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Penn Effect (wikipedia.org)
68 points by hhs 46 days ago | hide | past | web | favorite | 31 comments



This is why I have a big problem with metric called "productivity".

Same service done in New York by the same worker is worth X times more than in a small town. Hence people who move their shop suddenly become 10 times more productive, even if they're doing the same thing exactly as efficiently as before.

Then people look at the graphs and say "no wonder these poor places are undeveloped - look how low their productivity is".

It should just be called labor cost and not productivity.


Huh, I didn't know productivity was a measure of monetary production. I always thought it was a catch all, for any and all alternative measures.


It's defined as GDP/man-hours worked in the country in a year.


You can see this on a micro scale in Basel, CH. Buying bread in different countries, just a short walk / bike ride with unenforced boundaries and there are real price differences. For luxury goods it can be even more extreme with Sushi on the french side of the border being affordable, and on the Swiss side... less so.

You would think that the effect of the German and French markets would create a local dip in prices in Basel, but it doesn’t seem to be true.


What's true though is that Swiss people from the Basel region do regularly cross the border to make their shopping trips - including groceries.


> The law of one price says that the same item cannot sustain two different sale prices in the same market (since everyone would buy only at the lower price).

This is currently a problem with digital goods. How can you sell something, like an indie video game, for $1 in India and $10 is the US, and prevent Americans from buying the Indian version? There are online marketplaces that allow people to buy and sell "game keys" for cheap. People in cheap markets can sell local keys for games, at a small markup, to people in expensive markets.


I suppose one solution (for sellers) is to localize the games and their translations and bake those into the game keys. Once one purchases a game in Russian, you can't play it in English.

This excludes pricing disparity between (en-US, en-CA, en-GB), (es, es-US, ...) and the like cohorts, but that may not matter too much.


This approach bites very painfully here in Ukraine, when some suppliers think (for some perverted reasons outside of this discussion) that it's OK to only sell a Russian version in Ukraine. Ukrainian-speaking population would often prefer an English version (for the lack of a Ukrainian one), but there is no sane way to buy it.


That would mean those of us who play games in multiple languages as a means of language study would need to buy each game multiple times.


Any means of price discrimination is likely to have some user-hostile effects along the edges. It is, in essence, DRM and if an authorized user interacts with it at all, it won't be pleasant.

Or, in other words, any strategy of region-locking (even an unsophisticated one like unbundling languages) is going to stymie some legitimate use cases.


> play games in multiple languages as a means of language study

I've been studying all night, mom!

Seriously, those who read books in multiple languages as means of language study need to buy each book multiple times and nobody used to find that surprising...


Or you just choose one? If you're at the level where reading a book can help you learn more or practice, I wouldn't have thought you'd much want a second copy in your native tongue.


Is an exercise common enough for bilingual editions to exist (intended to help learning a language, not to better understand that particular book).


you could let the higher price versions include the lower ones. so if you buy an english edition you get russian and chinese for free included, but you don't get finnish or german, whereas if you buy the german one you get english and all the languages that english already includes.


> How can you sell something, like an indie video game, for $1 in India and $10 is the US, and prevent Americans from buying the Indian version?

Some online stores just use the Credit Card billing address.


This practice may not end well.

> There have been a lot of very angry Adobe software users in Australia this week as it was discovered retail versions of Creative Suite would carry a massive premium (up to $1,800) over what Adobe charges US users.

> So massive is the difference in fact, it’s been stated you could actually fly from Australia to the US, buy Creative Suite, fly back, and still save money.

[0] https://www.geek.com/news/adobe-ceo-angers-everyone-by-side-...


In this specific instance, the buck stops at Adobe who charge an exorbitant price to Australian customers. You can find the same for Netflix - they charge US prices in countries where the purchasing power is far lower than the US.

The practice of billing address still makes sense.


That’s a fun one I deal with regularly.

Some number of European bands I listen to are big enough to have a record deal and distribution in Europe, but for whatever reason their deals do not include US distribution.

Used to be Amazon didn’t enforce this, but now they do. Lucky for me, I found a book seller’s website that doesn’t do credit card checks. Just order the music and put down my address as the Embassy. Pay through the nose for an album because of Swiss prices, but at least I can get the music.

Gotta love when I want to give you money but can’t.


Steam already does this type of differential pricing, they doing it by essentially region locking a price, the Indian keys will not work in the US, so they cannot be traded to someone in the US.

I wish if other stores also does these region sensitive pricing like steam does.


They have been fined for this in the EU, which they are appealing.


Well, they cannot differentiate on price within the EU. So they have to offer the same prices in Spain, France, Germany, Poland, etc... that's simply the law here. They can still offer different prices in markets outside the EU, though.


The marketplace for video games is strange, I agree. Another odd phenomenon: I recently saw online newspaper subscriptions being sold on eBay from foreign countries.


Correct me if I'm wrong...

The dilemna for the game producer is that if they let the games sell at the say India price but in all markets, then while brick-and-mortar stores in India may remain viable with such prices stores in other countries might not, AND the game producers want those shops to sell their games.

With iPad games for example there are no B&M stores but there is also the desire to take advantage of income variations by extracting some more margin from higher-earning customers. Regional differences between app markets seem to exist and to be meant to get this extra margin.


What it doesn’t mention is that a Big Mac is really a combination of a product (the price of which should be roughly constant) and the service of cooking and serving it (which is priced relative to local labor and real-estate rates).

If you look at the price of pure products, like barrels of oil, there is little Penn effect.


Not true. The Big Mac is mostly sourced regionally. So the raw material prices also vary and factor in labor cost.


> The Big Mac is mostly sourced regionally.

Only when it's cheaper to do so, and bulk shipping is pretty cheap. So the raw material prices have a cap on how much they can vary, while the location and service costs can have ridiculous differences.


You're assuming free trade, which is often not what actually exists. It's hard enough to get American beef approved to be sold in Canada, let alone ship it around the world.


You could do extra certification or whatnot if it was going to save you more than a penny or two.

Most trade is pretty free, even without all of it being so.


Outsourcing is an interesting concept when considered this way. My employer can hire me in Silicon Valley for $X or a remote engineer from Ukraine for $Y<<$X.

Now clearly to the employer this is one big market where they have the choice of two similar goods at very different prices. But the two employees are in distinct but overlapping labor markets so they're not going to adjust their own prices.

The employer has a choice of all employees but the reverse is not true. I can't choose to work at a local Ukrainian firm and the other person can't choose to work at a local Silicon Valley firm.


This "effect" exists locally in California. Identical products are cheaper in the Central Valley than they are in San Francisco, which makes perfect sense considering that the "product" (if it is a hamburger) includes the convenience of being immediately available in a high-rent high-wage area.

Similarly, Hass avocados from California retail for less in Baltimore than they do in Oakland.


There is this thing called "regional prices" in online freelance labor marker, which one could discuss is unfair to ie. workers from eastern Europe who earn less that their western counterparts for the same job.




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