What are the causes of price escalation? Do they differ for exports and goods produced and sold in a foreign country?
Causes for price escalation are incurred costs from the following;
Taxes, tariffs, and administrative costs
Inflation
Exchange variation → Variation in the exchange rate of two currencies.
Basically, if a company is experiencing high inflation in a country where they are selling their products, it may sometimes be even better to retain its inventory instead of selling at below its replacement costs. Ways of controlling inflation can be done by charging for extra services, inflate costs in transfer pricing, break up products into components and price each part separately.
Exchange-rate fluctuations hedging → insuring against a negative currency rate
Varying currency values
Middlemen withdrawals (from longer distribution channels)
Transportation and shipping
Learn More :
Pricing for International Markets
- What is demand elasticity?
- What factors influence international pricing?
- Which out of the four types of countertrade is the most beneficial to the seller?
- Why is counter trade increasing?
- Why do governments scrutinize transfer pricing arrangements so carefully?
- What are the alternative objectives in setting transfer prices?
- In what various ways does the government set prices? Why do they engage in such activities?
- Why has dumping become such an issue in recent years?
- How can a marketer adjust prices to accommodate exchange-rate fluctuations?
- Do value-added taxes discriminate against imported goods?
- Why are companies generally not "allowed" to perform price fixing, but governments are?
- How can the problem of price escalation be counteracted?
- What is transfer pricing?
- What is dumping?
- What is price escalation?
- What is skimming?
- What is parallel imports?
- Why is it so difficult to control consumer prices when selling overseas?
- What are the causes and solutions for parallel imports and their effect on price?