Why do so many things cost more in Canada?
It’s a fact that currencies fluctuate, and that there are winners and losers when that happens. Canadians who can make the trip like to shop in the U.S. for the larger selection of goods – and for the usually lower prices. From books to cars, many things simply cost more in Canada – sometimes a lot more. The mystery is why that is still the case, when Canadian dollar is near or above parity, as has been true for most of this year?
This article in the Globe and Mail covers that long-simmering irritant. The good news is products now cost an average of just 11% more over U.S. prices, down from 18% in April. But what keeps the gap so wide in the first place?
Bank of Canada Governor Mark Carney just appeared before the Canadian Senate’s standing committee on national finance. Reasons for price disparity likely include:
….higher taxes, higher labour costs, higher transportation costs – in part because of a smaller, more widely dispersed population – differences in inventory levels and a more concentrated sector on this side of the border that reduces competitive pressure to cut prices.
[Carney said] “In Canada, the top four retailers have a 28-per-cent market share, compared with only 12 per cent in the United States”
Finance Minister Jim Flaherty wrote to the Senate committee asking it to study the issue back in September.
“Canadians are rightly irritated when they see large price discrepancies on the exact same products being sold on different sides of the border,” the minister wrote. “I share their irritation.”
The comment section for the article is full of frustration, and plain puzzlement, as with this post from “alamogordo”:
Recently a friend of mine in NY purchased a Regency wood stove which is made in BC Canada. The price difference was more than 1,200 dollars less in the US on a stove that retails for $3,600 in Canada.
That’s quite a difference.
It’s good for retailers in the U.S., but Canadians consumers are not amused.
So, how would you explain this? Higher taxes? Pure uncompetitive price gouging?
What’s your best example of doing well by shopping across the border?
Tags: canada, consumer issues, cross-border trade, currency issues, economy, tax policy
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It has been this way for a long, long time, and I think Mark Carney has pretty much nailed it. The higher wages, big country, small population and higher transportation costs pretty much explain it. Generally, the exchange rate has favored the US dollar until recently. I do remember as a child summering in the Rideau Lakes during the 50’s that the exchange rate favored the Canadian dollar by 5-7%.
I have some theories.
Labour in Canada is 20% higher because of the extra “u”. If you transition to US style labor you’ll save 20% right off the bat.
Another possible cause is that down here in the States we get volume discounts. It is colder in Canada and (as everyone knows) most items contract in the cold. Since the same product in the US occupies more space we save significantly on volume pricing.
Lucy,
A few years back I took a stab at explaining the infinitely complex mathematical formula of being Canada’s neighbor. I have been routinely ignored by the Nobel Economics Prize judges ever since. Go figure.
Here are my findings: http://www.empirewire.com/images/looniecolumn.pdf
Things might cost a little more, but they have a great health care system.
Yeah, things cost a little more…but we go to Ottawa a couple times a year to shop anyway. I’m not buying socks and underwear, or milk and bread, on those trips, and come home with lovely things that you can’t get in the North Country. Ottawa is closer than New York City, and way cooler than Syracuse.
I always call Canada, ” The place where they do everything right.”
Like healthcare.
Thanks for the loonie column, Mark.
On a more serious note, I am certain transportation and size of market (competition) are major factors. I’m going to guess here because I’ve never been to Alaska but I’m almost willing to bet the same factors cause prices to be higher in Alaska.
Enjoyed your column, Mark. Although we are massing at the border to prevent a US takeover anytime soon.
The size of the market is definitely a factor. Canada has 1/10 the population of the US.
Other factors: Canada has a milk marketing board which fixes the price of dairy products higher than they would be in the US. Canadian gas is sent to the US for refining which makes the price of gas higher in Canada.
Taxes are higher on some goods to cover cost of health care. We have friends in the States who pay up to 1500 a month for health insurance: we pay nothing and get 100% coverage – so these extra taxes are not a burden.
We have a camp in Cranberry Lake and a post office box there – which gets filled with packages from Zappos, Amazon, Beans, etc. all summer long. We feel a bit guilty [being Canadians] about this. but even when the loonie was much lower than the US dollar we still ordered from the States because certain products were just not available in Canada – size of market again.
As an aside: the UPS store in Lewiston, NY is filled every day with Canadians picking up packages to take back across the border. Even with the “duty” and extra sales taxes it is cheaper to buy in the US than in Canada for some items.