Why if the dollar is practically on par are things cheaper in the USA than they are in Canada?

Question

My son was in the book store and was looking at the price of his book on the back since I gave him a budget of what he could spend. Being eight and very inquisitive he asked me why his book was cheaper in the states than it is in Canada. I was stumped I am so used to seeing prices cheaper in the US that I never really questioned the logic before.

Answer 1

Until recently, the Canadian dollar sold at a discount to the US dollar. It has been a trade practice for many years to have separate cover prices for books in order to account for this. You may be looking at books that were published then. I just bought a book published in June, 2008, and there was only one cover price.

Answer 2

Private companies always try to get the most money they can for their products.  And they price their products according to their preception of how much money people would be willing to pay.  

It doesn't matter to them if the price is fair or not.  All they care about is whether their customers will keep buying their products or not.

In theory, competition between companies should bring the prices down to the lowest possible level.  But it's not that easy to start a competing company and win against the big players.

One good way to take advantage of cheaper prices in USA is to do cross-border shopping.  Books and other small things you can buy over the internet.  But you would have to travel to USA to buy bigger items such as cars.

The only problem with such shopping is that it costs more for transportation.  There are a lot of government rules that make it difficult to import new and used cars into Canada from USA.  And many US car dealerships refuse to sell to Canadians.  Because car companies don't want their dealers competing with each other and taking each other's customers away.

I've read about some Toyota dealerships in USA who turned away Canadian customers.  You can buy a new Toyota Prius for about $22,000 in USA.  But in Canada its price is $29,500.

Answer 3

+ If the books were imported then there is a transition period during which the stock on the bookshelf may not have adjusted to the current exchange rate. The book may have been purchased during a time when the US currency had a higher exchange rate.

+ In general, because the market in the US is larger; a seller is likely to experience greater economies of scale in the US than Canada, thereby reducing its overall cost and passing that cost saving on to consumers in order to gain market share.

+ The price competition in the US is also more intense: the seller can afford a lower margin given greater demand volume.