Exploitation and Algorithmic Pricing: Regressive Distributive Outcomes in Consumer-to-Business Transactions

I present a theory of exploitation that can be used to appraise algorithmic pricing and identify when it might contribute to injustice. I develop a structural, consequentialist theory, which shows that exploitation is parasitic on existing inequalities. Exploitation is a sub-theme within the broader concerns of distributive egalitarians. I use "inequality" to signify unjust distributive inequity resulting from morally arbitrary, rather than justified, differences. This distinction is murky: skills are often as much a product of privilege as they are of work ethic. Nevertheless, some causes of distributive inequality (class, ethnicity, or gender) are more obviously morally arbitrary than others (skill or work ethic). There are many reasons for supporting distributive equality: I favour the Humean idea that equality is necessary for reciprocity, and that reciprocity is the foundation of a just social equilibrium [1][2]. However, a defence of this theory is beyond the scope of this paper; I therefore take it as a given that a reasonable degree of distributive equality is desirable in contemporary nation states, without specifying how much is "reasonable". The information asymmetry between sellers and consumers is the most obvious inequality in transactions mediated by algorithmic pricing. However, even without information asymmetry, dynamic pricing algorithms are designed to detect any imbalance between supply and demand, and to exploit this as much as possible to maximise profits. Since demand is a reflection of scarcity and urgency, dynamic pricing pushes prices up as far as the consumer's bargaining position will allow-without losing the consumer. I therefore address information asymmetry separately (forthcoming); here I show that the sufficient conditions for exploitation to emerge are minimal, and do not require the intent to manipulate consumers.I respond to potential criticisms of my theory. I explain why the Paretian defence-that mutually beneficial transactions are permissible, irrespective of the difference in benefit [3]-only holds up in case there is a dichotomy (deal/no deal), but that the value of a theory of exploitation is precisely that it highlights the contingency of such dichotomies. This allows me answer the concerns of critics who worry that a consequentialist conception of exploitation guts the concept of its inherent wrongness [4]. In some cases, an exploitative contract may be pragmatically better than no contract, but an injustice-albeit a "lesser evil"-is occurring. Calling it "exploitation" remains a useful way of drawing attention to the structural circumstances which gave rise to unfair option sets. I explain how my theory applies to algorithmic pricing in consumer-to-platform transactions, by presenting a 2020 study, which found that ride-hailing apps in Chicago were charging passengers from low-income neighbourhoods and ethnic minority backgrounds more for lifts than white passengers from more affluent neighbourhoods [5]. Reserve price is not only a marker of disposable income, but rather, of a whole set of factors that influence willingness-to-pay. Scarcity drives demand up. In low-income neighbourhoods, fewer residents are likely to demand ride-hailing services. Due to low demand, drivers are less likely to enter these areas, as doing so will decrease the chance of finding another passenger quickly. Low-income neighbourhoods thereby become under-serviced, and residents who do hail rides are effectively penalised by having to pay a surcharge. In cases that attracted widespread condemnation, price surges occurred in the wake of mass shootings, terrorist attacks, or natural disasters [6]. Such cases may be wrong for other reasons, but do not fall into the category of exploitation as I define it, since the consumers' bargaining power is diminished due to highly rare and improbable circumstances rather than structural inequality. Thus, dynamic pricing can produce regressive outcomes. This should concern anyone interested in distributive equality, and might justify interventions to mitigate the effects on vulnerable groups.