Oh the Prices You'll See: Designing a Fair Exchange System to Mitigate Personalized Pricing

TL;DR

This paper proposes a fairness-centered exchange system leveraging personalized pricing to improve consumer fairness and reduce costs, while maintaining system revenue, through strategic matching and transaction modeling.

Contribution

It introduces a novel exchange system that uses personalized pricing to enhance fairness and reduce costs, with analysis of different negotiation and pricing models.

Findings

Negotiating prices individually yields the fairest outcomes.

High price dispersion enables significant cost reductions.

System viability depends on substantial price variation.

Abstract

Many online marketplaces personalize prices based on consumer attributes. Since these prices are private, consumers may be unaware that they have spent more on a good than the lowest possible price, and cannot easily take action to pay less. In this paper, we introduce a fairness-centered exchange system that takes advantage of personalized pricing, while still allowing consumers to individually benefit. Our system produces a matching of consumers to promote trading; the lower-paying consumer buys the good for the higher-paying consumer for some fee. We explore various modeling choices and fairness targets to determine which schema will leave consumers best off, while also earning revenue for the system itself. We show that when consumers individually negotiate the transaction price, and our fairness objective is to minimize mean net cost, we are able to achieve the most fair outcomes. Conversely, when transaction prices are centrally set, consumers are often unwilling to transact. When price dispersion (or range) is high, the system can reduce the mean net cost to each individual by $66\%$, or the mean net cost to a group by $69\%$. We find that a high dispersion of original prices is necessary for our system to be viable. Higher dispersion can actually lead to decreased net price paid by consumers, and act as a check against extreme personalization, increasing seller accountability. Our results provide theoretical evidence that such a system could improve fairness for consumers while sustaining itself financially.