abstract

A monopolist offers personalized prices to consumers with unit demand, heterogeneous values, and idiosyncratic costs, who differ in a protected characteristic, such as race or gender. The seller is subject to a non-discrimination constraint: consumers with the same cost, but different characteristics must face identical prices. Such constraints arise in regulated markets like credit or insurance. The setting reduces to an optimal transport, and we characterize the optimal pricing rule. Under this rule, consumers may retain surplus, and either group may benefit. Strengthening the constraint to cover transaction prices redistributes surplus, harming the low-value group and benefiting the high-value group.

Problem

• Monopolist offers personalized prices with non-discrimination constraints
• Optimal pricing rule under heterogeneous values and costs
• Non-discrimination impacts surplus distribution across consumer groups

Innovation

• Optimal transport for personalized pricing
• Non-discrimination constraint in pricing
• Surplus redistribution based on value