New Metropoles

Jose G. Perez jgperez at
Wed Nov 10 19:59:54 MST 1999

>>I think this was mentioned briefly in the discussion around the US
economy but I haven't seen much of an explanation.
Why are products cheaper in the US than say, Australia, or any other 1st
world country?<<

There are two main reasons. One is that the exchange rates don't really give
you a perfect equivalence going from country to country. That accounts for
much of the discrepancy in terms of your average domestically produced item.

But even for imported items, prices are likely to be cheaper in the United
States, and for various periods its been true that Japanese camera and
electronic equipment could be gotten more cheaply in New York than in Tokyo.

For that there are several reasons.

One is that many countries have laws that allow manufacturers to set a
"floor" price for their goods. Selling below a certain price is considered
"disloyal competition." In the United States you can't enforce those kinds
of contracts (the Supreme Court knocked them out at some point in the 70s,
and I think by now they may actually be not just unenforceable but illegal).
Retailers can set the prices as low as they want. And at the very bottom
you've got the "gray market," items intended for distribution in other
countries but that have been bought and imported by some American outfit.
The New York electronic stores were famous for doing this. In many countries
this would not be legal, but it is here, and that's another  downward price

Another is that the U.S. is a very big homogeneous market. You can produce
exactly the same item, down to the packaging and warranty inserts, in
massive quantities. The efficiencies of scale are very large. In Europe
you've got different national markets, labeling requirements, technical
standards, national languages, etc. and until recently a maze of differing
fluctuating exchange rates that made direct price comparisons hard (that is
all tending to change). In the states, the everyone except perhaps the local
grocery store is competing not only with a number of other shops in town,
but with mail order (and now Internet) shopping. So on everything from books
to furniture the local retailer is competing in what is increasingly a
single national marketplace.

And you also have here some very BIG retailers. These pressure a SONY or a
Panasonic to give them a better deal on, say, a certain VCR because they are
buying so many of them. The big manufacturers, faced with the prospect of
having to cover overhead and amortize engineering and other costs over a
smaller number of units, are inclined to give in, within certain limits.
This is now gotten to the point that, to try to limit the damage done to
other distribution channels, certain models of VCRs, TVs and so on will be
sold ONLY at Target or Wall Mart of whatever. In reality, the difference
between, say, model 2880 and 2890 are, at the very most, minor cosmetic
details, they all come off the same assembly line and the only difference is
a different face plate or something. But that makes it easier for Sony or
whoever to take $5 off the wholesale price for Target.

The whole retail distribution setup in the U.S. is another reason. With few
exceptions, things like appliance stores or electronics stores or vacuum
cleaner stores --which were still holding out against the department stores
in the 50s and 60s-- have all gone away. The very big stores of today have a
much lower overhead per dollar of sales.

Still another reason --this was told to me by a friend in an electronics
company-- is that warranty costs for lower priced merchandise tends to be
quite low. Americans can and will demand warranty repairs on a $1000
big-screen TV, but many won't bother with a $100 boom box. Say 5% of both
items need warranty repairs. The manufacturer is going to see close to 100%
of all the broken expensive TV sets, but maybe only one in five of the boom

My friend tells me there's a whole art to writing the warranties to
re-enforce the trend. For the big ticket item the warranty is simple, clear,
friendly. Any problem, just come on back and we'll fix it for you or give
you a new one.

For the smaller items it is a page and a half of agate fine print, bristling
with conditional sentences and subordinate clauses, reading as if it were a
poor translation from Korean, disclaiming this and notwithstanding that and
sending it prepaid in its original packaging and carton, etc. etc. etc.

My friend told me by and large no one fixes inexpensive broken electronics.
They just send you the closest thing they have on hand to what you sent in.
The pile of working boom boxes, clock radios or whatever they pull from are
the ones people return to the stores within the 15-day or 30-day money back
warranty period, which stores aren't supposed to sell again as new. So they
could care less the shape your item is in when it comes back: all the
packaging stuff --and sometimes a $5, $10 or $15 shipping and handling fee--
are just there to make you feel that the warranty repair is more hassle than
it is worth. (The same was true of having to "register" for your warranty,
but the FTC put a stop to that scam a few years back).

In Europe, the market tends to be more demanding, so of course the costs are

So basically those are the reasons -- a big market, meaning with lots of
efficiencies of scale; a very competitive market, with lots of downward
pressure on prices and none of the traditional legal impediments to it; and
a not too demanding market, meaning one willing to accept very little
service/help at the time of making the purchase and afterwards.


-----Original Message-----
From: Rachel E <grrrach at>
To: marxism at <marxism at>
Date: Tuesday, November 09, 1999 8:13 PM
Subject: Re: New Metropoles

>I think this was mentioned briefly in the discussion around the US
>economy but I haven't seen much of an explanation.
>Why are products cheaper in the US than say, Australia, or any other 1st
>world country?
>Is it b/c production costs are lower due to the higher population?
>Rachel E


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