Why do IKEA's products have different prices in different countries?

• Main Authors: Chen, Mengling, Huang, Xin
• Format: Others
• Language: English
• Published: Linnéuniversitetet, Ekonomihögskolan, ELNU 2012
• Subjects: IKEA; identical products; price differentials; the law of one price; purchasing power parity; Business studies; Företagsekonomi
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:lnu:diva-20900

During the past decade, the law of one price and purchasing power parity theories have been empirically tested for their validity. IKEA, as a world famous furnishing company, sells identical products in different countries with different prices. The main emphasis of this paper is placed on the problem of if and why IKEA’s pricing actually departs from the law of one price and purchasing power parity. We focus on the following three main explaining factors: the existence of trade cost, the influences of non-traded parts cost of the goods, and other possible pricing behaviors of the firms. To be able to fulfill our objectives, a regression model combined with the theoretical framework and the institutional framework of IKEA have been used in this paper. The remarkable outcomes are gotten as below: (Ⅰ) The price variation still exist after removing the influences of transportation cost, trade barriers, taxes. (Ⅱ) Higher productivity contributes to higher national prices, but higher labor cost has no significant effect on price variation. (Ⅲ) Price discrimination and special market strategies in specific areas do play a role in the price variation.