How come the same products are priced differently in different countries? Like if a Snickers bar costs 2$ in the US it’ll cost 30 cents in Ukraine. Do companies loose money this way?
In: Economics
Price is composed not only from the manufacturing price but also from the price of getting the product to you. Cost of a lot of components in the supply chain depend on the workforce price (truckers, refregerator’s technicians, cashiers…). The lower the wages, the lower is the price for the consumer.
There are a lot of coats that go into the price of a snickers bar. The store rent, the store upkeep costs (cleaning etc), store staff wages, the distributor’s warehouse rent, the distributor’s staff wages, etc etc.
These are almost all going to be substantially higher in the US. So the price you need to sell a snickers for to make money is going to be higher.
Then there’s what the market will bear. The disposable income of your customers and demand for the product will drive what you can price it at to maximize your revenue. This can be very situation dependent- eg at a sports arena you’re gonna expect to fork out a lot more for a snickers than at a Walmart.
So both stores in your example are making money, but the store in Ukraine can’t raise their prices to match the ones in the US, and the store in the US can’t lower their prices to match the one in Ukraine.
There’s a couple important things in play.
First, cost to make the product. If a snickers is made in the US, then they have to have a factory in the US, paying prices for land, electricity, supplies, and labour in the US. That means from *nothing* to *Snickers* has some costs that are going to be different depending on where it’s made.
The second is where they maximize profit based on what people will pay.
So let’s say I make a Snickers bar for 15 cents. I can charge 16 cents and sell a *lot* of them, but not for a lot of profit per bar. Similarly, I can charge $10 per bar, and make a lot of profit per bar, but not sell that many. There’s a peak to this graph, where I get to make the most profit. The tricky part is that, in different parts of the world, that peak will be different. In countries with more money, paying a bit more for a chocolate bar is more acceptable to enough people to make it more profitable. In other countries with less money, you might need to sell more bars at a lower profit per bar to make the most possible money.
There’s actually a really interesting analysis of all these factors called the Big Mac Index. Essentially, a Big Mac is, for all intents and purposes, almost **identical** no matter where in the world you are. This means we can compare all the costs associated with acquiring raw ingredients, and all the labour in preparing it, along with what people are willing to pay. Based on the Big Mac Index…
> The Ukrainian hryvnia is 61% undervalued against the US dollar
https://www.economist.com/big-mac-index
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Prices are based on profit. That’s like 99.9% of what drives price. If you see an item in a store operated by people who know business (i.e. anything but the most poorly run), its price is based on how much profit they will make at that price, including how many they will sell, how much space the product takes up, etc.
All of that is different in different countries.
On top of what has already been stated, there are also differences in prices due to import/export tariffs. These are taxes a country charges on goods brought into or out of the country.
Normally these are used to prevent other countries from undercutting local manufacturers on prices. For example, in the U.S. we have a lot of labor laws and regulations that increase the costs of running a factory. Other countries may not have the same, or any, regulations. This allows factories in those countries to manufacture the goods for a much lower cost. These foreign manufacturers can then afford to sell their product for a much lower price. Tariffs are used to offset this advantage so they don’t drive local businesses under.
So depending on the product, it may be subject to tariffs that prevent it being sold for the same cost in one location as another.
The price is not what the product costs, it’s what people are ready to pay for it, and nobody would consistently sell at a loss. The production cost of a Snickers bar is about 15 cents. People in the US can and will easily buy it for 2 dollars, so it would cost 2 dollars there. In countries where you can buy an entire lunch for 2 dollars… less so.
products like a Snickers bar will be made locally for different regions/markets, and costs will account for that… ie. the Ukraine Snickers bar was made with cheaper Ukrainian factory labor, transported with cheaper Ukrainian truck drivers, sold in store with cheaper rent, etc. Some commodity costs might be more similar but those are often a small amount of product cost. Also, there may be more subtle differences in terms of bar size, number of peanuts in each bar, etc. to help get costs down.
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