Trevon Logan, Ohio State

Competition and Consumer Discrimination in Public Accommodations

Abstract: In models of consumer discrimination, discrimination can persist in equilibrium. We present a model of discrimination where one group of consumers have discriminatory preferences related to consuming alongside another group of consumers. The model identifies the equilibrium relationship between the ratio of consumers of both types and the ratio of non-discriminatory to discriminatory firms in a local market.  We examine this empirically using a new county-level dataset constructed from the Negro Motorist Green Books and the Census of Business to measure the number of non-discriminatory and discriminatory public accommodations in the United States between 1939 to 1955.  Using various sources of plausibly exogenous variation in the consumer population ratio, we show that changes in the racial composition of consumers led to increases in the ratio of discriminatory to non-discriminatory firms in the post-war era.  We also show a strong role for market power, where increasing provision of non-discriminatory treatment was primarily seen in the least competitive markets.  Using novel data on prices matched to firms, we also show that since far more firms were in the discriminatory market than the non-discriminatory market, the prices in the discriminatory market were not higher than in the non-discriminatory market.  The results imply that consumer preferences for discrimination were remarkably strong historically, that market power blunted the influence of consumer preferences, and that extensive racial discrimination would have been maintained nationwide without bans on racial discrimination in public accommodations.