Dynamic Pricing with Fairness Constraints

46 Pages Posted: 28 Sep 2021 Last revised: 13 Mar 2023

See all articles by Maxime C. Cohen

Maxime C. Cohen

Desautels Faculty of Management, McGill University

Sentao Miao

University of Colorado Boulder

Yining Wang

University of Texas at Dallas

Date Written: September 25, 2021

Abstract

Following the increasing popularity of personalized pricing, there is a growing concern from customers and policy makers regarding fairness considerations. This paper studies the problem of dynamic pricing with unknown demand under two types of fairness constraints: price fairness and demand fairness. For price fairness, the retailer is required to (i) set similar prices for different customer groups (called group fairness) and (ii) ensure that the prices over time for each customer group is relatively stable (called time fairness). We propose an algorithm based on an infrequently-changed upper-confidence-bound (UCB) method, which is proved to yield a near-optimal regret performance. We then leverage this method to address the extension of non-stationary demand, which is particularly relevant for time fairness to prevent price gouging practices. For demand fairness, the retailer is required to satisfy that the resulting demand from different customer groups is relatively similar (e.g., the retailer offers a lower price to students to increase their demand to a similar level as non-students). In this case, we design an algorithm adapted from a primal-dual learning framework and prove that our algorithm also achieves a near-optimal regret performance.

Keywords: Dynamic Pricing, Demand Learning, Fairness, Revenue Management

Suggested Citation

Cohen, Maxime C. and Miao, Sentao and Wang, Yining, Dynamic Pricing with Fairness Constraints (September 25, 2021). Available at SSRN: https://ssrn.com/abstract=3930622 or http://dx.doi.org/10.2139/ssrn.3930622

Maxime C. Cohen (Contact Author)

Desautels Faculty of Management, McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Sentao Miao

University of Colorado Boulder ( email )

256 UCB
Boulder, CO CO 80300-0256
United States

Yining Wang

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

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