WHY ARE GOODS MORE EXPENSIVE IN SOME COUNTRIES THAN IN OTHERS? AN EMPIRICAL STUDY ON CROSS-COUNTRY PRICE DIFFERENCES IN THE ASIA-PACIFIC REGION

Abstract

Cross-country price differences for tradable goods such as furniture remain a pervasive and persistent phenomenon. In the context of IKEA, this paper presents several salient characteristics and indicators that explain why IKEA sets higher goods prices in some countries than in others. A taxonomy is introduced to organize these explanatory variables into the three conditions necessary for international direct price discrimination. Under the first condition, the greater the firm’s market power in the country, the higher it will charge its products. Under the second condition, certain country characteristics can explain high goods prices in some countries than in others. Under the third condition, the presence of barriers to arbitrage allows the firm to maintain price differentials across countries. Taken together, the findings shed some light on cross-country price differences in the Asia-Pacific region.