Balancing Profit and Fairness in Risk-Based Pricing Markets

Abstract

Dynamic, risk-based pricing can systematically exclude vulnerable consumer groups from essential resources such as health insurance and consumer credit. We show that a regulator can realign private incentives with social objectives through a learned, interpretable tax schedule. First, we provide a formal proposition that bounding each firm's local demographic gap implicitly bounds the global opt-out disparity, motivating firm-level penalties. Building on this insight we introduce MarketSim -- an open-source, scalable simulator of heterogeneous consumers and profit-maximizing firms -- and train a reinforcement learning (RL) social planner (SP) that selects a bracketed fairness-tax while remaining close to a simple linear prior via an L_1 regularizer. The learned policy is thus both transparent and easily interpretable. In two empirically calibrated markets, i.e., U.S. health-insurance and consumer-credit, our planner simultaneously raises demand-fairness by up to 16\% relative to unregulated Free Market while outperforming a fixed linear schedule in terms of social welfare without explicit coordination. These results illustrate how AI-assisted regulation can convert a competitive social dilemma into a win-win equilibrium, providing a principled and practical framework for fairness-aware market oversight.

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