Why Do We Have a Price Gap Between Canada and the United States
According to the Senate Study on the Canada U.S. Price Gap, there are several root causes for the difference in price between Canada and the U.S. They include:
- Country Pricing Strategies (where wholesalers price to the U.S. and Canadian markets differently for the same products – usually much higher in Canada).
- Import tariffs collected by the Canadian government
- Relative size of the Canadian market
- Inconsistent regulation between Canada and the US
- Supply management
In addition, there are a number of input costs and economic factors that will influence the price of a good on both sides of the border. They include:
- Manufacturing Process
- R+D, product development costs
- Selling, General and Administrative expense
- Brand allocation
- Moulds and tooling amortization
- Exchange rate
Despite the long list of factors that influence the price of a good, some have more of an impact on price than others. Generally, the largest contributors to the price gap between Canada and the U.S. are wholesale pricing strategies, supply management and import tariffs.
The government is addressing country pricing through their recently tabled Price Transparency Act which will empower the Competition Bureau to uncover price gouging practices through a study.
Tariff elimination was identified as a priority in the 2013 Federal Budget and is an area in which the government could make some significant progress in terms of closing the price gap between Canada and the US.
Following the Senate Report’s recommendation to eliminate import tariffs, the government eliminated tariffs on some sporting goods and baby clothes in the 2013 Federal Budget on a pilot basis to see if consumers would benefit from savings.