This paper sets out a framework for approaching the fairness of price discrimination and how to balance this with economic considerations.
We regularly find different consumers paying different prices for the same product. This practice is known as price discrimination and is common in financial services and many other markets.
Price discrimination is not in itself an unfair practice. Some forms of price discrimination are widely accepted, such as student discounts. Some forms of price discrimination can provoke strong views on how firms treat their customers, such as longstanding customers receiving a significantly worse deal than new customers. This raises obvious questions on fairness and economics: when are such pricing practices fair to consumers? And are these practices an outcome of markets working well?
In this paper, we set out a framework for considering both economic and distributive fairness considerations, focusing on their interaction with one another. This framework is applicable on a market-by-market basis and helps to identify any harm from price discrimination. It also explores what factors are at play when considering how to remedy the identified harm.