Retail Redlining: Are Gasoline Prices Higher in Poor and Minority Neighborhoods?

Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor. Go shopping one day in Harlem-for anything and compare Harlem prices and quality with those downtown. (James Baldwin, Nobody Knows My Name, 1961) It's not that these businesses are saying "You, black people, you get out of my [establishment]. " They are saying "Come on in, but we're going to rip you off" (Allison Bethel, Florida Assistant Attorney General, in U.S. News and World Report, 2000) I. INTRODUCTION The economics literature on discrimination in consumer markets is dominated by studies of differences in negotiated prices in two markets: housing (e.g., Myers 2004; Ondrich, Ross, and Yinger 2003; Yinger 1986, 1995) and automobiles (e.g., Ayres and Siegelman 1995; Goldberg 1996). A few additional studies examine price differentials in smaller markets in which prices are also negotiated such as trading cards (List 2004), car repairs (Gneezy and List 2004), and fish (Graddy 1995). Less evidence is available from the numerous consumer markets in which prices are publicly posted and fixed. In this situation, individually targeted racial price discrimination is unlikely because, as Siegelman (1998) points out, it would require the flagrant and illegal display of different prices for whites and minorities. However, firms may still adopt practices that increase the probability that minorities or other targeted groups will pay higher prices. We use data on gasoline prices and station characteristics from three metropolitan areas to test for one such practice, commonly referred to as "retail redlining. " Following D'Rozario and Williams (2005), we define "retail redlining" as a practice among retailers that results in lower quality goods and services and/or higher prices in areas with large minority or poor populations. Claims of retail redlining arise regularly in both academic sources and the popular press, often involving catch phrases such as "the poor pay more," "the high price of poverty," or "the poorer you are the more things cost" (Brown 2009; Downing 2007; Sturdivant 1969). Accusations of retail redlining also arise in courtrooms and politics. GM, WalMart, Burger King, Domino's Pizza, and KB Toys have been sued for discriminatory practices in minority neighborhoods (Fuller 1998; Jelisavcic 1996; Kaplan 2000; Smith 1996); in 1992, the mayor of Los Angeles touted the need for more equal access to supermarkets following the Los Angeles riots; and, in 2009, Illinois Senator Roland Burris introduced a request to the annual federal appropriations bill for a campaign to fight retail redlining on Chicago's south side (Burris 2009; Shaffer 2002). The bulk of the empirical evidence on retail redlining comes from the large "grocery gap" literature, which explores variations across neighborhoods in the accessibility, quality, and price of food sold at grocery stores. Much of this evidence suggests that grocery prices are higher in inner-city neighborhoods and that this is largely explained by the lack of large chain stores in these areas (Chung and Myers 1999; Hall 1983; Kaufman et al. 1997; Shaffer 2002). By contrast, Hayes (2000), using a large nationally representative sample of price data from the sampling frame used to construct the Consumer Price Index, finds that prices are lower in poor neighborhoods but that the discount is not constant across races. Poor whites and Hispanics receive discounts, but poor blacks pay similar prices as affluent whites. Turning to the market for prepared food, Graddy (1997) finds that fast food meal prices increase by about 5% for a 50% point increase in the percent black in a zip code. While food, which makes up a large portion of consumer budgets, is an important candidate for the study of inter-neighborhood price variations, accusations of retail redlining extend beyond this single market. We provide evidence from a hitherto unexamined market: retail gasoline. …