Starbucks is now a target in China. State-owned CCTV recently complained that a medium-sized latte costs $4.43 in China compared to $3.28 in Chicago, $2.40 in Mumbai, and $3.98 in London. CCTV accused Starbucks of price discrimination.
I first learned of the incident on CNN-International while traveling abroad. CNN-I is always willing to jump on anything opposed to capitalism or the Republican party. The network reported on the story right after noting that the Australian wildfires have reignited discussions on global warming, and right before identifying Ted Cruz as the most reviled man in Washington. CNN-I referred to the practice as price gouging and immediately demanded a response from Starbucks.
Price gouging? Really? The term “price gouging” is typically used to describe situations involving presumed necessity, such as buying oil or drinking water after a natural disaster. But coffee? Do companies like Starbucks really need to justify their prices to CCTN, CNN-I, or anyone else?
Starbucks has been an active participant in “fair trade” coffee since 2000, meaning that it pays above-market prices for coffee beans from growers in poor regions of the world and passes the extra cost along to consumers. The media has no problem with the fair trade concept even though it results in price hikes. Hence, the uproar here is not about price, but about profit. It’s being alleged that Starbucks—not the poor coffee growers—is profiting unfairly by charging a higher price in Beijing.
This claim is ridiculous on its face. Companies set prices based on costs (e.g., land, taxes, labor, and materials), demand for the product, and competition. The market price is usually what the market will bear. Sometimes this level is well above the cost to produce a product; sometimes it can even drop below production cost. Because these factors vary across locations, it is obvious that Starbucks’ prices would vary as well. The Economist has demonstrated this for years by tracking the price of a Big Mac across the globe (http://www.economist.com/content/big-mac-index).
I found the CNN-I coverage particularly misinformed. The news anchor added a side comment about her recent coffee purchase and “having to pay” a certain amount for a cup. I didn’t realize anyone forced her to pay anything? Did they tie her up or just snatch the money out of her purse? Perhaps she should have called the police…
So why should you have to pay $4.43 for a cup of coffee in China? The answer, of course, is that you do not. Brew your own coffee or shop elsewhere. Starbucks isn’t gouging anyone. In fact, you hold the fate of Starbucks in your hands every time you make a coffee purchase decision. What networks like CCTV and CNN-I fail to understand is that consumers are ultimately in charge in market economies.
I agree that prices cannot be the same in different markets. I read that Chines prefer to sit and drink their coffee at the shop and not to order and go as we do it here on our way to work, so Starbucks needs bigger stores in China and that make costs higher. Could it be that the Chinese authorities initiated this campaign to bring down prices of international companies?
what right does the chinese government have to reduce prices?
none