So-Called Consumer Protection Law Hurts Consumers

Headline-seeking politicians like to enact laws that ostensibly protect consumers from predatory businesses. Item-pricing laws are a good example. They supposedly exist to protect consumers from being overcharged by unscrupulous grocery stores, even though research shows that stores are just as likely to make mistakes that benefit consumers. Requiring individual price tags, though, is an unambiguous negative for shoppers, raising prices by as much as 10 percent because of added labor costs. A column in the Wall Street Journal explains:

New York and several other states (California, Illinois, Massachusetts, Michigan, New Hampshire, North Dakota, Rhode Island and sometimes in Connecticut) have an “Item Pricing Law” (IPL) requiring that, for most goods in retail stores, each item have its own individual price sticker; in other states a simple price tag on the shelf is considered sufficient. …Prices in IPL stores are 20 cents to 25 cents higher per item than in non-IPL stores. …The maximum estimate of the benefit of avoiding overcharges to consumers through IPLs is less that one cent per item. …The laws are a bad deal for consumers. How significant are these price differences – about a quarter per item? The average price of the items in our sample was about $2.50, so there is a 10% difference. This implies that prices of groceries are almost 10% higher in IPL stores. Food represents about 14% of the average family’s budget. IPLs, therefore, reduce the real incomes of families by more than 1% – a nontrivial amount. In sum, our study shows that IPLs impose net costs on consumers much greater than any potential benefit. Jurisdictions without them should not pass them, and jurisdictions with them should repeal them. In New York City, where costs and so prices are already very high, consumers would greatly benefit from a 10% reduction in grocery prices.