Cross-Country Differences in Prices: Apple, IKEA, H&M, Zara

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This paper by Cavallo, Neiman and Rigobon is a good example of empirical research in economics exploiting the greater data availability made possible by online price data. See also the Billion Prices Project here.

(The paper also shows the impact of a single currency on pricing behaviour.)

6 Responses to “Cross-Country Differences in Prices: Apple, IKEA, H&M, Zara”

  1. The Dork of Cork. Says:

    Ok Europe is super fantastic at creating mainly useless consumer goods………….
    But what does this intense level of Specialization achieve ?

    This is really a blandness meter.

    Besides if to achieve this consumerist nirvana you must deflate peoples wages to the point where the Irish can’t have a pint and the French reduce their wine consumption you know something is very wrong with your model.

    Absurd stuff pretending to be science.
    It stinks.
    There is just too many variables to make these pseudo scientific models

    Again using a single unit of account to measure prices is flawed.
    What happens when people run out of money tokens ?
    Is that not inflation in its inverted form ?

    The euro is not a sov money token.
    It endevours to not be a creature of its host.
    Its a unit of capital.
    Its not really government fiat.
    Therefore it does not really occupy a political jurisdiction in the nation state sense.
    It does not respond to very complex political and internal energy dynamics which is impossible to put into mathematical form.

    This causes massive externalities to build over time.
    Remember we have had declining money tokens in this economy for 4+ years.
    That sort of stuff does not happen within functioning nation states with functioning political systems.

    The fact that the euro resides outside all traditional political systems means you cannot compare it with Fiat jurisdictions.

    Europe is more then a Hinterland now – its little more then a gigantic Banking mine.

  2. Paul W Says:

    @ Dork

    “[Euro] does not respond to very complex political and internal energy dynamics which is impossible to put into mathematical form.”

    I think that is clear. However, Euro supporters will say that they are moving towards a better place……despite the muddy interim. If they ultimately achieve a Euro currency for the United States of Europe (in the way that the $ works fior the US), could this longer historical context justify the short term BS? What’s wrong with a strong EU /Euro centre with dependent peripehries?

  3. The Dork of Cork. Says:

    @Paul W
    But the US is a failed state………….

    Why would you want to replicate it. ?

    http://www.economic-undertow.com/2012/12/15/model-city/

    Globalism appeared to work post 1922 in the $ inflation phase.
    In a $ deflation globalism does not work.

    We need to return to smaller more redundant nation state units which have intrinsic & real domestic economies.
    They can then trade on a somewhat equal basis with other real political / economic hinterlands.
    These present synthetic systems have no real connection to local inputs & outputs.
    The rise of the even more globalist Euro increased the cost of $ capital (oil) to unheard of heights and now for a very long sustained period of time.

    Something is wrong with its inputs and outputs.
    Its quite clear to see.
    The Irish economy for example is clearly no longer a organic creation.
    A joke economy detached from the known economic universe.

  4. vinny Says:

    Of far more relevance to citizens of this country is the failure of Richard Bruton and his department to tackle the pricing and monopolistic vested interests of the many professions who are still screwing the living daylights out of those unfortunate to avail of their services.
    As regards European retail chains, they charge and set prices according to what they consider the punter will bear – nothing very scientific about it at all – Tesco loves us – lovely fat margins from the Oirish!
    See NAMA Winelake for a very good piece on the lack of effort on Bruton’s part in tackling his party’s pals in the various protected elites.

  5. Gavin Kostick Says:

    Perhaps I don’t fully follow the paper, but it says right at the start:

    “First, in contrast to the prior literature, we demonstrate that the law of one price holds perfectly within the euro zone for thousands of goods sold by each of the retailers.”

    http://en.wikipedia.org/wiki/Law_of_one_price

    Also note:

    We focus on three empirical findings. First, we demonstrate that the LOP [Law of One Price] holds almost precisely within the euro zone for thousands of goods, implying traded RER [Real Exchange Rate] approximately equals one. We show this holds for four different global retailers in three unrelated industries. To the best of our knowledge, this is the first documentation of the LOP holding across countries for a wide
    variety of differentiated goods, and we show it holds across multiple countries with di fferent and varying tax rates. Physical distance, political and tax territories, language, and culture are all often thought of as forces that segment markets. Our results imply, by contrast, that the choice
    of currency units is far more important for de fining the boundaries between markets.”

    For reasons which need not be delved into here, I happen to know that an IKEA HEMNES Kingsize (160cm by 200cm) bed with the bits you need in Ireland is e250.

    For the laugh I looked up a slection of prices from EZ countries. From top to bottom we get:

    Portugal e259
    Ireland: e250
    France e229
    Greece e229
    Finland 229
    Italy e225
    Germany e219
    Belgium e220
    Austria e219
    Netherlands e199

    So for one random item, Netherlands is 76.8% the price of Portugal.

    For the sake of science, I’m going to pick another item at random and see what we get.

    Okay, IKEA RENLIG FWM6 washing machine.

    Greece e499
    Portugal e349
    France e349
    Austria e349
    Ireland e325
    Finland e325
    Italy e325
    Belgium e325
    Netherlands N/A
    Germany N/A

    That’s closer and,hmm, the Greece one looks strange, but the picture on the item is the same, so the Belgium price is 65% of the Greek one,

    No, don’t get it. There looks to be a variety of prices within the eurozone for the two goods picked randomly from IKEA.

  6. Gavin Kostick Says:

    Slightly obsessive and I’ll try to keep this brief.

    From the paper:

    “Together with Spain, countries including Austria, Germany, Finland, France, Ireland, Italy, Netherlands, and Portugal are members in the euro zone, a single currency area. *The prices for tens of thousands of distinct products in those countries are almost always identical** and we therefore see huge mass at zero in these histograms (note the diff erences in scales of the y-axes). It is not the case that consumers in one country can simply order directly from other another country’s web page. If a shipping address in Madrid is inputted into Apple’s German webpage, for example, the customer is either automatically re-routed to Apple’s Spanish webpage or is simply not permitted to enter Spain as the country of the delivery address. Additionally, there is no euro zone law mechanically requiring retailers to harmonize prices. This is the most compelling evidence that we are aware of in the academic literature documenting the LOP holding across countries for a variety of identical traded di fferentiated goods.”

    * My highlight.

    A quick look at “BEDDINGE LÖVÅS
    Three-seat sofa-bed, Edsken brown”

    Ireland e400
    Netherlands e299
    Portugal e269

    It is true the code for these is different between Ireland and the other two, but a close reading looks like the same item to me.

    This variation holds across other colours of the same item.

    http://www.ikea.com/ie/en/catalog/products/S39885382/?query=398.853.82#/S39885382
    http://www.ikea.com/nl/nl/catalog/products/S89879369/#/S89879369
    http://www.ikea.com/nl/nl/catalog/products/S89879369/#/S89879369

    One last go (random honest).

    MINNEN Ext bed frame with slatted bed base, black-brown 998.279.59

    Ireland e89
    Netherlands 91.90
    Portugal 94.98

    And just rooting about, the exact same item with the exact same code:

    Italy € 120,40

    The paper deals with the possibility that this might be due to changes in price from the time the item was introduced, but says that this is not a major factor (nor local taxes, see above).

    So I would very much like it if some proper economist would look at this, as some basic searching suggests that it is *not* true that the prices for distinct items in IKEA in the Eurozone are almost always identical.

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