The elimination of price discrimination is accepted as being a major goal of the public regulation of property and liability insurance. This paper argues that the recent trend in the industry towards more open competition and consequently towards more price differentiation among insureds increases actual price discrimination instead of reducing it as cost minimizing insurance companies will tend to differentiate among their insureds according to their loss ratios. One of the major results of such a policy is that inner-city residents have to pay more for their auto insurance, due to the fact that they live in more congested areas. Actually, the congestion is generated by suburban cars coming into the city. The higher insurance rates of the inner-city residents thus reflect the costs of the driving habits of the suburban residents. Eliminating this inequality will require the regulating agencies to intervene more in the market to readjust the insurance rates in a way which is more compatible with economic justice. All states require under their rate regulatory laws that property and liability rates be not unfairly discriminatory. Although some business leaders and some insurance scholars have questioned the logic of this requirement, elimination of discriminatory ratings has remained a major goal of public policy toward insurance.' Many suggest that elimination of discriminatory, inadequate and excessive ratings is fundamental to the goal of public policy toward P-L insurance rating today in most of the states.2 However, in spite of this focus upon price discrimination, and the central role that its elimination has among the goals of public regulation of insurance, the correct meaning of price discrimination has been often misunderstood by the members of the insurance industry, by the public, and even by the regulators themselves. Contrary to beliefs of many, price discrimination does not cover all cases in which different consumers are charged different prices for basically Michael Etgar, Ph.D., is Assistant Professor of Operations Management in the School of Management of the State University of New York at Buffalo. This paper was submitted in September, 1974. 1 See C. Arthur Williams, Unfair Price Discrimination in Property and Liability in Kimball and Denenberg (ed), Insurance, Government and Social Policy (Homewood, Illinois: Richard D. Irwin, 1969). 2 See Herbert S. Denenberg, et al., Risk and Insurance (Englewood Cliffs, New Jersey: Prentice-Hall, 1969) Chapter 1.