When Immigration Goes Up, Prices Go Down

An interesting story about prices being lower in areas that have high immigrant populations. DP

By Shankar Vedantam

washingtonpost.com: Last week, a gallon of gas at an Exxon station in the tony suburb of Bethesda cost $2.99.

At an Exxon station in the less affluent suburb of Wheaton, a gallon cost $2.63 -- 36 cents less.

Both Exxon stations are located near a subway line that goes to downtown Washington. Both are in the same county: Montgomery.

Why would the same company charge you 14 percent more for an identical product in one location?

Because it can.

That's the simple answer. The free market relies on the willingness of consumers to punish businesses that overcharge. If you are willing to pay extra for the convenience of filling up your car at an expensive gas station on your way to work, rather than the cheaper one that is a little out of your way, why blame Exxon for taking your money?

But there is also a more interesting answer, which brings us to the subject on tap: The difference in gas prices may have to do with the fact that Wheaton has many more immigrants who are not yet fully assimilated into the economy than does Bethesda. Immigration, economist Saul Lach recently found, plays a powerful role in holding down prices. For every 1 percent increase in the ratio of immigrants to natives, prices go down by about 0.5 percent, according to Lach's new study about the effects of 200,000 Jews immigrating to Israel from the former Soviet Union in 1990.
Be sure to read the rest of this story! This is only a small part of it.