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Companies routinely lay off staff and hire in cheaper countries (China, India..). Companies routinely source materials to cheaper countries as to undercut ever

Companies routinely lay off staff and hire in cheaper countries (China, India..). Companies routinely source materials to cheaper countries as to undercut everyone else. Companies are also willing to move the business to locales that provide cheaper (or free) taxation. If you're really lucky, you get a rebate of tax from that government for 'stimulating jobs'. Yet we people cannot 'legally' buy movies and music from other countries unless the copyright owner blesses us to do so ?! We cannot legally bought, import goods from out of country areas because that same company sells them more expensively here?! As to the comment from the guy who was importing and selling legally bought textbooks for a cheaper price.... Well, isn't that being a good business(wo)man? You find where something is being sold cheap and sell where it is high. Is that not providing a much needed service? So, companies extract much gain by playing regions against regions. Why can't we?

czr80 14y ago
Because then the rational response for companies would be to stop selling the product cheaper in other countries, denying people in poorer countries access to products at prices they can afford.
- TheAmazingIdiot 14y ago
  These compains are still making profit. They just aren't making as much as they would selling to Americans. And that still doesn't answer my question as why companies can use price arbitrage yet we people cannot.
  - czr80 14y ago
    Example: Company sells 100 million of a product in the US + 10 million at lower price in poorer country (assume same number of units for simplicity). Total revenue: 110 million. Somebody starts to buy in the poor country and re-sell in the US. US consumers are happy because they can now get the product for a tenth of the price. Sales in the US collapse to 10 million. Total revenue: 20 million Company looks at the situation and reasons - if I raise the price in the poor country to the US price I can get back my lost revenue in the US, at the risk of losing my sales in the poor country. I'm going to do that. Sales in the poor country go to 0, sales in US back to normal. Total revenue: 100 million. Governments look at this situation - hey, we would like consumers in the poor country to get access to the product too. How about we pass a law making it illegal to import products destined for a different market? Company - ok, great - starts selling product at lower price in poor country. Who benefits from these laws? 1. US consumer - mostly neutral (pay similar price anyway) 2. Poor country consumer - positive (pay much less) 3. Company - positive (earn incremental revenue) Now this is a highly stylised example and the actual situation is very complicated, as this is governed by a patchwork of different laws and treaties and industry lobbying. I also certainly don't mean to suggest that the situation is uniformly optimal. However, this is the basic intuition behind these types of laws that you need to understand, otherwise I fear none of this will make any sense to you.
    - Variance 14y ago
      >However, this is the basic intuition behind these types of laws that you need to understand, otherwise I fear none of this will make any sense to you. This is also exactly why those types of laws are wrong. They're done by politicians and not by economists, and politicians are relegated to using the same faulty intuitive reasoning that you did. In aggregate, prices tend towards a supply-demand equilibrium that maximizes profits globally. This is constructed through the price mechanism. If a company sells product X in country A for $300 and country B for $100, and someone goes to country B and buys some X and brings it back to country A, assuming zero transportation costs, the price in country B will increase and the price in country A will decrease. This will continue until the prices equalize in both countries. Now, demand in country B will decrease and in country A it will increase. The key here is the proportional change. Assuming supply and demand curves that are perfectly linear, the company will now sell 3/2 as much volume at $200 in country A than it did at $300 if volumes sold are the same. It'll sell half as much in country B due to the price doubling. If both markets sold the same volume, the net effect is that we now have 1.5x200+.5x00=400 instead of 1x100+1x300=400. That is, the total revenue doesn't change and the company makes the same profit. The volume also stays constant. This still isn't the total reality, but it's a much more apt description than your calculation. Importantly, parallel importation promotes price efficiency this way and increases competition. If governments want the poor to have access to a good, they can subsidize poor people purchasing it for personal use. They shouldn't ban parallel importation. A key analogy here is that by your logic, we should also make it illegal to do parallel importation between the many states of the USA. In reality, all you're doing is restricting price efficiency. What I've described above are "the basic economic laws" that override your "basic intuition". There are more subtleties, of course, but in aggregate and with market efficiency, reality tends toward the case described.
      - czr80 14y ago
        You're not wrong in the confines of the model you're operating in (perfect competition), but be careful about assuming that that model is a complete description of the world. Especially in this case, reality is complicated. So complicated, in fact, that I'm not going to try to address your points at all, but if you are curious to follow up on it I can recommend the following article: http://jurisonline.in/2008/09/parallel-imports/ http://jurisonline.in/2008/09/parallel-imports/. Scroll down to the section labelled (Economic causes of Parallel Imports) and read from there.

czr80 14y ago

Because then the rational response for companies would be to stop selling the product cheaper in other countries, denying people in poorer countries access to products at prices they can afford.

TheAmazingIdiot 14y ago
These compains are still making profit. They just aren't making as much as they would selling to Americans. And that still doesn't answer my question as why companies can use price arbitrage yet we people cannot.
- czr80 14y ago
  Example: Company sells 100 million of a product in the US + 10 million at lower price in poorer country (assume same number of units for simplicity). Total revenue: 110 million. Somebody starts to buy in the poor country and re-sell in the US. US consumers are happy because they can now get the product for a tenth of the price. Sales in the US collapse to 10 million. Total revenue: 20 million Company looks at the situation and reasons - if I raise the price in the poor country to the US price I can get back my lost revenue in the US, at the risk of losing my sales in the poor country. I'm going to do that. Sales in the poor country go to 0, sales in US back to normal. Total revenue: 100 million. Governments look at this situation - hey, we would like consumers in the poor country to get access to the product too. How about we pass a law making it illegal to import products destined for a different market? Company - ok, great - starts selling product at lower price in poor country. Who benefits from these laws? 1. US consumer - mostly neutral (pay similar price anyway) 2. Poor country consumer - positive (pay much less) 3. Company - positive (earn incremental revenue) Now this is a highly stylised example and the actual situation is very complicated, as this is governed by a patchwork of different laws and treaties and industry lobbying. I also certainly don't mean to suggest that the situation is uniformly optimal. However, this is the basic intuition behind these types of laws that you need to understand, otherwise I fear none of this will make any sense to you.
  - Variance 14y ago
    >However, this is the basic intuition behind these types of laws that you need to understand, otherwise I fear none of this will make any sense to you. This is also exactly why those types of laws are wrong. They're done by politicians and not by economists, and politicians are relegated to using the same faulty intuitive reasoning that you did. In aggregate, prices tend towards a supply-demand equilibrium that maximizes profits globally. This is constructed through the price mechanism. If a company sells product X in country A for $300 and country B for $100, and someone goes to country B and buys some X and brings it back to country A, assuming zero transportation costs, the price in country B will increase and the price in country A will decrease. This will continue until the prices equalize in both countries. Now, demand in country B will decrease and in country A it will increase. The key here is the proportional change. Assuming supply and demand curves that are perfectly linear, the company will now sell 3/2 as much volume at $200 in country A than it did at $300 if volumes sold are the same. It'll sell half as much in country B due to the price doubling. If both markets sold the same volume, the net effect is that we now have 1.5x200+.5x00=400 instead of 1x100+1x300=400. That is, the total revenue doesn't change and the company makes the same profit. The volume also stays constant. This still isn't the total reality, but it's a much more apt description than your calculation. Importantly, parallel importation promotes price efficiency this way and increases competition. If governments want the poor to have access to a good, they can subsidize poor people purchasing it for personal use. They shouldn't ban parallel importation. A key analogy here is that by your logic, we should also make it illegal to do parallel importation between the many states of the USA. In reality, all you're doing is restricting price efficiency. What I've described above are "the basic economic laws" that override your "basic intuition". There are more subtleties, of course, but in aggregate and with market efficiency, reality tends toward the case described.
    - czr80 14y ago
      You're not wrong in the confines of the model you're operating in (perfect competition), but be careful about assuming that that model is a complete description of the world. Especially in this case, reality is complicated. So complicated, in fact, that I'm not going to try to address your points at all, but if you are curious to follow up on it I can recommend the following article: http://jurisonline.in/2008/09/parallel-imports/ http://jurisonline.in/2008/09/parallel-imports/. Scroll down to the section labelled (Economic causes of Parallel Imports) and read from there.