Fairness, Welfare, and Equity in Personalized Pricing
- URL: http://arxiv.org/abs/2012.11066v2
- Date: Sun, 27 Dec 2020 17:21:29 GMT
- Title: Fairness, Welfare, and Equity in Personalized Pricing
- Authors: Nathan Kallus, Angela Zhou
- Abstract summary: We study the interplay of fairness, welfare, and equity considerations in personalized pricing based on customer features.
We show the potential benefits of personalized pricing in two settings: pricing subsidies for an elective vaccine, and the effects of personalized interest rates on downstream outcomes in microcredit.
- Score: 88.9134799076718
- License: http://creativecommons.org/licenses/by/4.0/
- Abstract: We study the interplay of fairness, welfare, and equity considerations in
personalized pricing based on customer features. Sellers are increasingly able
to conduct price personalization based on predictive modeling of demand
conditional on covariates: setting customized interest rates, targeted
discounts of consumer goods, and personalized subsidies of scarce resources
with positive externalities like vaccines and bed nets. These different
application areas may lead to different concerns around fairness, welfare, and
equity on different objectives: price burdens on consumers, price envy, firm
revenue, access to a good, equal access, and distributional consequences when
the good in question further impacts downstream outcomes of interest. We
conduct a comprehensive literature review in order to disentangle these
different normative considerations and propose a taxonomy of different
objectives with mathematical definitions. We focus on observational metrics
that do not assume access to an underlying valuation distribution which is
either unobserved due to binary feedback or ill-defined due to overriding
behavioral concerns regarding interpreting revealed preferences. In the setting
of personalized pricing for the provision of goods with positive benefits, we
discuss how price optimization may provide unambiguous benefit by achieving a
"triple bottom line": personalized pricing enables expanding access, which in
turn may lead to gains in welfare due to heterogeneous utility, and improve
revenue or budget utilization. We empirically demonstrate the potential
benefits of personalized pricing in two settings: pricing subsidies for an
elective vaccine, and the effects of personalized interest rates on downstream
outcomes in microcredit.
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