In a world of foreign exchange and market competition, economic theory says that, all other things being equal, rates for the same good in one country should be the same in another. This “rule of one price,” is also known as purchasing power parity (PPP), states that any price disparity between two locations for the same good will be arbitraged away easily by people looking for risk-free profits. What if you could compare the prices of goods across the world and then purchase the cheapest products?
Pricerunner.com had the same idea and compared prices for a variety of electronic products in 28 different cities around the world. Blu-ray disks, laptops, cell phones, and other electronics were among the products compared. According to Pricerunner's study, it would cost $1,757 in Tokyo, $1,969 in New York City, $2,012 in Dubai, United Arab Emirates, $2,450 in Copenhagen, $2,441 in Vienna, $2,540 in Cape Town, South Africa, $2,965 in Reykjavik, Iceland, and $3,387 in Sao Paulo to buy all of the products they track. The site compared the prices of a MacBook Air, an iPad, and an iPhone in another survey. The cheapest of the three things was $2,225 in Tokyo, and the most costly was $4,160 in Sao Paulo. In New York, the same things will cost $2,745 each. The difference in taxes and import duties between countries is one of the major factors that influences the prices of goods. Brazil, for example, has a 60% import tax which makes imported products like cars and phones far more expensive there. Japan on the other hand has lower import taxes and better wholesale costs making goods far cheaper.
Local taxes also play a large role in pricing differences. If San Francisco has an 8.5% sales tax and London has 20% Value Added Tax(VAT), this price difference will be passed onto and paid by consumers. When importing a good, the importer pays sales tax on the full price of the good, but pays VAT only for the value that is added by the importer. If you are importing into a country that doesn't have a VAT from a country that has VAT, the product is susceptible to double taxation. The exporting country adds VAT, while the importing country charges sales tax.