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.