What happened

Building on prior research by four Harvard undergraduates, an investigation by ProPublica revealed that customers in areas with a high density of Asian residents were 1.8 times as likely to be offered higher prices, regardless of income.

The Princeton Review offers in-class and one-on-one tutoring services for between $6,600 and $8,400, depending on a student's ZIP code, which is input before a quote is generated on the company's website.

The disparity was stark even when income was controlled for. In Flushing, Queens (where Asians make up over 70% of the population) families with a below-national-average median income of $41,884 were charged $8,400, the same as the rest of New York City. In Dallas, where Asians make up less than 3% of the population, even affluent families paid just $6,600.

The major concern raised by researchers was that online tutoring should theoretically be priced consistently, because it draws from the same pool of tutors regardless of the consumer's geographic location. 

The approach undermines the company's defence that prices merely reflected local tutor costs.

Why it happened

The Princeton Review maintained that its pricing was purely geographic, reflecting varying costs of running its business locally. The company stated that prices for its online tutoring services were based on the prices of local tutors, which vary "just as virtually every good or service does, be it gasoline, rent or eggs."

However, investigators found the company's own defence difficult to reconcile with reality. Because the pricing regions are large — sometimes spanning multiple states — they are different from the personalised tech algorithms used by some websites that make real-time decisions, but the effect was the same: inadvertent discrimination, with Asians nearly twice as likely to receive the higher price.

The root cause was a geographic pricing model that, by using ZIP codes as a proxy for pricing, effectively used race as an input — even without explicitly intending to. No legal doctrine equivalent to "disparate impact" — which makes unintentional racial discrimination illegal in housing and employment — exists in online marketplaces of this kind. This legal gap left affected consumers without formal recourse.

There was also a transparency problem: customers had no way of knowing that entering a different ZIP code could reduce the quoted price by hundreds or thousands of dollars.