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In this thorough confrontation of discrimination in the marketplace, Ian Ayres reveals surprising evidence that in many different types of transactions, blacks and women are routinely put at a disadvantage—by unequal offers, unequal policies, and subtle forms of discrimination.
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About the Author
Ian Ayres is the William K. Townsend Professor of Law at Yale Law School.
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By Ian Ayres
University of Chicago PressCopyright © 2001 Ian Ayres
All right reserved.
Pervasive Prejudice?: Unconventional Evidence of Race and Gender Discrimination
In a comedy sketch broadcast some years ago on Saturday Night Live, black comedian Eddie Murphy disguised himself to appear white. He soon discovered that white consumers were treated radically better than black consumers. At one point in the sketch, the seemingly white Murphy attempts to buy a magazine at a store only to be told by the storekeeper that there is no need to pay so long as black customers are not around. The skit played off a deep suspicion of people of color--that they could uncover pervasive discrimination if only they were privy to how whites are treated.
A PrimeTime Live segment broadcast several years ago had a similar punch line. The television news magazine separately sent two "testers"-- a white male and black male--to shop in a variety of retail stores along with a hidden camera to record how each was treated. The video depicted several different types of race discrimination. A car salesman quoted the black tester a higher price; in an empty shoe store a clerk forced the black male to wait for fifteen minutes before assisting him; and in a record store a clerk conspicuously trailed the black tester as he browsed, while the white tester was allowed to shop withoutscrutiny.
In the Saturday Night Live sketch, the whites knew about the discrimination and blacks were kept in the dark. But I believe the PrimeTime Live segment suggests the opposite is closer to the truth. Several white colleagues and students who have seen the segment have remarked how it opened their eyes to the reality of quotidian discrimination in retail markets. People of color have better insights into what is and what is not normal service and hence are better attuned to the possibility of race discrimination. But knowledge about how other similarly situated people are treated is a crucial barrier to learning whether (and the extent to which) discrimination exists. Consumers usually know how they are treated, but often lack information on how other consumers are treated. Equality of treatment can thus be what economists call a "credence attribute"--that is, a characteristic of consumption that the consumer does not learn about either at the time of sale or through consumption of the product or service itself. Just as a manufacturer's claim that its lightbulbs have an expected life of two thousand hours, a car dealer's explicit or implicit claim that it does not discriminate on the basis of race or gender may be difficult for consumers to verify through their individual experiences.
Of course, there are many types of discrimination about which consumers would readily learn if they systematically occurred. For example, if a McDonald's franchise set a higher hamburger price for Hispanics than Anglos, it is likely that customers waiting in line would observe the disparate treatment. We should not expect hamburger price discrimination to persist in a competitive market place.
Indeed, there seems to be a widespread, implicit belief (at least among white males) that race and gender discrimination is not a serious problem in retail markets. The civil rights laws of the 1960s focused on only a handful of nonretail markets--chiefiy concerning employment, housing, and public accommodation services. Indeed, the most gaping hole in our civil rights law concerns retail gender discrimination. No federal law prohibits gender discrimination in the sale of goods or services. A seller could fiatly refuse to deal with a potential buyer of a car or a paperclip because of her gender. And while the civil rights laws of the 1860s prohibited race discrimination in contracting, the civil rights laws a century later only prohibited sex discrimination in a narrow range of "titled" markets. The thousands of other markets that make up our economy are completely unregulated with regard to gender (as well as to religion and national origin) discrimination and only somewhat more regulated with regard to race. And only a handful of cities and states (chief among them California) make up for this failing by prohibiting gender discrimination in contracting generally.
The nonregulation of retail discrimination seems to be premised on a vague coterie of assumptions: (1) retail discrimination does not exist because retailers have no motive to discriminate; (2) retail discrimination does not exist because competition forces retailers not to discriminate; and (3) any retail discrimination that does occur does not have serious consequences because of effective counterstrategies by potential victims. It is also argued that any discrimination in the sale of goods or services is less important than the potential effects of discrimination in the markets for employment and housing. But without denying the primacy of employment, the current regulatory regime leaves approximately 66 percent of the dollars we spend--and 35 percent of the dollars we earn--unregulated (with respect to gender discrimination) or less regulated (with respect to race discrimination).
In this book, I contest the idea that race and gender discrimination in the retail sale of goods is nonexistent or unimportant. My thesis is that race and gender discrimination is neither a thing of the past nor is it limited to the narrow set of "titled" markets regulated by the civil rights legislation of the 1960s (Title VII, Title II, and so on). The book's primary contribution is empirical, but let me begin with a few theoretical reasons why we should take the possibility of retail discrimination seriously.
Retailers May Have a Motive to Discriminate
The argument that discrimination in the sale of goods and services does not exist because retailers lack any disparate treatment motive is itself premised on the twin ideas that discriminating against economically marginal groups would not be profitable and that racial animus would not manifest itself in discrete retail transactions. The latter idea is that while animus might cause race discrimination in the more relational settings-- employment, apartment rental, and restaurants--which civil rights laws regulate, regulated retail transactions are sufficiently discrete that seller and/or customer prejudice would not induce disparate treatment. There are, however, several problems with this theory. First, as pointed out by Ian MacNeil, many contractual arrangements are not as discrete as initially appear. Barbers may have much more tactile and repeated contact with their customers than one-time sellers of a house, but the law much more vigorously regulates the latter transaction. Second, the thought that prejudice is less likely to be acted upon in discrete transactions is premised on a narrow theory of what might be called "associational" animus--that is, that bigots don't like associating with particular groups. But, as I discuss in chapter 3, there are other types of animus that might persist even in discrete markets. For example, if sellers enjoy extracting an extra dollar of profit from people of color more than from whites, we might expect to see disparate racial treatment in pricing or quality of service. Finally, appreciating the pervasive discretion given to employees as agents opens up the possibility that even profit-maximizing principals will by necessity countenance some disparate treatment by their subordinates.
Discriminating retailers may also be actuated by profit. Sellers may have a profit-maximizing incentive to price discriminate against minorities and women--even if sellers believe that members of these groups are on average poorer. It has long been known that "statistical discrimination" might cause rational, profit-maximizing sellers to charge more to groups that on average cause sellers to incur higher costs. Thus, as a theoretical matter, the drivers of taxis might discriminate against African American men if the drivers perceive a higher chance of being robbed by such passengers. But, more provocatively, focusing on the example of new car sales, I argue that profit-maximizing sellers may engage in "revenue-based" race and gender disparate treatment. Dealerships may discriminate not because they expect higher costs but because they expect to be able to extract higher revenues. This is a surprising possibility because, as an empirical matter, people of color have a substantially lower ability to pay for new cars. But profit-maximizing sellers care far more about the variability in willingness to pay than in the mean willingness. The presence of a few minority members who are willing to pay a large markup can make it rational for the dealership to offer higher prices to all members of the group--even if group members are on average poorer.
It is correct and useful to ask whether sellers would plausibly be motivated to engage in a particular type of discrimination. But treating this issue seriously opens up a variety of dimensions where discrimination in the retail sale of goods and services could be a plausible seller strategy for either profit or non-profit-based reasons.
Competition May Not Drive Out Retail Discrimination
Nobel-prize winning economist Gary Becker emphasized how competition could provide a much-needed antidote for the disease of discrimination. Nondiscriminating sellers could earn higher profits by picking up the sales of those minorities and/or women excluded from equal access to the discriminating sellers. One problem with this theory is that it focuses on the ability of competition to drive out discriminating sellers, but competition may not be as effective at driving out the preferences of discriminating customers. If fixed costs of production limit the number of firms selling and if a substantial number of, say, white customers prefer dealing with a firm that discriminates against (by excluding or offering inferior service to) people of color, then firms may decide that it is more profitable to exclude minorities than to lose the patronage of whites.
As an empirical matter, however, my guess is that most firms would not find overt race or gender discrimination to be a profit-maximizing strategy. While Lester Maddox may have increased his sales by excluding African Americans, in most markets a "whites only" or "males only" policy or overtly charging higher prices to particular demographic groups would lead to a general negative consumer reaction--by both minorities and progressive white consumers.
A more important limitation on competition is consumer information. In order for discrimination to cause the competitive shift of consumers toward nondiscriminatory sellers, consumers must know which sellers are discriminating and which are not. There is thus an important informational prerequisite for competition to have the predicted Beckerian effect. But as described above, there are many aspects of treatment where consumers may not be able to compare how sellers treat similarly situated counterparts. Retail discrimination is most likely to persist where consumers do not learn the benchmark treatment of fellow consumers. Thus, while there is little opportunity for a single fastfood franchise to charge different prices for hamburgers, it is possible for a dealership to charge different prices to potential buyers of cars. Since bargained prices diverge from the list price, it is very difficult for a consumer to know whether she has received a nondiscriminatory price. And it will be more difficult for a nondiscriminatory seller to credibly market itself on the basis that the race or gender of customers do not influence its bargaining strategy.
Markets in which price or other terms of trade are individually bargained for provide much greater opportunities for race or gender discrimination than markets with homogeneous product attributes and posted prices. However, even retailers that sell standardized products at posted prices might discriminate on the basis of race or gender with regard to discretionary aspects of service. Anyone watching the PrimeTime segment could vividly see that record and department stores could substantially increase the "transaction costs" of minority customers. This is not just an issue of whether the retailer provides "service with a smile" but, as in the PrimeTime Live testing, whether the retailers make minority customers wait substantially longer before being served (or whether the minority customers are conspicuously shadowed to scrutinize whether they are shoplifting).
Retailers may also discriminate in their willingness to accommodate private and somewhat idiosyncratic consumer requests. For example, Jane Connor is currently testing retailers in Binghamton, New York, to see whether there are racial differences in their willingness to accede to a request to use a restroom or a request to return a sweater without a receipt. Economists (and others) tend to ignore or downplay the harms of such discrimination. But nontrivial injury may be visited on people of color in terms of both higher transactions costs and taking more precaution to comply strictly with retailer policies. One audit study showed that African Americans in Washington, D.C., had to wait 27 percent longer to hail a cab. If this seems a minor inconvenience, white readers should try to imagine what their life would be like if every (or even just many) transactions took 27 percent longer. Even a single incident can impose real psychological costs.
Excerpted from by Ian Ayres Copyright © 2001 by Ian Ayres. Excerpted by permission.
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Table of ContentsAcknowledgments
1 "Untitled" Discrimination
Part I Disparate Treatment
2 Gender and Race Discrimination in Retail Car Negotiations (with Peter Siegelman)
3 Toward Causal Explanation
4 Discrimination in Consummated Transactions
5 Legal Implications
Part II Disparate Impact
6 Unequal Racial Access to Kidney Transplantation (with Laura G. Dooley and Robert S. Gaston)
7 A Market Test for Race Discrimination in Bail Setting (with Joel Waldfogel)
Part III Affirmative Action
8 How Affirmative Action at the FCC Auctions Decreased the Deficit (with Peter Cramton)
9 Expanding the Domain of Civil Rights Empiricism