Cuisinarts, U.S. Prices, and Canadian Prices

Our Cuisinart finally gave out on us. It had been a wedding present and had served us well for the past 25 years.



Since we live some distance from most major shopping areas, Ms. Eclectic and I began shopping for a new one on-line. Here are the best prices we could find for a 14-cup capacity Cuisinart:



Future Shop: $349 Cdn, on sale for $299 Cdn.

Amazon.com: $199US



Does that make any sense, given that one Canuck buck is worth more than one US dollar? Why is there such a huge difference in prices? And why does it take so long for prices to adjust to movements of the exchange rate?



Former student, Scott, tells me that Chapters bookstore has a sign up saying that they are not making any extra profits because of the movement of the exchange rate but that the massive price differentials between Canadian and US prices (still) stamped on books is due to higher publishing and distribution costs in Canada.



I don't believe them. If we had free trade in books, Ontario would be a big market, well-served from Detroit and Buffalo.



Instead, I think it just takes time for people and prices to adjust to the new and changing exchange rates. People may have rational expectations, but that does not mean we have instantaneous adjustments when things change.



Nevertheless, I'm eagrely waiting for international competition to put downward pressure on Canadian prices.



Referring to jaw-boning/grand-standing by Finance Minister John Flaherty, Catherine Swift was quoted in the Trono Globe and Mail:

Some businesses, such as Wal-Mart Canada Corp. and Zellers Inc., have already cut prices but a Canadian business leader said it will take some time for the majority of the country's firms – small businesses – to move through older inventory.



Catherine Swift, president of the Canadian Federation of Independent Business, said Mr. Flaherty should “know better” when it comes to lecturing entrepreneurs.



“It's simplistic to say, ‘Cut your prices.' It'll happen. It's a very competitive market. Our members have to stay current in terms of pricing. The market does work and the market will work – but to think it'll turn on a dime, that's pretty unrealistic. Some people are carrying older merchandise,” Ms. Swift said in an interview yesterday.

Of course from an economics perspective, it doesn't matter what businesses paid for their old inventory. What matters is what the businesses can sell it for in the current marketplace under current competitive conditions (and that is why economists strongly favour using LIFO instead of FIFO for valuing inventories). The fact that prices in Canada are slow to adjust mostly reflects the degree to which competitive forces take time (a month? a few months?) to react to changed conditions.