Spending some wonderful weeks in Thailand during my summer holidays this year, I've had the chance to reflect on many things, and I've come to confirm some concerns I had about the real cost of certain items and services and what we end up paying for them.
When you make your first acquaintance with economic theory, you are told about equilibrium points between offer and demand, with some obvious concessions to product cost. But of course, that implies a few very hard conditions which include perfect competition, no barriers of entry into the market and all parties involved having perfect information. Obviously, none of those conditions apply fully (sometimes not even remotely) in the real economy, and therefore, the pricing of many things are severely distorted.
Before the last ones of you fall asleep, an example. Where should a bottle of French wine cost more, in a restaurant in Bangkok or in an equivalent one in Paris? Of course, you've guessed that it was a trick question, and you've got it right: The equivalent wine, in a similar restaurant, costs about 20% less in Bangkok than in Paris. And that is only an example, the same meal in each of those restaurants will probably cost double or more in Paris that in Bangkok. Anything you buy in a department store, from clothing to electronics will present the same difference in price.
Some of the arguments people will use to justify that difference will involve that the items involved are manufactured in the region (well, somewhere in the continent, which might not be just around the corner) so the difference includes the transport costs. However, as much as that argument *might* (I don't use *do*) explain the difference in the price of electronics and clothing, it does not explain the bottle of French wine being cheaper in Thailand than in France. So that argument *might* explain some small variations in specific items, but it cannot be accepted as *the* general explanation.
Another argument will run in the line of comparing the average salaries, cost of living and tax pressure of each country, and say that as the wages and the cost of running the restaurant (shop, department store, ...) are lower, then the product offered can be sold at a lower price and still make the same margin (economists might start talking of purchase power parities here...). Well, that *could* have more chances to explain the difference, even for our bottle of French wine, but there are other examples that are more difficult to explain.
As I was on holidays, and I was making the trip I had been planning for a few years, and being a very mean person myself, I wanted to make everybody very jealous, so I decided to send a few dozens of postcards to friends and family. You will agree with me that the distance between Paris and Bangkok is the same that between Bangkok and Paris, and that sending a letter (or a postcard), should incur in, basically, the same costs no matter in which sense it was sent, as the distance is the same, and assuming that the amount of people incurred in classification at origin are probably similar to the amount involved in delivery at destination. So, if the costs are the same in both directions, I would be very obliged to anyone that could explain me why sending my postcards from Bangkok to Paris (or Europe in general) coasted me less that half of what it costs me to post a postcard within Paris!! ;-)
At this point is when I would like to introduce one point. May be there are many things that are priced by *how much people are willing to pay*, instead of by *how much does it cost*, even in the case where demand is not that high. A clear example could be any small plastic item that is cheap and more or less widely used but not essential: Take the nylon loop people use to hang their mobile phones or MP3 players or keys from their necks, or any other item like that. It is an industrial product that is probably produced by the millions, with a cost of about a couple of Euros for a thousand units. How much does it cost in a shop? Probably if you buy it with your MP3-player it will cost you at least 10-15 Euro (but it will come in a nice branded blister). If you buy it in one of those wonderful 'bazaar'-shops you have in any town and city, run usually by old ladies or sometimes by people belonging to visible minorities, and stocking all sorts of different stuff, it will probably cost you only 1-3 Euro (and it will come without the packaging). You can find the same phenomenon with hardstore items like plug adaptors and extension cords, can openers, etc. Probably it is the same for many drugstore products and for some services as well, like posting a letter or sending an SMS. I would say that it's just a matter of there being a price that people are willing to pay without considering looking for a lower price. One could say that below a certain fraction of the purchase capacity (i.e. income) of the individual, the price of an item looses its comparative meaning.
One of the corollaries of that is that because we don't care about the price of some things as long as they are below a certain price threshold, this part of the consumer economy where we live becomes inefficient, and we pay the costs (as usual), and someone else gets rich because of our indifference.
Another example, the cost of sending an SMS from your mobile: you might have noticed that all mobile phone operators in your country (and I don't mind which country do you read this from) charge the same price for each SMS you send, and from time to time they offer some free SMSs as special promotions. In fact, and trying not to go into too much technical detail, the mobile phone network and your phone need to be in more or less continuous communication, to assess the level of signal, and to know when to switch your connection from one area of the network to the next as you move (from one "aerial" to the next one, if you wish). That communication is just a stream of data, and it does not matter if it's more or less random data or if it includes a few SMSs, so the real cost of sending an SMS is naught (zero), because the communication has to be done anyway. But everyone is happy paying a few cents of an euro for each message sent, without realising that at the end of the year, the phone company is getting most of their profit from your SMSs. (for me, with an average of a couple of SMSs per day, amounts to about a 100 Euro a year).
Anyway, just in case there's anyone still reading, and to finally stop rambling: the thing I wanted to share was my disappointment on realising how little criticism we apply sometimes when purchasing items and services, which lead to big inefficiencies (meaning that we have to pay dear for things that are actually very cheap), only because we are sometimes too lazy to look around and punish those who overcharge us by the simple method of shopping elsewhere.
'Voila'. That's all folks. I've finished.
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