Internal price
The internal price (also internal market price or internal price ) is the price at which a good is traded domestically. The internal price is often related to the world market price (external price). There is also the so-called EU internal price. That is the market price for goods within the European Union .
The domestic price in the domestic market
The domestic price ( equilibrium price ) on the domestic market is determined by the intersection of the supply and demand curve. At this price, the quantity offered by the producers corresponds to the quantity demanded by the consumers (equilibrium quantity). In Fig. 1 the equilibrium price is 450 monetary units per quantity. At all prices that are above the equilibrium price, there is an excess supply of a certain good. At a price that is below the equilibrium price, there is more demand for a good than the producers want to provide, so that an excess demand arises. There is thus a price decrease in the case of an excess supply or a price increase in the event of an excess demand.
If supply and demand are balanced, the internal price remains unchanged, since it has reached its equilibrium level. In self-sufficiency , this price is the domestic equilibrium price on the domestic market.
Relationship between domestic price and world market price
If there is a deviation from the equilibrium price on the domestic market, discrepancies arise between supply and demand. There can be an excess supply if the supply is greater than the demand, or in the opposite case, there can be an excess demand (Fig. 1). However, this deviation from the equilibrium price can only occur for a short time. "A permanent deviation is only possible if there is a connection between the domestic domestic market and the world market, where an excess supply can be sold or an excess demand can be met."
The following constellations are possible between domestic and world market prices:
- The world market price corresponds to the price on the domestic market.
- The world market price is above the domestic price.
- The world market price is below the domestic price.
If the world market and domestic price match, there is neither an excess supply nor an excess demand domestically. If the world market price rises above the equilibrium price on the domestic market (domestic price), producers increase the export of domestic goods. Consumers, on the other hand, limit their demand due to the increased world market price. There is an excess supply. If the world market price is below the domestic price, this leads to excess demand from domestic consumers. This means increased domestic demand for imported, comparatively cheaper goods (Fig. 2).
If there were only the internal market, a very low price or a very high price would not last long, but would very quickly find its domestic equilibrium again at the intersection of the equilibrium price and the equilibrium quantity.
Effects of export subsidies on the EU internal price
Export subsidies (compensation payments to domestic producers) serve to promote branches of industry which have been defined as indispensable, for example agricultural production. These products are not marketable on the world market or their production costs exceed the world market price. "The European Union, for example, guarantees its farmers minimum prices for many products in Europe and, under certain conditions, reimburses the difference to the lower world market price for exports."
This gives them a competitive advantage over providers from other countries. This means that developing countries can no longer sell their agricultural products on the world market and import subsidized goods. The goods are exported until the domestic price exceeds the foreign price by the amount of the subsidy . Domestically, the subsidy leads to an increase in the domestic price as the exported goods become scarce.
Example: subsidizing beef
The production costs of beef are € 3.56 / kg, the selling price on the domestic market is € 2.62 / kg and on the world market € 2.05. So this food is subsidized in order to offer farmers in the country guaranteed prices and an adequate income. Due to the strong subsidies in the industrialized countries, this leads to surplus production of beef and its export at prices that are below the world market price (Fig. 3).
The price of beef is of at raised by the grant, so that the producers are favored. In contrast, consumers have to pay a higher price for beef domestically. The subsidy increases government spending, which leads to domestic welfare losses.
Problem of the EU average price compared to third countries
Example: Reasons for price differences between the EU and Switzerland
Price differences exist not only within the European internal market, but also in relation to third countries. Within the European internal market, intergovernmental trade barriers have meanwhile been abolished, so that there are only few differences between the cost prices of the individual EU countries. These are reduced to transport costs and discounts.
With regard to the trade of industrial products between the EU and Switzerland, price differences can arise due to transport, imports, customs clearance and different exchange rates. Since Switzerland is in the middle of the European internal market, transport costs are not a major criterion for price differences. Customs duties and taxes are usually incurred on import. Since customs duties for industrial products were abolished with the free trade agreement of 1972 between Switzerland and the EEC , only taxes remain as cross-border costs. Another reason for higher cost prices in Switzerland can be adjustment costs due to technical standards. Since the technical standards do not differ very much from those of the EU, the additional costs involved are not very high. These are on average 0.5% to 1% for imports from Switzerland to the EU. The cost price of foreign products is also significantly influenced by the exchange rate. In recent years, the Swiss franc has appreciated against the euro, which is said to have led to lower purchase prices for imported goods from Switzerland.
Higher prices can also be attributed to cartel and monopoly rents (higher profits through market dominance). Just like the national competition law of the EU, the Swiss antitrust law is intended to prevent competition restrictions and thus the generation of cartel rents. Cartel rents can arise through market foreclosure, horizontal coordination and market dominance.
The foreclosure of the market takes place through price fixing, in which price agreements are made between the manufacturer and the dealer. Market foreclosure can also occur if only certain areas are supplied due to sales restrictions or if there is an export ban to Switzerland. This eliminates the risk of competing competitors. The manufacturer tries to prevent so-called arbitrage deals . Through these deals, middlemen try to circumvent the official distribution channels and consequently subvert the high-price areas in order to use price differentiations . If country borders are crossed, this can lead to gray imports and parallel imports . However, fixed prices and export bans are impermissible restraints of competition.
Horizontal agreements are price agreements in the form of minimum prices between competitors. This leads to cartel rents either on the manufacturer side or on the dealer side. These price agreements are inadmissible under competition law, but are difficult to prove. As a small country, Switzerland leaves a lot of space for this, as the sales market is kept very small.
Market dominance expresses that a company can raise prices independently of other competitors without losing market share. This dominance of the market exists at the retail level or at the wholesale level. At the retail level, a lower cost price or a higher sales price is implemented. This generated monopoly rent has to be borne either by the supplier in the case of demand market power or the consumer in the case of supply market power. At the wholesale level, supply market power always affects the cost prices. Wholesalers gain supply market power when they have sole or exclusive right to sell certain branded products in Switzerland. In this way, monopoly rents can be generated.
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literature
- P. Doubt, Robert H. Heller: International trade, theory and empiricism , 3rd edition, ISBN 3-7908-0989-6 , chapter 2.
- Paul R. Krugman, M. Obstfeld: Internationale Wirtschaft , 7th edition, ISBN 3-8273-7199-6 .
- Jörn Altmann: Foreign trade for companies, European internal market and world market. Gustav Fischer Verlag, ISBN 3-8252-1750-7 .
- Felix Prümmer: Economy and Competition, vol. 53.2003, specialist publisher of Verlagsgruppe Handelsblatt GmbH 2003, pp. 247–250.
Web links
- Naturschutzbund , accessed on April 13, 2008.
Individual evidence
- ^ A b P. Zweifel, Robert H. Heller: International trade, theory and empiricism. 3rd edition, ISBN 3-7908-0989-6 , p. 36.
- ↑ Deutsche Welthungerhilfe eV ( page no longer available , search in web archives ) Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. ; Retrieved April 20, 2008.
