Fairness Incentives in Response to Unfair Dynamic Pricing

TL;DR

This paper investigates how AI-driven taxation and subsidy policies can promote fairness in dynamic pricing markets, improving social welfare by incentivizing fairer consumer treatment through simulated economic models.

Contribution

It introduces a novel AI-based approach using reinforcement learning and bandit models to optimize fairness-aware taxation and redistribution strategies in dynamic pricing environments.

Findings

Social welfare improves with learned tax and redistribution policies.

RL-based policies outperform fairness-agnostic baselines by 13.19%.

FairReplayBuffer enhances experience sampling across fairness space.

Abstract

The use of dynamic pricing by profit-maximizing firms gives rise to demand fairness concerns, measured by discrepancies in consumer groups' demand responses to a given pricing strategy. Notably, dynamic pricing may result in buyer distributions unreflective of those of the underlying population, which can be problematic in markets where fair representation is socially desirable. To address this, policy makers might leverage tools such as taxation and subsidy to adapt policy mechanisms dependent upon their social objective. In this paper, we explore the potential for AI methods to assist such intervention strategies. To this end, we design a basic simulated economy, wherein we introduce a dynamic social planner (SP) to generate corporate taxation schedules geared to incentivizing firms towards adopting fair pricing behaviours, and to use the collected tax budget to subsidize consumption among underrepresented groups. To cover a range of possible policy scenarios, we formulate our social planner's learning problem as a multi-armed bandit, a contextual bandit and finally as a full reinforcement learning (RL) problem, evaluating welfare outcomes from each case. To alleviate the difficulty in retaining meaningful tax rates that apply to less frequently occurring brackets, we introduce FairReplayBuffer, which ensures that our RL agent samples experiences uniformly across a discretized fairness space. We find that, upon deploying a learned tax and redistribution policy, social welfare improves on that of the fairness-agnostic baseline, and approaches that of the analytically optimal fairness-aware baseline for the multi-armed and contextual bandit settings, and surpassing it by 13.19% in the full RL setting.