« Why are so many top terrorists engineers? | Main | Kiss me, I'm vaccinated »
The roots of price stickiness, part II
Book rage, anyone? As the Canadian dollar hit the $1.10 mark earlier this week, booksellers and publishers began to circulate stories of customers going beyond simply venting their dismay at hapless clerks and turning books into projectiles, sometimes to the point of drawing blood.
If you live in Bangalore or Singapore, you may not know that the cover of a North American book typically has a price posted in U.S. dollars and a higher price posted in Canadian dollars. The Canadian dollar used to be worth much less yet now it is worth more and so Canadian consumers feel ripped off. Could we minimize this problem by also posting the price of the book in Switzerland or New Zealand, two countries with notoriously high book prices? Or do Canadians care most about their price treatment relative to Americans, or simply their price treatment relative to the greatest comparative outrage elsewhere, rather than their relative treatment compared to the world as a whole?
Here is the link and story. Along related lines, I found Sarah Maxwell's The Price is Wrong: Understanding What Makes a Price Seem Fair and the True Cost of Unfair Pricing to be a stimulating collection of anecdotes on this issue. Here is my previous post on the iPhone and price resentment.
Posted by Tyler Cowen on November 12, 2007 at 07:24 AM in Economics | Permalink
Comments
While the Canadian dollar has appreciated vs the greenback, there has been a large increase in the number of cross-border shopping trips to places like Buffalo or Seattle. As Canadians became increasingly aware of the growing price disparity between Canada and the US, howls of outrage erupted as prices in Canadian retail establishments did not adjust downward. (Oddly, no complaints were heard that wages did not adjust downward.)
The primary focus of attention was books and magazines, which have prices in both currencies printed on them (hence the cost of researching the US price was lowest). WalMart Canada pledged to charge only the US price purely for the PR benefit, not because its import costs were any lower (many of the books and magazines are printed here... where the paper originates).
In the meantime, vehicles are better place to focus. For example, the BMW 335xi has an MSRP of C$ 52,500, but only US$ 40,800. At today's exchange rate, the US price translates to only C$ 38,857, a difference of C$ 13,643 from the sticker price here. That's probably more than the present value of all the books and magazines I'll read in my lifetime.
Posted by: Russ R at Nov 12, 2007 8:26:57 AM
PDF excerpts of the fairness book here.
Posted by: odograph at Nov 12, 2007 9:05:20 AM
Ah, page nine talks about price unfairness, as perceived by capuchin monkeys. It seems to me that when I've wanted to talk (in comment sections) about price fairness having deep rooted or biological origins, I've been the odd man out.
Posted by: odograph at Nov 12, 2007 9:13:07 AM
booksellers and publishers began to circulate stories of customers going beyond simply venting their dismay at hapless clerks and turning books into projectiles, sometimes to the point of drawing blood
Must really suck to be selling hardcover versions of War and Peace or Moby Dick.
Posted by: Peter at Nov 12, 2007 9:35:15 AM
Canadians would care more about the comparison to US prices than other prices for one very key reason:
It's the US dollar exchange rate that we've been reminded of during the business news section of every TV news program since the dawn of TV.
Nobody has any idea what the value of the New Zealand dollar is relative to ours, and most people probably don't have the slightest idea whether Switzerland still uses the Franc or has switched to Euros.
Posted by: Jacquilynne at Nov 12, 2007 9:56:02 AM
That's what they get for not buying at Amazon.com, after clicking the link on the Marginal Revolution page first of course.
Posted by: happyjuggler0 at Nov 12, 2007 10:50:26 AM
Bonus points to happyjuggler0!
Posted by: Alex Tabarrok at Nov 12, 2007 11:28:07 AM
Why do book publishers put prices on the covers anyway? Most other products I buy don't have a manufacturer's price printed right on the cover.
Posted by: Jean Gault at Nov 12, 2007 11:32:14 AM
I think Jean, that it's been a long long time since that was a real price. It has been unreal since the Crown Books revolution at least (and certainly post Amazon). It's become, what ... a fake price designed to make you think you are getting a huge discount.
Note that the Wiley price for the Maxwell book is $29.95, The Amazon price is 19.77 ... and I quote: "You Save: $10.18 (34%)"
Posted by: odograph at Nov 12, 2007 12:12:02 PM
Seeing as the majority of the Canadian population lives within a two to three hour drive of the US border, we could care less about prices in Switzerland or New Zealand.
What annoys Canadians the most is that retailers and wholesalers have been feeding Canadian consumers the line that part of the price difference is due to the exchange rate (other reasons include wages, benefits and transportation costs - most of which are bogus). The consumer has an expectation that the sticker price in Canada should be coming down.
It's not just books, but toys. Teenage Mutant Ninja Turtles Cawabunga Carl Van is on sale at US$16.49 (reg. 21.99) at Toys R Us in the USA. Same item at Toys R Us in Canada is CDN$54.99. That's a big difference.
Posted by: Vincent Clement at Nov 12, 2007 1:07:07 PM
The Canadians should just quietly enjoy their new-found wealth. Pretty soon they'll be able to afford to buy Florida. But would they want to?
Posted by: dearieme at Nov 12, 2007 1:10:08 PM
One local book store up here has begun selling books at the American prices. See here.
Posted by: Robert S. Porter at Nov 12, 2007 1:22:16 PM
And by that I mean here: http://www.canada.com/globaltv/national/story.html?id=8008e80c-fbbc-4d5a-9052-6626c2a3d17f
Posted by: Robert S. Porter at Nov 12, 2007 1:23:17 PM
[i]t's been a long long time since that was a real price. It has been unreal since the Crown Books revolution at least (and certainly post Amazon). It's become, what ... a fake price designed to make you think you are getting a huge discount.
In my experience most books sold at bookstores go for the full cover price. Some books will be sold at percentage discounts, mostly new releases and best-sellers, but most are not.
Posted by: Peter at Nov 12, 2007 3:27:22 PM
I can (and do) buy at the US price at amazon.com and have books shipped to Canada for a couple extra dollars. If it's efficient for me, then it's certainly efficient for booksellers who can do it in bulk. My feeling of being ripped off comes from the fact that at current shipping costs, it is efficient for individuals to do arbitrage, which is not the case for people in New Zealand .
Posted by: m at Nov 12, 2007 4:03:01 PM
The "Roots" of price stickiness?
My guess is Roots prices will not be coming down.
Damn fine leather goods.
Posted by: st4rbux at Nov 12, 2007 4:16:14 PM
Why don't local Canadian booksellers just start selling the price listed in US$ as Canadian$?
Posted by: Chris Durnell at Nov 12, 2007 6:24:58 PM
Chris, some of them have.
Mostly the Canadian dollar passing the American was a moment of solidarity to us Canucks. Many Canadians have an inferiority complex with the US, our larger brother (population and wealth, not land). To finally beat him and something, then not have retailers rejoice with us raises an irrational irritation in us.
And when our relatively free market federal finance minister refused to force retailers to lower their prices it just irritated some people even more.
I know we'll see the benefit eventually, assuming our dollar stays high.
Posted by: Dermanus at Nov 12, 2007 6:37:33 PM
There's the mitigating factor of NZ not being directly comparable and relevant. Despite there being little or no tariff on books the main problem comes down to isolation and small population. Canada can work off the back of the USA in terms of purchasing power (for things like shipment and big chain orders which gives them greater bargaining power). Whereas NZ has to at best work off of Australia. 300:20 million certainly doesn't work in favour. And as someone noted that doesn't really work out for arbitrage either.
While that's a general statement for all goods you can look at books in this way: until recently there were only two real book stores (Whitcoulls and Dynmocks) with the Warehouse (analogous to Wal-Mart) driving down prices on best sellers. We just got a Borders this year.
And the book stores are still relatively tiny by all stretches of the imagination (You're on a special order list and not inventory, Mr Cowen) given the small pool of consumers in any city.
I'd venture the lessor amounts of publishers with presence here also helps push up the price.
I'm not sure of the Switzerland situation but I'd be surprised if there wasn't arbitrage happening. You do see it in London with stores selling Polish Coke.
Posted by: ap9er at Nov 12, 2007 6:47:13 PM
How does the decline of the dollar compare to the rise of the (dollar-denominated?) stock prices in the US markets?
Posted by: Chi at Nov 12, 2007 8:12:44 PM
I get mightily irritated at high Australian book prices. I frequently buy Japanese books for my wife and note the Japanese cover price is 450 yen, which at current rates is rouhgly A$4.50, but I pay some A$10 for the book. The books may be a special order [though it's the major Japanese bookshop Kinokuniya], but it's a strangely high mark up for an easily transportable good. There is considerable relief however, when I note that similar sized books in the English section cost A$25-$30. Is this a trade off for cheap DVDs? Which cheaper good would enrich the country more?
Posted by: Richard Green at Nov 13, 2007 12:56:05 AM
'm' said 'My feeling of being ripped off comes from the fact that at current shipping costs, it is efficient for individuals to do arbitrage, which is not the case for people in New Zealand .'
In New Zealand in the mid nineties, the book distribution cartel was so strong that, for less popular books, it was actually cheaper to buy them from amazon.com or Computer Literacy in California, and have them Fedexed. Also, NZ had (and still has) a 15% tax on books which, at least at that time, noone could ever work out how to collect on personal imports.
Now I live in central London - low ££, no sales tax on books, and the wonder that is Foyles. It's heaven!
Posted by: Cathryn at Nov 13, 2007 10:33:54 AM
I'd like to thank those posters from New Zealand and Australia for illustrating why population density is a plus at least some of the time. Not just population density, but density of like minded and "like-walleted" individuals. No wonder there seems to be a Chinatown "everywhere".
Where you are in the long tail distribution seems a function of population size, with one country's tail being another country's sweet spot.
Posted by: happyjuggler0 at Nov 13, 2007 10:57:03 AM
Just out of curiousity, do Canadian book publishers also use the same pricing scheme that the NY based publishers do?
Posted by: happyjuggler0 at Nov 13, 2007 11:03:00 AM
Or...Canadians could just write their own books and price them anyway they want, including charging a premium for purchases made with USD.
Posted by: mike at Nov 14, 2007 12:26:07 PM
