Differential Privacy in Personalized Pricing with Nonparametric Demand Models

DOI10.1287/OPRE.2022.2347MaRDI QIDQ6192838zbMATH OpenOpenAlexFDO

Authors Xi Chen, Sentao Miao, Yining Wang

Publication date 12 March 2024

Published in Operations Research (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2109.04615

zbMATH Keywords

differential privacydynamic pricinglocal privacyregret

Mathematics Subject Classification ID

Mathematical programming (90Cxx)

Abstract: In the recent decades, the advance of information technology and abundant personal data facilitate the application of algorithmic personalized pricing. However, this leads to the growing concern of potential violation of privacy due to adversarial attack. To address the privacy issue, this paper studies a dynamic personalized pricing problem with extit{unknown} nonparametric demand models under data privacy protection. Two concepts of data privacy, which have been widely applied in practices, are introduced: extit{central differential privacy (CDP)} and extit{local differential privacy (LDP)}, which is proved to be stronger than CDP in many cases. We develop two algorithms which make pricing decisions and learn the unknown demand on the fly, while satisfying the CDP and LDP gurantees respectively. In particular, for the algorithm with CDP guarantee, the regret is proved to be at most $ildeO(T^{(d+2)/(d+4)}+varepsilo{n}^{-1}{T}^{d/(d+4)})$. Here, the parameter $T$ denotes the length of the time horizon, $d$ is the dimension of the personalized information vector, and the key parameter $varepsilon>0$ measures the strength of privacy (smaller $varepsilon$ indicates a stronger privacy protection). On the other hand, for the algorithm with LDP guarantee, its regret is proved to be at most $ildeO(varepsilo{n}^{-2/(d+2)}{T}^{(d+1)/(d+2)})$, which is near-optimal as we prove a lower bound of $Omega(varepsilo{n}^{-2/(d+2)}{T}^{(d+1)/(d+2)})$ for any algorithm with LDP guarantee.

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