Tuesday, February 18, 2014

Lack of competition means higher prices

I was shopping at a large E-Mart store in Seoul the other day and decided to do a little sleuthing of their electronics department.  Korean E-Mart is equivalent to Target in terms of inventory selection, store ambience, and shopping experience.  It might compare to nicer, newer super Wal Mart stores, but from my experience, Target is a better comparison.

While perusing the TVs, I noticed that only two brands were offered for sale: LG and Samsung. I could find no other brand of television (or computer) throughout the whole store. No Sony, Panasonic, or Vizio.  Only Korean brands on sale here.  So, what does the lack of competition mean for the average Korean consumer? Higher prices and less selection, of course.

I randomly picked seven televisions for my analysis: 3 LGs and 4 Samsung’s.  I noted their price in Korean Won and converted it to dollars at a 1,060=$1 exchange rate.  I then searched Amazon.com and New Egg for the same model and noted the price.  In cases where Amazon and New Egg prices differed, I took the average.  I then calculated the percent increase that Koreans pay compared to US customers.  Have a look.

In one instance, Koreans paid one-and-half times the price Americans would pay for the same product. I suspect that if I were to analyze computer prices, I would find similar results.
Korean culture is fiercely nationalistic, and they pay handsomely for their country loyalty. I’m not exactly sure why non-Korean TVs aren’t sold at E-Mart – it could be a company decision (doubtful, but possible) or government restriction (more likely). However, one thing is clear: these two companies are looting their customers, most likely with the aid of the government. Without any competition from outside brands, LG and Samsung can charge artificially high prices, and the result is that Korean customers are made worse off. Competition would mean more selection and lower prices, something that I bet most Koreans would embrace given the chance.