Do the Poor Pay More? An Empirical Investigation of Price Dispersion in Food Retailing


On the question of whether prices are higher in poor, urban neighborhoods, the prior research is
decidedly mixed. This paper revisits the question by analyzing unpublished price-level data
collected by the Bureau of Labor Statistics for construction of the Consumer Price Index. Using
this large, statistically representative sample of stores in poor and affluent neighborhoods, I first
estimate if a price difference exists. I then empirically test the major arguments in support of
disparate prices such as differences in quality, operating and consumer search costs. I also explore
the relationship between pricing strategies and the racial and ethnic composition of poor
neighborhoods. I find that market prices are up to 6 percent less in poor neighborhoods after
controlling for a variety of covariates. In addition, I find that poor, predominantly white and
Hispanic neighborhoods experience significant discounts, while market prices in poor,
predominantly black neighborhoods are comparable to those in affluent white areas.

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