THE POOR TAX
November 12, 2008
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.
His study thoroughly cataloged prices -- and surveyed customers -- at stores selling grocery items in various neighborhoods around Buffalo. Talukdar found that prices for the same items were about 10 to 15 percent higher in poor neighborhoods relative to affluent neighborhoods. 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.
However, even after controlling for store size and competition, prices were found to be 2-5 percent higher in poor areas. Yet, it is not the poverty level, per se, but access to cars that acts as a key determinant of consumers' price search patterns, says Talukdar.
Source: Debabrata Talukdar, "Cost of Being Poor: Retail Price and Consumer Price Search Differences across Inner-City and Suburban Neighborhoods," Journal of Consumer Research, Vol. 35, October 2008.
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