Friday, 17 September 2004

International pricing

Lynne Kiesling notes that the British consumer goods price markup is a pretty standard practice—the “dollar sign becomes a pound sign” policy is, and has been, quite common over the years, even as the exchange rate has varied between near-parity and 2:1.

The fact that VAT is built into British prices, while state sales taxes are not incorporated in the “sticker” price in the U.S., accounts for 17.5% of the price differential—in the case of iTunes, about half of the difference between U.S. and British pricing, depending on the day’s exchange rate. Perhaps more interestingly, the remainder of the difference between U.S. and U.K. prices is about the same as the difference between British and Euro-zone pricing (which would also incorporate the quasi-standard European VAT rate), which seems to suggest that British adoption of the Euro would reduce consumer goods prices substantially, and thus significantly improve Britian’s GDP at purchasing power parity.