About five years ago, I was on a trip to Manhattan and I bought a Baltimore Orioles cap. It is easily the best hat I've ever owned – it fits my head like a glove. Unfortunately it's getting pretty worn from heavy use. I decided to see if I could find another one just like it, but perhaps from a different team (I only bought the one I have because I was going to a Yankees-O's game).
I went to Lids.ca and sure enough they had 54 in the same style all for $31.99 (Canadian), including a nice 1949 New York Giants model. Before placing an order, I went to Lids.com and did the same search. They have 53 in that style (which one are they missing?), including my Giants cap. All for… $24.99 US. Even if you assumed an exchange rate at par, Canadians are paying 28% more for the same product. This April Douglas Porter found a similar price difference (link goes to PDF). And that's before we take into account differences in sales taxes.
I have found this is very common. Before our daughter was born, my wife made a list of things she wanted from Babies R Us, and it came to just over $450 before taxes. We waited until I went on a business trip to Atlanta, and I bought everything on her list at a Babies R Us there. Price I paid: $278, plus 7% sales tax.
Now, there is no reason that the prices in two areas should be identical – both markets will have their own demand, their own supply and thus their own equilibrium price. But at some point you would think you would think something approximating the Law of One Price would kick in, either through arbitrage (people buying in the less expensive market and selling in the more expensive market), or simply people like me who cross border shop. Cross border shopping lowers demand in the high-price jursidction, raises demand in the low-price jurisdiction, and acts as an equalizing force on prices.
Prices will not become exactly equal, due to transaction costs. But can transaction costs really explain the total difference in prices? Other than groceries, I rarely buy anything in Canada. Instead I will drive 45 minutes to Port Huron, MI and do my shopping there. I declare all my goods at the border and pay the HST, so it is not a matter of sales tax arbitrage (though half of the time the customs agents don't bother charging me). And of course, you can always order online. Some US stores will not ship to Canada, but there are ways around that. Have your goods shipped to the UPS Store in Port Huron and then either pick them up or have the UPS store then ship the goods to you.
One explanation may be that prices are sticky and the difference in prices reflect the past (low) value of the Canadian dollar, not the current value. However, the average value of the Canadian dollar over the last 4 years has been $0.9532 US. There was a 11-month period where the Canadian dollar was below 90 cents U.S., but that ended on July 18, 2009. Before then, the last time the Canadian dollar was below 90 cents U.S. was May 11, 2007. Can prices really be that sticky?
Given how close the majority of Canadians are to the US border and the ease of ordering products online, I am truly puzzled why prices between the two countries are not converging.
* Title of post adapted from Jimmy McMillan. See:
Worthwhile Canadian Initiative 
Citing Vernon Smith sort of supports my theme and thesis; his story is one of going against the rigidly enforced ideological doctrine of what “science” is in economics .. Smith had a hard time getting his early work published, and it was only decades of lone wolf dedication and repeated article submissions that eventually — after decades — brought scientific respectability.
And Smith was never hired at a top department …
It’s interesting that the Nobel committee often recognizes the scientific achievements of outliers which mainstream economists like Stephen Williamson would boot from the profession.
Ironically, in this article Smith is arguing against the mainstream dogma of how to do “science” in economics, and making a plea for the scientific standing of experimental work against the set prejudices of the professional elite:
http://www.jstor.org/pss/1817233
Smith spent decades trying to make his case.
So, it’s only science if you’re doing field work? Someone should tell that to that Einstein fellow.
As Andrew points out, it is an unfair comparison. The problem with field work, with humans is that they typally aren’t keen on providing you with information. You want to spend your days watching butterflies to figure out their mating habbits, hey no worries. Do the same thing for humans and, at best, the police will arrest you as a suspected pervert. At worst, you’ll be beaten senseless by a large fellow wondering why you’re following his daughter. The reliance on government statistics is largely (but not exclusively – what’s the old joke about the economist looking under the light for the keys he lost in the the dark alley, because that’s where the light is?) a function of the fact that only governments can compel people to provide them with information. Indeed, the only reason why biologists do field work is because the government of Canada isn’t nice enough to go out and collect raw data about butterflies for them.
Of course, for field research in economics (and sociology) you might consider the only economist that most non-economists can name, namely Stephen Levitt (Chicago) and his research with his sociologist colleague Sudhir Alladi Venkatesh (Columbia) on the economics of drug gangs and prostition. And then there are all the economic historians – a field which inherently requires field work (Statscan not having figured out how to collect data from the past). I can think of a laundry list of academics in this field, but you’ve probably heard of Fogel (Chicago) and Engerman (Rochester). You know, the two fellows who won the Nobel prize for economics for their work.
Back to the topic at hand, the G&M weighed in on Aug 11 with this conclusion:
when comparing the US price differntial of a Volvo in Canada vs the US
“The best we can do as media types is cast a spotlight on the pricing issue. Over time we’ve seen quite a few auto makers lower prices or dish out sales sweeteners to level the pricing playing field, north versus south.
…
Or [look] at reasonable alternatives. . . .if you buy a Mini or an Audi or anything else, let Volvo know why.”
http://www.theglobeandmail.com/globe-drive/new-cars/what-car/what-to-do-when-auto-makers-charge-canadians-more/article2125158/
On the topic of field research, I sympathize with academics because most economic analysis results in very profitable information – but it is very limited in scope and therefore closely guarded. Optimal ph levels for frog ponds don’t pay nearly as well as optimal ambient background music in a restaurant.
What sort of field work do engineers do?
Great straw man Bob. Wonderful.
Complex sciences like geology & Darwinian biology & brain science, etc. are different than fundamental physics. See F.A. Hayek, “Degrees of Explanation” and “The Theory of Complex Phenomena”.
Bob wrote,
“So, it’s only science if you’re doing field work? Someone should tell that to that Einstein fellow.”
“Then there are all the economic historians ..”
You mean, the guys mainstream economists like Stephen Williamson want completely purged from the field?
I’m simply saying that waiting for centuries to pass before doing this work is a mistake ..
“Then there are all the economic historians.”
I’d also suggest that Stephen Levitt’s statistical studies are often half-a-loaf when it comes to field research. Did he really do any field research in his stuff on car seats or abortion? I’ve forgotten …
Has any body done a study establishing what percentage of papers using statistics & econometrics involve original field research?
Anybody have a good guess?
What’s interesting to those studying economists is that economists are compelled to deploy the formalisms of mathematical statistics to turn field research / empirical work into “science” — the fancier the math the more “scientific”. And no matter that the math has often been applied in a manner contrary to the formal demands of the formalism itself (see D. McCloskey).
“I’m simply saying that waiting for centuries to pass before doing this work is a mistake ..”
So geology isn’t a science?
And I’m not sure why you object to the use of government statistics or statistics from other sources. The difference between economists and biologists is that the government is curiously unwilling to go out and collect raw data on butterlies and moose, but it (along with countless other types groups)is willing to collect lots of raw data about humans. To suggest that biology is more “scientific” because it’s practioners have to do field work is making a virtue out of neccesity. Its practioners have to do field work because otherwise they won’t have any data, the same isn’t true of economists. At the end of the day, would moose biology be less of a science if it’s practioner had access to generally reliable datasets about moose collected by the government?
Moreover, it strikes me as somewhat formalistic criticism. No, I doubt Levitt did any “field work” in doing his abortion research, I’m sure he relied on government statistics. Do you think he’d obtain better data by collecting that data himself. Let’s see, first he’d go around asking woman how many abortions they’ve had and when they had them, then he’d go around asking people how many crimes they’ve committed, and when they committed them. Apart from the obvious point that no one will answer those questions (and the very real risk that he might get smacked for asking the first question and shot for asking the second) and the obvious cost constraint is there any reason to believe that such an approach generate more accurate data than government data on abortions and crime?
Bob writes,
“So geology isn’t a science?”
?????
I have no Idea why you say that, unless you are simply a troll.
And of course, I’m making a case for somethng, and I haven’t said anything against using government stats.
Again, your replay is either has nothing to do with my remarks, or is a patent troll move.
What’s up with that?
Influencing topic and ideas you have provided. Every readers should follow this advice and ideas. I feel lucky i found this blog. Many thanks to the author.. 🙂
A bit late, for I cast my vote on the convenience/transaction price factor.
Mike, you never mention the horrendous (and usually undisclosed) charges tacked on by some shipping companies to handle customs – how do you get around them? I stopped shopping on US websites after paying $35 in handling fees (on top of about $15 shipping fee) for a jacket that was about $100 in the US, $135 in Canada (I think the shipping co was UPS, but may be wrong). Some shipping companies have more reasonable charges, but they still add up. Now, if you factor everything in – the transaction costs, the warranty issue, the hassle of having to go pick up your parcel at the warehouse in the middle of nowhere because the shipping company shows up at your house while you’re at work, the risk of having to pay to ship it back (it may be broken, not the right colour, etc) – the price differential (before shipping) would have to be much, much higher than $100 for me to bother again.
Of course, saving $8,000 on a car is an entirely different story. A friend of mine just did it (driving down to the States to pick it up), calculated his expenses and time, and said the money saved “paid” him a much higher hourly wage than his high-fee consulting job…
Back to the topic at hand,
Civil Servant, I’m with you on the inconvenience factor of shipping. A few years ago I ordered (wait for it) a cable from Apple and needless to say, they delivered it in the middle of the day and gave orders to the courier not to leave it on my doorstep (notwithstanding any instruction I might give the courier. I told them that since they were unwilling to fulfill their contractual obligation to deliver the cable to me, they could keep it (and eat the cost of shipping it back from Peterborough) and refund my money (which they did).
In fairness, the “handling fee” may includes duties, GST and or PST on the jacket (since those duties and taxes are frequently collected at the border and are technically the liability of the courier who is importing the goods. The courier is out of pocket for those duties and, not unreasonably, wants to recoup them from you). That’s the problem with ordering clothing online from the US, much of it isn’t NAFTA origin goods, so you get hit with Canadian duties (on top of US duties that are already embedded in the US retail price). And the compliance costs at the border aren’t small. The mail is probably the cheapest way of shipping, but even Canada Post has an $8.50 handling fee per taxable/dutiable item (which the government claims is cost recovery based fee). There is a general exemption for most items valued at less than $20 (which is why the more disreputable foreign retailers will report absurdly low valuations on their custom declaration – my local Canada post clerk probably wonders why I wear $19 suits) or for gifts (and, again, some retailers play fast and lose with that exemption).
“Smith spent decades trying to make his case.”
He also got published in places like AER, though, which was what you were asking about.
Also, it’s nice to see a Stanley Engerman reference! I was one of his TAs at Rochester.