Economists make case for charging rich and poor shoppers different prices | WISC

WASHINGTON (CNNMoney) – Shoppers at a Giant Food supermarket in an affluent part of Washington, D.C. last week could find a 6.4-ounce tube of Crest Whitening toothpaste for $2.09, two loaves of Nature’s Own Honey Wheat bread for $5, and a pound of gala apples for $1.79.

Across town, in a zip code where the median income is one-third that of the wealthier neighborhood, shoppers at another Giant store paid the same amount for each of those items.

Prices were also identical for heads of broccoli, a package of ultra-thin sanitary pads and a jar of Peter Pan creamy peanut butter.

Charging the same amount no matter what the shopper’s income may seem only fair. But a pair of economists point out that the practice increases the wealth gap — and also represents lost revenue for the store. That’s because shoppers in wealthier neighborhoods might pay more for items on their grocery list, while poorer customers might be able to afford more items if prices decreased.

In a recent paper, Stefano DellaVigna of the University of California, Berkeley and Stanford University’s Matthew Gentzkow examined scanner data from 73 large grocery and pharmacy chains. Using a mathematical model with assumptions about how much income affects shoppers’ tolerance for higher prices, they found that if the retailers charged prices based on their customers’ ability to pay, they could raise prices in high-income neighborhoods by about 9 percent and lower prices in poor neighborhoods by about 0.7 percent without losing demand.

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Economists make case for charging rich and poor shoppers different prices – WISC.