Arnold Kling likes to claim that economists underestimate the prevalence of price discrimination, while I have disagreed that economists tend to see price discrimination when costs are actually driving different prices for the same good. But I have a hard time coming up with a cost based explanation for this example, from Erik Barker, of price discrimination against poor people because their lack of cars prevents them from shopping around:
Even after controlling for store size and competition, prices are found to be 2%–5% higher in poor areas. It also finds that it is not the poverty level per se but access to cars that acts as a key determinant of consumers’ price search patterns.
When I read interesting literature like this on actual real world price setting behavior, much of tends to be from marketing science rather than economists. This is another great example… granted, though, they are using the Stiglitz-Salop model of price dispersion, so you’ve got to give that, at least, to economists.
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Thursday ~ February 11th, 2010 at 11:44 pm
dWj
Do they control for insurance costs?
I live in a lower middle class neighborhood, but it’s relatively crime free, and seems to have some of the lowest prices in New York City, at least insofar as I’ve seen. It’s also near two subway lines; maybe that’s the New York City version of “cars”.
I tend to see price discrimination everywhere, too, though. Often I think it works with costs, though, not as an alternative. If a restaurant spends slightly more on the beef version of an item than on the chicken version, and wants to make one more expensive than the other for price discriminatory reasons, they’ll make the beef more expensive by a larger margin than the cost difference alone would explain.