July 8, 2017 – Why are Star Wars toys and most all merchandise, in general, so much more expensive in Europe than in the United States? An action figure that might cost, say, $15.00 in the U.S. would cost at least €25 in the European Union, or about $28.50 USD at current exchange rates.
While most readers of this site have IP addresses within America (about 80%), a large percentage of readers are from Europe (UK 14%, Germany 6%, France 6%, Spain 3%) or other countries (Canada 7%, Australia 4%, Mexico 3%). So today’s topic may be more of interest to our overseas readers – and anyone interested in economics that go beyond the basic laws of supply and demand.
Could Europe’s larger population, and thereby greater demand, account for the higher consumer prices?
The population of the 28 member-countries of the European Union was approximately 510.1 million as of Jan. 1, 2016 [Source: ec.europa.eu]. By contrast, the U.S. population as of July 8, 2017, is smaller at just over 326.5 million [Source: worldmeters.info].
While it appears there are a larger number of Europeans chasing a limited number of Star Wars goods, the laws of supply-and-demand do not fully account for the higher costs as compared to the United States.
Here, then, are some significant reasons why your Star Wars action figures and other merchandise may cost so much more in Europe than in America:
1) TAXES: In Europe, the value-added tax (VAT) adds about 20% to the cost of merchandise. (For American readers, think of the VAT as a huge sales tax.) The VAT is “hidden” in that it is already included in the final sticker price. By contrast, sales tax in the United States is not reflected in the sticker price and is added only at the time of purchase.
So if you are just comparing sticker prices, be aware that a European sticker price already includes the 20% VAT while a U.S. sticker price does not include sales tax. The effect is that this practice makes merchandise in Europe look exaggeratedly more expensive.
By contrast in the United States, the five states with the highest average combined state-local sales tax rates were Tennessee (9.45%), Arkansas (9.26%), Alabama (8.91%), Louisiana (8.91%), and Washington state (8.89%) as of 2015 [source: taxfoundation.org]. California has the highest state-level sales tax rate at 7.5%. The five states with the lowest average combined rates are Alaska (1.76%), Hawaii (4.35%), Wisconsin (5.43%), Wyoming (5.47%), and Maine (5.50%) as of 2015.
In the United States, 45 states collect statewide sales taxes and 38 states collect local (municipal or county) sales taxes. Five states have no statewide sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Of these, Alaska and Montana allow localities to charge local sales taxes [source: taxfoundation.org].
2) STORAGE AND DISTRIBUTION COSTS: To deliver that precious Star Wars toy into your eager hands requires gasoline or petroleum to power the cargo-containing ships and trains and trucks that make distribution possible. Europe’s reality, however, is that most everything costs a lot more than in the United States.
Take gasoline/petrol, for example. Currently the price for a gallon of gasoline in the U.S. is anywhere between $1.93 (South Carolina, the cheapest) to $2.92 (California) and $3.01 (Hawaii, the most expensive) [source: gasbuddy.com/USA]. By contrast, on July 3rd, you would have to pay about $5.60 in the UK, $5.39 in Germany, $5.50 in France, and $6.80 in Norway for the equivalent of a gallon of gas [source: globalpetrolprices.com].
Add to fuel costs the higher expenses of warehousing and storage, higher vehicle costs (trucks/trains) and higher labor costs, and you now have a costlier Star Wars product sitting on a store shelf.
3) MARKET EFFICIENCIES: The United States enjoys a competitive advantage in the form of cheaper labor, cheaper warehousing and retail space costs and cheaper transport. In addition, the United States is a large, unified marketplace among its 50 states with no significant internal trade barriers. In short, the U.S. is an efficient marketplace with a large domestic market, which produces economies of scale and thus lower prices.
The European Union was created, in part, to achieve similar market efficiencies. As a political and economic union of 28 member states, the EU is, by some estimates, the world’s second or third largest economy. (The United States and China are neck-and-neck at Nos. 1 and 2 interchangeably.)
With its roots in the post-World War II era, the EU has been successful at reducing or removing many internal trade barriers. But it still faces daunting challenges to greater market efficiencies. For example, the euro (€) is the currency of only 19 of its 28 member states. And the UK’s “Brexit” vote one year ago and daunting negotiations over the next two years could make the EU less market-friendly. Add in the inherent problems of multiple languages on the continent and the rise of more populist, nationalistic governments in central and eastern Europe, and you have a large trade market facing growing headwinds.
4) RETAIL COMPETITION: Another factor driving down retail prices in the U.S. is strong retail competition. Behemoths like Walmart and Amazon force vendors who want to do business with them to strip their costs as much as possible. And their competitors, whether a brick-and-mortar retail chain or an online presence, have to follow suit in order to compete.
So why can’t Europeans take advantage of the lower online prices? They can so long as the U.S. retailer ships overseas. The problem is costly shipping and postage rates to Europe, which then make the final cost sometimes unreasonable.
5) CURRENCY EXCHANGE RATES: Exchange rates have an inverse relationship for the consumer, depending on which side of the Atlantic Ocean you live on. Perhaps three years ago, when the Euro (€) and British pound (£) were stronger and the U.S. dollar ($) was weaker, Europeans found some imports more affordable. In other words, a European consumer back then could buy more for the equivalent of an American dollar.
Today, post-Brexit, the U.S. dollar is stronger and both the Euro and British pound are weaker. The effect of a strong dollar is that it makes U.S. goods exported abroad more expensive. Thus Hasbro and other U.S. toymakers find their exports abroad are squeezed.
6) LOCAL EFFECTS AND VARIATIONS ON PRICES: Finally, keep in mind that “Europe” is not one monolith. The most obvious point is that the richer, more developed parts of Europe (western and northern Europe) experience higher prices. Meanwhile, parts of eastern and southern Europe, with weaker economies, have lower costs.
The analysis would have been the same. Both questions are simply two sides of the same coin.
But lest our fellow American readers get too smug about paying considerably lower taxes and enjoying relatively lower prices, consider that:
1) Over the last five years or so, Hasbro has had – and continues to have – a horrible and inept distribution system. It is almost irrelevant what the cost of your Darth Revan or other rare action figure is when you cannot find it in the first place. So globally, all Star Wars collectors face the common challenge of finding sufficient quantities of Star Wars product.
2) While European taxes are higher than in the United States, Europeans for the most part do enjoy a stronger social safety net, including access to medical care, longer paid maternity/paternity leave and – in seven European countries – free college education or no tuition as well as other benefits. While not everyone likes to pay taxes, U.S. Supreme Court Justice Oliver Wendell Holmes Jr had this to say: “Taxes are what we pay for civilized society.”