Tuesday 13 May 2014

Price gaps and policy

Growing up in Canada, I was always really irritated by American prices well below ours. I remember trying to call Commodore to direct ship me an Amiga 500 in, I think, 1989, because the Canadian retail prices were rather in excess of the American prices; they sensibly wouldn't do it, because doing so would not have been welcomed by their Winnipeg retailer.*

There are plenty of good reasons that prices can vary across borders. Leaving aside taxes, if something about borders require separate distribution networks and channels, then the country with higher fixed costs and smaller markets would pay more. And there can be reasons to price discriminate across markets even absent differences in costs.

Policy responses to these price differences vary. New Zealand runs what I think it about the best policy possible on this one: make it real easy to import goods from abroad, set a high enough exemption on GST on imports that most goods don't get held up at the border, and refuse to have any part in enforcing supplier exclusive licensing arrangements with retailers.

New Zealand Post, a State-Owned Enterprise more innovative than other post offices because it is not protected by a monopoly on mail delivery, runs an expensive but very handy reshipment service: YouShop. A lot of American retailers simply refuse to ship overseas, whether they don't want the hassles of dealing with international freight, with international customs and duties, or whether they're hindered by supplier exclusive territorial licensing arrangements. YouShop lets Kiwis order anything they want in the US and have it shipped to an address in Oregon; they then on-ship it to you in New Zealand. It's not cheap, but it breaks the dumb geographic restrictions. I bought a pair of Merrell shoes through it that otherwise weren't available in NZ; the set-up works.

So: if you want to reduce the price differences between your country and the US, just set policy to make it really really easy for anybody to import directly from the US and elsewhere. It's not perfect, but it bounds the price gap that can be sustained. Nobody needs to monitor the prices: customers do that themselves. And so too do entrepreneurs: a whole array of importers exist on PriceSpy who pull in supply from Singapore and on-sell it to Kiwis at lower cost than the licensed NZ retailers. That's where I got my Samsung S3 a few years ago: the default phone setting was Singapore, but it wasn't hard to change; a factory reset would mess things up more than it would if I had a Kiwi phone, but I saved a few hundred dollars. I was also able to get an Everki laptop bag delivered to me in NZ for less than the US retail price; it came direct from Asia.

Now, with that in mind, what would you expect Canada to propose in response to continued price differences between Canada and the US? Here's Andrew Coyne:
“Canadians work hard,” the last federal budget thundered, “and should not be gouged with higher prices simply because of where they live.” And yet, it was scandalized to report, “some companies charge higher prices in Canada than in the U.S. for the same goods.” Accordingly, the budget promised “legislation to address price discrimination that is not justified by higher operating costs in Canada.” The Commissioner of Competition would be charged with enforcing it.
The mind reels. How many companies are there operating on both sides of the border? Hundreds? Thousands? How many thousands of different goods sell in both countries? The government, to be sure, was not proposing to set all these prices directly. Rather, it was proposing to monitor them, each and every one of them, in both countries and in all markets in each, continuously; and not only to monitor the sale price, but the operating costs of each, including not only the costs of production, but of distribution, marketing and retailing as well; and not only to monitor prices and costs and the differences between them, but also to correct any domestic price that exceeded its U.S. equivalent by more than the difference in the operating costs of each — a quasi-judicial process that would include gathering evidence, laying charges, holding hearings, considering and rendering a verdict, and finally ensuring compliance, or rather meting out penalties for non-compliance. Subject to appeal, of course.
Coyne goes through the many reasons this is a dog of an idea. But he doesn't give the simple solution. Open the border to more direct consumer imports from the US, refuse to use Customs Agents to enforce corporate exclusive licensing arrangements, put a high de minimus threshold for excise or GST application, get rid of the dumb arrangements Canada's typically had where UPS had to run things through a customs agent at the border and tack on a high charge for doing so, and direct Canada Post to open a company in the US that exists solely to provide on-shipment to Canada of things Canadians want to buy from American retailers.

It's more than a bit easier than monitoring thousands of prices and trying to decide which ones are right.

* I now can't remember where I got it. But get one I did. With the "fatter" Agnus chip too, a RAM expansion, and Workbench 1.3. I was in about the 7th or 8th Grade and so hopefully can be forgiven for unrealistic expectations of success in calling Commodore.

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