Consumers have power over prices

Toronto Star Editorial

Last year, when the Canadian dollar was worth 86 cents (U.S.), a consumer product, such as a pair of shoes or pants, with a $100 price tag in an American store in Buffalo or Niagara Falls, N.Y., should have sold for close to $116 in a Canadian store in the Greater Toronto Area. And in many cases, the price in Canada was a lot more than $116.

But now that the Canadian dollar is nearing $1.04 (U.S.), it is only reasonable that consumers north of the border should expect that same item should be selling for around $96 in the Canadian store.

In reality, though, Canadian consumers have hardly seen any prices drop anywhere near that amount. Understandably, they are hopping mad. They know that if they are not getting the benefit of our higher currency, then somebody else – and they suspect it is the Canadian retailer – is profiting at their expense.

Consumers are growing even angrier after learning several automakers are sticking to their policies that ban U.S. dealers from selling cars and trucks to Canadians seeking savings worth thousands of dollars. And they are also becoming more outraged knowing some retail chains with stores both here and in the U.S. won't sell online, where prices are less than in their Canadian stores, to Canadian customers.

In a bid to keep consumer anger from ricocheting onto the government, Finance Minister Jim Flaherty summoned the Retail Council of Canada to Ottawa to stress he wanted to see prices reduced to reflect the soaring dollar. What Flaherty got in response was a long list of excuses why Canadian prices must be higher than in the U.S. After failing to get any movement from retailers, the only thing Flaherty could tell buyers was "to shop around and look for discounts. It's important for people to realize there is power to shopping around."

As gratuitous as that advice might sound, it contains much truth. It is consumers who determine which businesses prosper and which ones fail. It was shoppers who forced Eaton's to close its doors for good. And just yesterday, Sears Canada Inc., one of the country's largest retailers, blamed cross-border shopping for part of a 2.9 per cent drop in sales in its last quarter, which ended Sept. 29.

Consumers don't need Flaherty to tell them they can often get American prices on the Internet, or by driving to Buffalo. And where price discrepancies are big enough, that is what they will do.

Economists have long recognized that the consumer ultimately calls the shots in a market economy. And if Canadian retailers think they can keep their share of the market with prices higher than their competitors – either down the street, in Buffalo or in cyberspace – they are in for a rude awakening.

But that doesn't mean Flaherty should not keep a watchful eye out for possible price gouging by some retailers or that he should stop pressuring retailers to bring their prices into line as fast as possible.

After all, narrowing the huge gap between Canadian and U.S. prices will mean a lot more for consumers in terms of cold, hard cash in their pockets than any possible cut in the GST that Flaherty has in mind.