In a competitive market with high cost and low cost consumers (where firms are unable to tell consumer types apart), any screening costs incurred by firms will be passed on to low cost consumer but not to high cost consumers.

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In a competitive market where firms are unable to tell consumer types apart, firms will try to charge a price that maximizes their profits. If there are high and low cost consumers, firms will charge a price that is somewhere in between what the two types of consumers are willing to pay. Any screening costs incurred by firms to determine consumer types will increase their costs and lead to lower profits. Therefore, in order to maintain profitability, firms will pass on these screening costs to the low cost consumers, who are less willing to pay higher prices, but not to the high cost consumers, who are more likely to pay higher prices. This uneven distribution of screening costs is one way in which low cost consumers can be disadvantaged in the market.

In a Competitive Market with High Cost and Low Cost