IKEA: Product, Pricing, and Pass-Through

This post was written by Philip Lane

Another price paper (over a longer time period) - available here.

One Response to “IKEA: Product, Pricing, and Pass-Through”

  1. Gavin Kostick Says:

    Thanks Philip

    Busy times at the moment: have looked at this and composed reply but not sufficient time to work through in full.

    Issue: are IKEA prices withing Euro ‘identical’?

    This paper says:

    “A natural benchmark against which to measure pricing is the ‘Law of One Price’(LOP), which states that goods should have a common price when expressed in a common currency in the absence of transportation costs, local distribution costs, and country- or good-specific markups…. Section 3 studies the deviations from the law of one price, within and across countries. We investigate whether deviations from the law of one price are related to the newness of the good or the magnitude of the good’s price. We find very weak dependence of LOP deviations to these characteristics of IKEA goods.”

    Okay so we turn to section 3 and find:

    “Overall, however, the prediction that IKEA attempts to achieve the law
    of one price for new goods is not well-supported by the data.”

    This roughly fits with the observation from the paper based on Billion Price Project 11 threads below, that variations in prices comes when goods are introduced.

    Also:

    “we find that the French and German deviations from the law of one price are substantially smaller than Sweden’s [outside Euro, kept cheap as homeland?] in nearly every year. The French and German cases are particularly interesting, as the law of one price deviations for these two countries track each other quite closely.”

    Unfortunately when we look down to Figure 3 [end doc] to see that track we see that the *only* Euro countries covered are France and Germany.

    They do certainly track each other more closely than any other countries in the sample, and tantalizingly the price variations criss-cross each other at key years in economic developments, with Germany being now (2010) marginally more expensive that France.

    But is this the Euro keeping them tight, or is Germany just right next to France and in a similar sort of condition, is it that they are ‘core’ countries and not ‘periphery’, or does IKEA somehow track spending power?

    Will look again.

Leave a Reply