According to Professor Debabrata Talukdar's 2008 paper "Cost of Being Poor: Retail Price and Consumer Price Search Differences across Inner‐City and Suburban Neighborhoods" prices on everyday items, such as groceries, are often higher in poor areas and with reduced access to cars, comparison shopping is harder. The paper's abstract explains:
This research undertakes a carefully designed and detailed empirical study to gain insights into (1) the extent of price differentials between wealthy and poor neighborhoods; (2) what induces such differentials, especially the nature and intensity of competitive environments, including mass merchandisers like Wal‐Mart; and (3) their relative impacts. It finds a price differential of about 10%-15% for everyday items. 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.
The National Center for Policy Analysis summarizes Talukdar's findings as "the Poor Tax":
Even though poor inner-city residents have access to more locally owned stores than do inhabitants of wealthier big-box suburbs, they have to pay more for the same groceries, says researcher Debabrata Talukdar.
The cause? Competition:
- Prices at the independent corner stores that dot city streets run about 7 percent higher than those at chain supermarkets -- effectively levying a "ghetto tax."
- In wealthier neighborhoods, there are more chain stores, and customers are more likely to have cars, making it easier to price shop; thus, driving down prices.
- Moving the nearest chain store closer by 1 mile to a particular neighborhood store being the neighborhood store's prices down by 1-3 percent.
via Economybeat.org
Source: JOURNAL OF CONSUMER RESEARCH
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