Less is More Expensive: Bulk Buying and Inequality (JOB MARKET PAPER)

Abstract

High-income households buy in bulk more often than low-income households, especially for storable, non-food items. By buying in bulk at the same rate as high-income households, low-income households could lower their grocery expenditures by five percent. This paper examines the determinants of consumer heterogeneity in bulk buying behavior. I focus on three factors: cognitive costs, store access, and storage costs. Using data I collected on state-level price regulations, I find that mandated display of per-unit prices, which reduces cognitive costs, increases bulk buying for all households. Using data on warehouse club entry, I find that warehouse club entry increases bulk buying only for middle- and high-income households. I then use a discrete choice model of toilet paper purchases as a case study to quantify how the bulk buying gap changes when regulations and storage costs are changed. Counterfactual simulations find that reducing storage costs would shrink the gap by 27%. A larger effect could be achieved by mandating the display of unit prices, which has only been adopted by nine states. I estimate mandated per-unit pricing would reduce the bulk buying gap across household income levels by about 38%.

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