Does Price Personalization Ethically Outperform Unitary Pricing? A Thought Experiment and a Simulation Study

Deni Mazrekaj (), Mark D. Verhagen (), Ajay Kumar () and Daniel Muzio ()
Additional contact information
Deni Mazrekaj: Utrecht University
Mark D. Verhagen: University of Oxford
Ajay Kumar: EMLYON Business School
Daniel Muzio: University of York Business School

Journal of Business Ethics, 2025, vol. 199, issue 1, No 11, 207-227

Abstract: Abstract Merchants often use personalized pricing: they charge different consumers different prices for the same product. We assess the ethicality of personalized pricing by generalizing and extending an earlier model by Coker and Izaret (Journal of Business Ethics 173:387–398, 2021) who found that price personalization ethically outperforms unitary pricing. Using a simulation analysis, we show that these results crucially depend on the choice of parameters and do not hold universally. We further incorporate additional sources of marginal cost into the utility function that will likely arise from personalized pricing. These include the expectation that personalized pricing is widely considered unfair by consumers who prefer that all consumers are charged the same price (unitary pricing), and that firms often approximate the consumers’ willingness-to-pay in ways that may raise negative sentiments among consumers who feel that their privacy is breached. By extending our model with disutility from unfairness perception and disutility from surveillance aversion, we demonstrate that personalized pricing is quickly outperformed by unitary pricing under social welfare functions that tend to prioritize total utility (utilitarianism and prioritarianism), whereas personalized pricing can ethically outperform unitary pricing under social welfare functions that tend to prioritize equality (egalitarianism and leximin). Our findings illustrate various intricacies and dynamics regarding the circumstances under which personalized pricing can be considered ethical.

Keywords: Price discrimination; Personalized pricing; Willingness-to-pay; Utility; Artificial intelligence (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10551-024-05828-3 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jbuset:v:199:y:2025:i:1:d:10.1007_s10551-024-05828-3

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10551/PS2

DOI: 10.1007/s10551-024-05828-3

Access Statistics for this article

Journal of Business Ethics is currently edited by Michelle Greenwood and R. Edward Freeman

More articles in Journal of Business Ethics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().