The Price is Wrong

There's an interesting article in today's Chosun Ilbo. Here's a condensed version:


Why Koreans Pay More for Electronics Than Americans

Kim, a 40-year-old man who worked in the U.S., bought an LCD TV made by Sony from Costco and shipped it to Korea before he returned home. The reason was simple: even with the shipping fee, it was cheaper to buy it in the U.S. than in Korea. The same model with the same specifications but under a different model name in Korea is priced at W3.5 million (US$1=W990), compared to US$2,200 in the U.S. The same goes even for products made by Korea’s LG Electronics and Samsung Electronics.

U.S. price comparison site Pricegrabber.com indicates the lowest price for a 32-inch LCD television by LG Electronics (32LB9D) is $599.95. Korean price comparison site Danawa.com puts the lowest price at W990,000. The LN46A550 model, a 46-inch LCD TV made by Samsung Electronics sells for as little as $1,512 in the U.S. market, but the same product (LN46A550P1F) is W2.45 million in Korea.

On average, Korean consumers have to pay 30 to 40 percent more than American consumers to buy the same product. But it is difficult for consumers to find this out because so many items have different model names in the two countries. The companies sell virtually the same products for more to Korean customers by saying that different parts were used and citing different market situations. But in fact they are cutting prices in the U.S. and China.

But the fundamental reason behind the price gap is the difference in the size of the markets. In the U.S., the world’s largest electronics market, numerous companies compete fiercely to secure a foothold. However, the Korean market is well out of the top 10 in the world, and is dominated by the two domestic giants, LG and Samsung. Without threats from other companies, there is thus no reason for the two firms to lower their prices.

This article points out something I noticed when I first arrived. Electronics (TVs, mobile phones, stereos, computers, etc.) are a lot more expensive in Korea. However, I believe the writer's conclusion is wrong. Price has nothing to do with market size. Don't believe me? Look at the prices for the 2GB Ipod Nano around the world. This is from Reuters:

1. Brazil $327.71
2. India $222.27
3. Sweden $213.03
4. Denmark $208.25
5. Belgium $205.81
6. France $205.80
7. Finland $205.80
8. Ireland $205.79
9. United Kingdom $195.04
10. Austria $192.86
11. Netherlands $192.86
12. Spain $192.86
13. Italy $192.86
14. Germany $192.46
15. China $179.84
16. South Korea $176.17
17. Switzerland $175.59
18. New Zealand $172.53
19. Australia $172.36
20. Taiwan $164.88
21. Singapore $161.25
22. Mexico $154.46
23. United States $149.00
24. Japan $147.63
25. Hong Kong $147.35
26. Canada $144.20

Is Hong Kong or Canada a larger market than the U.S.? Taiwan is a bigger market than Korea?
Most people know India has a huge population (over 1 billion people). Yet, the Ipod Nano is much more expensive in India.

Country Population

Hong Kong 7 million
Taiwan 23 million
Canada 33 million
Korea 50 million

Here are the reasons for expensive electronics in Korea.

1. Duty - The customs office charges 20% for anything over $150 entering the country.

2. VAT - This so-called value added tax doesn't add value, but increases the price.

3. Consumers - A product sells for whatever people are willing to pay for it. In Korea, people are willing to pay 2.45 million won for a 46" Samsung LCD TV. In the U.S., people will only pay 1.5 million won for the same TV. If you sold that product for 2.45 million, no one would buy it.

Let me give you another example. Eels are quite popular in Asia. However, most Americans do not eat eels. Fishermen in the U.S. used to throw away eels when they were caught inside their fishing nets. When Asian immigrants first arrived, they were shocked to see American fishermen throwing away live eels. lol

Every time you buy something, you are setting the price. =)