The Pass-through of Retail Crime

TL;DR

This study demonstrates that organized retail crime leads to price increases at affected stores and nearby competitors, imposing significant social costs primarily paid by consumers, based on detailed transaction and crime data analysis.

Contribution

It provides empirical evidence of retail crime's pass-through effect on prices using store-level crime and transaction data with quasi-experimental variation.

Findings

Victimized stores and nearby competitors raise prices by 1.5-1.8%.

Crime imposes a 1% hidden tax, costing $33.9 million socially.

Effects are stronger for independent and less concentrated markets.

Abstract

This paper shows that retailers increase prices in response to organized retail crime. We match store-level crime data to scanner data from the universe of transactions for cannabis retailers in Washington state. Using quasi-experimental variation from robberies and burglaries, we find a 1.5-1.8% price increase at victimized stores and nearby competitors. This rise is not driven by short-to-medium-term demand changes but is consistent with an own-cost shock. Effects are larger for independent stores and less concentrated markets. We estimate that crime imposes a 1% "hidden" unit tax on affected stores, implying $33.9 million additional social costs, primarily borne by consumers.