Question

Fast-food stores often charge higher prices for their products in high-crime areas than they charge in low-crime areas. Is this an act of price discrimination? Why or why not?

Answer 1

Fast food stores often charge higher prices for their products in high-crime areas in order to achieve self insurance . Sometimes crimes may cause loss of stocks in the store . So this raises the cost of production . Loss due to crime has to be covered by the market price charges . So per unit price must be set higher than low-crime areas . The store may face other higher input costs like difficulty in employment of labour in such areas . All these add up to their cost of production .

Also we can safely assume that people from low-crime areas do not go to high-crime areas to get food . So these are two separate markets . People residing in high-crime areas also find it difficult to leave the area , so they are forced to consume from stores available there . So stores can easily price - discriminate . This is an act of price-discriminarion in two separate market having separate production costs .