Evaluating differential pricing in e-commerce from the perspective of utility

Abstract

Differential pricing in e-commerce has sparked discussions about price discrimination. However, due to the difficulty in measuring consumers’ satisfaction with different prices for the same product, it is hard to quantitatively assess the impact of differential pricing on the interests of merchants and consumers. In this paper, the differential pricing in e-commerce is evaluated from the perspective of utility. For empirical study, a differential pricing strategy is implemented based on reinforcement learning, which can set individualized prices according to different consumption patterns. Utility theory is introduced to quantitatively evaluate the impact of differential pricing on the interests of consumers from two aspects, namely consumer utility and consumer surplus. A win–win situation for merchants and consumers is observed. After a merchant who adopts the proposed differential pricing strategy joins the market competition, not only will it earn more profit, but the utility and surplus of consumers will also increase. The investigation can provide a reference for market supervisors to implement algorithmic regulation.