Discrimination by Customers

• Author: Katharine T. Bartlett & Mitu Gulati
• Position: Duke Law School/Duke Law School
• Pages: 223-257

223

Discrimination by Customers

Katharine T. Bartlett & Mitu Gulat i*

I. THE CONUNDRUM ........................................................................ 224

II. THE RATIONALES FOR REGULATING ONLY FIRMS ......................... 228

A. EFFICACY ................................................................................ 228

1. The Efficacy Rationale .................................................. 228

2. Efficacy Limitations on Regulating Only Discrimination

by Firms .......................................................................... 230

i.How Customer Bias Affects Business Decisions............ 231

ii. How Business Practices Reinforce Customer Bias ........ 234

B. PRIVACY AND INDIVIDUAL AUTONOMY ...................................... 238

1. The Privacy and Individual Autonomy Rationale ....... 238

2. Limitations on the Privacy Rationale for Regulating

Only Discrimination by Firms ...................................... 239

III. SOME DISTINCTIONS ..................................................................... 241

A. ACCEPTABLE (EVEN DESIRABLE) CUSTOMER DISCRIMINATION ... 242

B. REGRETFULLY ALLOWED CUSTOMER DISCRIMINATION .............. 242

C. DISAPPROVED CUSTOMER DISCRIMINATIONS. ............................ 245

IV. AN APPROACH TO CUSTOMER DISCRIMINATION ........................... 246

A. THE CASE AGAINST AN OUTRIGHT PROHIBITION ...................... 247

B. A MODEST PROPOSAL .............................................................. 249

C. IMPLICATIONS OF THE PROPOSAL ............................................. 250

V. CONCLUSION ................................................................................ 255

*

Duke Law School. For comments, thanks to Joseph Blocher, Jamie Boyle, Al Brophy,

Curt Bradley, Bernie Burk, Devon Carbado, Jonathan Cardi, Mary Anne Case, Guy-Uriel Charles,

Lee Fennell, Joshua Fishman, Kim Krawiec, Maggie Lemos, David Lange, Ann Lipton, Richard

McAdams, Darrell Miller, Louis Seidman, Patrick Shin, Naomi Schoenbaum, Neil Siegel, and

Gregg Strauss, as well as to participants at workshops at Duke Law School, Indiana (Bloomington)

Law School and the University of Chicago Law School, and at the Dean’s Lecture at Wake Forest

School of Law. For research assistance, we thank Rose McKinley and Chaniece Mulligan, and for

expert editing, we applaud Vol. 102 of the Iowa Law Review.

224 IOWA LAW REVIEW [Vol. 102:223

I. THE CONUNDRUM

Customers discriminate, by race and gender, in every step of a market

transaction. They discriminate in deciding with whom to do business. In one

year-long experimental study, online advertisements for iPods showing the

device in a black hand received 13% fewer responses and led to 17% fewer

offers than the advertisements showing the device in a white hand.1 The same

study also found that online buyers trust black sellers less than white sellers.

Buyers were 17% less likely to include their name in e-mails to black sellers,

44% less likely to accept delivery by mail, and 56% more likely to express

concern about making a long-distance payment.2

Customers also discriminate in how much they are willing to pay. An

experimental study with baseball cards showed that, on average, a card in a

black hand sold for 20% less than the same card in a white hand.3 Another

study, based on the pictures and rental information of all New York City

property owners seeking to rent their property on Airbnb, revealed that

Airbnb guests are willing to pay non-black hosts approximately 12% more

than black hosts for comparable properties,4 and exact a larger price penalty

from black hosts for having a poor location.5 Discrimination by customers is

well docum ented when it comes t o tipping. A study of o ver 1000 taxicab tri ps

in New Haven, Connecticut, found that customers tip black cab drivers

approximately one-third less than white cab drivers, and that black drivers are

1. See generally Jennifer L. Doleac & Luke C.D. Stein, The Visible Hand: Race and Online Market

Outcomes (Jan. 25, 2015) (unpublished manuscript), http://ssrn.com/abstract=1615149.

2. Id.

3. See generally Ian Ayres et al., Race Effects on eBay, 4 RAND. J. ECON. 891 (2011); see also Clark

Nardinelli & Curtis Simon, Customer Racial Discrimination in the Market for Memorabilia: The Case of Baseball,

105 Q.J. ECON. 575, 578 (1990) (examining why collectible cards featuring prominent African-

American baseball players were valued far below cards featuring white players).

4. See Benjamin Edelman & Michael Luca, Digital Discrimination: The Case of Airbnb.com 9

(Harvard Bus. Sch. Negotiation, Orgs. & Mkts. Unit, Working Paper No. 14-054, 2014), http://

papers.ssrn.com/sol3/papers.cfm?abstract_id=2377353.

5. Id. at 3. Follow-on research showed that Airbnb guests with distinctively black names

are roughly 16% less likely to be accepted by hosts than identical guests with white names. See

Benjamin Edelman et al., Racial Discrimination in the Sharing Economy: Evidence from a Field

Experiment 11–12 (Harvard Bus. Sch. Negotiation, Orgs. & Mkts. Unit, Working Paper No. 16-

069, 2016), http://www.benedelman.org/publications/airbnb-guest-discrimination-2015-12-

09.pdf; see also Michael Todisco, Share and Share Alike? Considering Racial Discrimination in the

Nascent Room-Sharing Economy, 67 STAN. L.R. ONLINE 121, 122–23 (2015) (exploring issue of

racial discrimination in room-sharing economy); Audie Cornish, When Personalization Leads to

Discrimination On Airbnb, NPR: ALL THINGS CONSIDERED (Apr. 26, 2016, 4:28 PM),

http://www.npr.org/2016/04/26/475773261/when-personalization-leads-to-discrimination-

on-airbnb. For the point that hosts and guests who use sharing platforms like Airbnb are all

customers, see infra notes 57–62 and accompanying text.

2016] DISCRIMINATION BY CUSTOMERS 225

80% more likely to be stiffed.6 Studies of restaurant tipping show similar bias

against female servers.7

Customers discriminate, as well, in how they evaluate those with whom

they do business. The marketing company WordStream analyzed 300

responses from the company’s clients to a request to rate their level of

satisfaction with client service representatives. Overall, clients undervalued

female marketers by 21%.8 This pattern of disc rimination is similar to what is

observed when students rate their professors on teaching evaluations.9

Current law does little to address discrimination by customers, even

though it disproportionately hurts women and persons of color. Federal and

state anti-discrimination laws prohibit firms10 of a certain size from

discriminating against employees and customers on the basis of race, gender,

and other characteristics.11 Fir ms ma y not d ecid e to h ire, or se rve, only w hite s.

Yet the law does not prohibit discrimination by customers.12 White diners may

6. See Ian Ayres et al., To Insure Prejudice: Racial Disparities in Taxicab Tipping, 114 YALE L.J.

1613, 1616 (2005).

7. See, e.g., Matthew Parrett, Customer Discrimination in Restaurants: Dining Frequency Matters,

32, J. LAB. RES. 87, 100–03 (2011) (concluding, based on data collected outside five Virginia

restaurants, that customers tip female servers less than men, unless their customers are regular

patrons or the service quality is exceptional).

8. See Female Client Service Reps Get Lower Scores Despite Better Performance and Experience,

THINKPROGRESS (May 22, 2014), https://thinkprogress.org/female-client-service-reps-get-lower-

scores-despite-better-performance-and-experience-dfa457062f5c#.ydju1f46m.

9. See generally Sylvia R. Lazos, Are Student Evaluations Holding Back Women and Minorities?: The

Perils of “Doing” Gender and Race in the Classroom, in PRESUMED INCOMPETENT: THE INTERSECTIONS OF

RACE AND CLASS FOR WOMEN IN ACADEMIA 164 (Gabriella Gutierrez y Muhs et al. eds., 2012); Lillian

MacNell et al., What’s in a Name: Exposing Gender Bias in Student Ratings of Teachers, 40 INNOVATIVE

HIGHER EDUC. 291 (2015); William Arthur Wines & Terence J. Lau, Observations on the Folly of Using

Student Evaluations of College Teaching for Faculty Evaluations, Pay, and Retention Decisions and Its Implications

for Academic Freedom, 13 WM. & MARY J. WOMEN & L. 167 (2006).

10. We use the term “firm” to refer loosely to groups of individuals operating as a collective

enterprise—usually, but not always, economic—to achieve particular goals. We use the term in this

Article interchangeably with company, entity, business and, in some cases, educational institutions.

11. Title VII of the Civil Rights Act of 1964 prohibits discrimination by employers with 15

or more employees on the basis of race, color, religion, sex or national origin. 42 U.S.C. § 2000e

(2012). Title II of the Civil Rights Act of 1964 prohibits racial discrimination in “any inn, motel,

or other establishment which provides lodging to transient guests.” 42 U.S.C. § 2000a(b)(1)

(2012). The Fair Housing Act prohibits discrimination based on race, color, religion, sex, familial

status, or national origin. See 42 U.S.C. §§ 3601–31 (2012). Examples of state public

accommodations laws include CAL. CIV. CODE §51(b) (West Supp. 2016); and N.J. STAT. ANN.

§ 10:5-4 (West 2013).

12. The exceptions are section 1981 of the Civil Rights Act of 1866, which prohibits race

discrimination in private contracts, and section 1982 of the same Act, which prohibits race

discrimination in property transactions. 42 U.S.C. §§ 1981–82 (2012). These statutes apply only

to race discrimination, however, and have not been applied, in practice, against individual

customers. The few cases brought against corporate customers have been easily defended, usually

because of an inability to show discriminatory intent. See, e.g., TRI, Inc. v. Boise Cascade Office

Prods., 315 F.3d 915, 919 (8th Cir. 2003) (dismissing on the basis of nondiscriminatory reason

for defendant refusing to deal with plaintiff); Arduini v. NYNEX, 129 F. Supp. 2d 162, 170