Propublica released findings today suggesting that the Princeton Review — one of the nation’s top standardized test prep services, which offers in-class and one-on-one tutoring options for prospective students — is significantly more likely to charge Asian American students higher prices for the same test prep services.
The disparity comes from a practice employed by many online and offline retailers wherein the price of a good or service is influenced by various factors. Online retailers, in particular, frequently employ an algorithm that factors in buyer geography and other characteristics before generating a quote for a particular item. Although offline markets are required to demonstrate that local differences in prices do not disproportionately impact any particular class of buyer over others, online retailers are not held to the same standard: online retailers are able to collect an unprecedented amount of buyer information before offering a price, and algorithm-based pricing can draw upon a series of seemingly innocuous details about a buyer to create the net effect of setting predatory pricing for some classes of buyers over others.
In a recent White House memo on the effects of “Big Data” and economic activity, advisors warned that algorithm-based pricing could create a novel problem of “digital redlining”, where companies employ unfair economic practices that specifically target certain groups of consumers. That memo urged new regulations to prevent such predatory economic practices, and that would also emphasize online consumer privacy.