Thursday, November 06, 2008

The Law of One iPod nano's Price

Let's talk something more interesting: 8GB iPod nano.

Theoretically, you can buy iPod in Fifth Avenue Apple Store or the one in Ratu Plaza Jakarta at the same price. Say, if it is 149 USD in Manhattan, it would be current IDR per USD exchange rate times 149 in Ratu Plaza to bag the same iPod nano.

In economic jargon, it is called the law of one price, assuming a free flow of goods and arbitrage. But it doesn't always hold.

According to an iPod nano index issued by Australia's Commonwealth Bank, if you buy it in Ratu Plaza and pay its IDR price tag, you actually pay 10 dollar lower than buying it in Manhattan with its USD price. Why? because probably in the last month, we saw a weakening IDR nominal exchange rate.

If Indonesian product is now relatively cheaper due to currency depreciation, export might go up, yes? Maybe not, because the other half of the story, the world's income that determines world demand plunged due to crisis.

Back to iPod, based on my experience with the Apple vendor, and for that matter any electronic gadget vendors in Mangga Dua, Roxy, and Glodok, they will quickly adjust their IDR price. Many effectively pegs their price to USD. As a result you end up paying the same price.

HT: Marginal Revolution

Disclaimer: This is not a signaling attempt that I am a Mac person --therefore cool-- as Kate the Manager once accused me.

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