Non-Discriminatory Personalized Pricing

TL;DR

This paper analyzes how non-discrimination constraints in personalized pricing affect optimal strategies and consumer surplus, especially in regulated markets like credit and insurance, using an optimal transport framework.

Contribution

It introduces a novel model for personalized pricing under non-discrimination constraints and characterizes the optimal pricing rule using optimal transport theory.

Findings

Consumers may retain surplus under the optimal rule.

Strengthening non-discrimination constraints redistributes surplus.

Different groups benefit or are harmed depending on the constraint strength.

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.