Keywords: Fairness in ML, Price Discrimination, Feature-based Pricing
Abstract: We study fairness in the context of feature-based price discrimination in monopoly markets. We propose a new notion of individual fairness, namely, \alpha-fairness, which guarantees that individuals with similar features face similar prices. First, we study discrete valuation space and give an analytical solution for optimal fair feature-based pricing. We show that the cost of fair pricing is defined as the ratio of expected revenue in an optimal feature-based pricing to the expected revenue in an optimal fair feature-based pricing (CoF) can be arbitrarily large in general. When the revenue function is continuous and concave with respect to the prices, we show that one can achieve CoF strictly less than 2, irrespective of the model parameters. Finally, we provide an algorithm to compute fair feature-based pricing strategy that achieves this CoF.
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