Monday | 29 January, 2007

iPods in the Caucasus: Indexing or Pricing?

Half-serious, half-joking, the Economist put forward the Big Mac Index as a comparative tool to measure purchasing power and currency valuation. The idea was that McDonald's, wherever it is, has standardized procedures for doing identical Big Macs -- consequently price differences should be fairly indicative of discrepancies in purchasing power. An overview of the idea is here (somewhat ungenerously, the Economist makes its Burgernomics available only to subscribers).

Recently an Australian bank suggested a similar comparison of iPods. Arguably this is more of an indicator for smart predatory pricing, since iPods sell for much more than their production costs. So what does this mean for our region of the world? You probably would expect sales price in the South Caucasus to be fairly homogenous.

Well, it isn't. Taking the 2 GB Nano iPod for comparison, the newly opened Apple shop in Yerevan asks its customers for a cool 288 US dollars. In Tbilisi, the same iPod will set you back 224 US dollars, whereas in Baku, the Apple website lists its price as 199 US dollars.

Various explanations are being offered. Azerbaijan may have a larger local customer base, allowing them to charge less for the individual item. Armenia may have higher transport costs, or simply a dealer that can keep a very straight face. It is also possible that many Armenian customers actually shop abroad, and those that are left locally are prepared to pay the premium. Internationally, the Caucasus stretches across the higher medium-range. In Brazil the same iPod Nano costs a whopping 327 US dollars, in the US a mere 149. Azerbaijan is somewhere close to the UK, Ireland, Finland. Details, with some discussion, here.

Further hypotheses welcome. Thanks to JonathanK for pointing out the topic, and our CRRC staff for instant research. A comparison of the Big Mac Index in the Caucasus to follow.