Why The Same Goods Have Different Prices Around The World

By Manish Sahajwani | September 19, 2012 AAA
Why The Same Goods Have Different Prices Around The World

What if you could compare the prices of goods across the world and then buy the products where they are the cheapest? Pricerunner.com had exactly that idea and compared the prices of a number of electronic goods in 28 cities around the world. The products the site compared included the movie "Thor" on Blu-ray, the Canon Powershot s95 camera, the PlayStation 3, the Samsung Galaxy S2 phone and the Samsung Galaxy Tab 10.1 tablet. According to the research, if a person bought all the items it would cost him or her $1,757 in Tokyo; $1,969 in New York City; $2,012 in Dubai, United Arab Emirates; $2,450 in Copenhagen; $2,441 in Vienna; $2,540 in Cape Town, South Africa; $2,965 in Reykjavik, Iceland; and $3,387 in Sao Paulo.
In another survey, the site compared the prices of a MacBook Air, 32 GB iPad 2 and a 16 GB iPhone 4. The three items combined were cheapest in Tokyo at $2,225, and most expensive in Sao Paulo at $4,160. The same items would cost $2,745 in New York.

It's not only electronics that vary in price across the globe. Cars vary in price, too. For example, a standard 2013 Jeep Grand Cherokee that sells for about $28,000 in the U.S. costs a whopping $89,500 in Brazil. The cost of buying gas is less than a dollar in OPEC countries, while Americans pay about $3.90 per gallon of gas. Most Europeans have to pay double that. There are a number of factors that affect the prices of these products in different countries.

Taxes and Import Duties
One of the major factors that affects the prices of goods is the difference in taxes and import duties across countries. Brazil, for example, has an extremely high import duty of 60%, which makes imported goods such as cars and phones so much costlier there. Many products are cheaper in Japan thanks to lower import taxes and better wholesale prices.

Even local taxes make a big difference. If San Francisco has an 8% sales tax and London has 20% Value-Added Tax (VAT), this will significantly affect the prices paid by the consumers. When talking about exports and imports, there is a significant difference between the treatment of sales tax and VAT. When exporting a good, VAT is charged on the item, but sales tax is not. When importing a good, the importer pays sales tax on the full price of the item, but pays VAT only for the value added by the importer. If you are importing into a country that doesn't have VAT from a country that has VAT, the product will be double taxed. The exporting country adds VAT, while the importing country charges sales tax.

With respect to oil prices, the prices vary significantly because of subsidies in some countries and fuel taxes in other countries. This is the reason why gas is absurdly cheap in oil producing nations such as Venezuela and Saudi Arabia. In the U.S., the taxes vary from state to state.

Perceived Value
Another important factor is that the prices of items like electronics and cars are not always determined based on the cost of producing them. A product may have a higher perceived value in one country compared to another country. A common brand may have a perceived high value in one country and could be sold as a premium brand there, enabling the company to charge a higher premium. Even the cost of doing business in a country can affect prices. Hiring employees and setting up stores will not cost the same in every country.

The Bottom Line
While these price differences may earn big bucks for companies and governments, the real loser is the consumer who has to bear the brunt of high taxes, expensive infrastructure and high prices for regular goods.

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