The Pass-through of Retail Crime

This paper shows that retailers increase prices in response to organized retail crime, revealing a substantial aspect of retail crime's social costs. We match detailed information on store-level crimes to administrative scanner data from the universe of transactions for cannabis retailers in Washington state. Exploiting quasi-experimental variation from the timing of store-level robberies and burglaries, we find that crimes cause a 1.8% increase in retail prices at victimized stores. Nearby rivals of victimized stores increase prices by a similar amount with a two-month lag. Retailers' price responses are not driven by demand effects, increased wholesale costs, or strategic price responses. Instead, they are consistent with precautionary security expenditures. We find the largest pass-through rates for independent stores and in less concentrated markets. We estimate that crime imposes a 1% "hidden" unit tax on affected stores, implying an annual negative welfare effect of approximately $30.6 million, with consumers bearing two-thirds of this burden.