When China (yes, I know my use of China here is exceedingly vague) first complained about Starbucks’ pricing, my co-blogger fired out an email pointing out how the mere fact that Starbucks pricing is being discussed at all by China’s government/media is but further proof that China is not really a market economy after all.
So much in fact that whenever someone describes a price as “reasonable,” I usually will (depending someone on the person and the circumstances) “correct” them by saying something obnoxious like the following:
People can be reasonable, but prices cannot. On top of that, do you really think that anyone sought to make their price “reasonable”? I myself really doubt that they did. In fact, I would bet that the price for this was based on someone doing some high (or maybe low) level price elasticity of demand calculations and determining that this particular price is the most likely to maximize profits.
Now to carry this a little bit further for Starbucks’ China pricing (full disclosure: I own a piddling amount of Starbucks stock), I am sure that China is pricing its coffee there so as to maximize profits and that is exactly what is supposed to do. Starbucks charges a lot for coffee wherever it is located and it does so because it sells a premium product and more than enough consumers are willing to pay for it. If Starbucks could make more money selling its coffee for $10 a cup in the United States, it would. There would no doubt be people who would complain and still buy Starbucks, but probably most people would switch over to McDonalds or to Tully’s or to Dunkin Donuts or to Torrefazione Italia coffee at a lower price. And so be it. That is what a market is all about. The seller charges what it wants to charge and the consumer buys what it wants to buy.
There are obviously elements of the Chinese government/media/populace who either do not understand the above market maxims or simply disagree with them.
I never tire of telling of how when I was in high school my parents had a dinner party with a bunch of their college professor friends. One of them remarked on how utterly horrible it was that “garbagemen in Kalamazoo [my hometown] make more than the editor of the Yale Review.” My response was to note that I’d rather be the editor of the Yale Review at $30,000 (It was a long time ago) than be a garbageman in Kalamazoo at $40,000 and THE market apparently agrees with me. The professor said something about how that was a shame and that maybe we should do something about it. My response was to ask whether he thought that college professors should determine the salaries of everyone in America or whether he would prefer that still be left to the market. I do not remember his response.
I don’t know about you, but I have no problem letting Starbucks determine what it will charge for its coffee, just so long as I remain free to buy as little or as much of it as I want. That is rather basic isn’t it.
China, are you listening?