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Market Discrimination against the Poor and the Impact of Consumer Disclosure Laws: The Used Car Industry

Published online by Cambridge University Press:  01 July 2024

Kenneth McNeil ,
John R. Nevin ,
David M. Trubek  and
Richard E. Miller
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Abstract

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The poor pay more than the non-poor for many consumer products, and this disparity seems to be ignored by such consumer protection regulation as disclosure laws. Indeed, several lines of argument suggest that the poor will not benefit from disclosure regulation either because they lack the ability to use information effectively (“market irrationality”) or because they are restricted to particularly flawed markets and products (“separate markets/products”).

This paper examines income stratification in the used car markets in Wisconsin, Iowa, and Minnesota. We found that the poor did pay more for used cars, got less redress for defects discovered after purchase, and were less satisfied and more likely to believe something was misrepresented. Differences in product quality did not account for these results because the patterns persisted even after the model, age, and price of the purchased vehicles were held constant. Further, no evidence was found for “market irrationality” among the poor. No income differences were seen in buyers' discovery of defects before or after purchase, and low-income buyers complained at higher rates, albeit with less success, than did higher-income buyers. Furthermore, the adoption of disclosure regulation in Wisconsin did not increase or decrease price discrimination against the poor. These findings point to the need for more research on the causes of price discrimination and more attention to the problems of the poor in the design and implementation of consumer protection regulations.

Type
Research Article
Information
Law & Society Review , Volume 13 , Issue 3 , Spring 1979 , pp. 695 - 720
Copyright
Copyright © 1979 Law and Society Association.

Footnotes

*

The research reported here was partially supported by funds granted to the Institute for Research on Poverty at the University of Wisconsin-Madison by the Department of Health, Education and Welfare, pursuant to the provisions of the Economic Opportunity Act of 1964; and by NSF Grant SOC 7622234, which provided funds for a broader study of consumer protection and the automobile industry. The conclusions expressed herein are those of the authors.

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