Privacy-Preserving Personalized Revenue Management
43 Pages Posted: 15 Oct 2020 Last revised: 23 Mar 2021
Date Written: October 3, 2020
This paper examines how data-driven personalized decisions can be made while preserving consumer privacy. Our setting is one in which the firm chooses a personalized price based on each new customer's vector of individual features; the true set of individual demand-generating parameters is unknown to the firm and so must be estimated from historical data. We extend this classical framework of personalized pricing by requiring also that the firm's pricing policy preserve consumer privacy, or (formally) that it be differentially private -- an industry standard for privacy preservation. We develop privacy-preserving personalized pricing algorithms and show that they achieve near-optimal revenue by deriving theoretical (upper and lower) performance bounds. Our analyses further suggest that, if the firm possesses a sufficient amount of historical data, then it can achieve certain level of differential privacy almost "for free". That is, the revenue loss due to privacy preservation is of smaller order than that due to estimation. We confirm our theoretical findings in a series of numerical experiments based on synthetically generated and On-line Auto Lending (CPRM-12-001) data sets. Finally, we also investigate the problem of privacy-preserving personalized assortment optimization and derive results parallel to those in the pricing setting.
Keywords: privacy, data-driven decision making, personalized pricing, revenue management
JEL Classification: A10, A12, C02, C13, C18, C44, D11, D18, D21, L51, M15, M20, M31, M37
Suggested Citation: Suggested Citation