Retailers resist passing on benefits of stronger $

There is this morning(Sept. 20, 2007) a very insightful article in the Globe and Mail ``Prices staying put despite dollar's climb`` by Heather Scofield p.1 which argues that many if not most Canadian retailers are for the time being refusing to cut the prices of their imported goods.

This is very noticeable in the book selling industry where the big box stores continue to charge a premium of 15-20 % on books published in the US despite the Canadian dollar now trading at 99.8 cents US. (by 3 in the afternoon it was trading 1:1)This trend may change but if it does not, one has to take with a grain of salt the assertion that markets are competitive.

In fact, in far too many markets the barriers to entry to other competitors is far too high and the industries are quasi monopolies or at the minimum oligopolies that de facto set prices to maximize the extraction of profit.

In other words prices are flexible upwords but inflexible in a downwards direction. Of course, large sectors of the Canadian economy are competitive because of the enormous pressure of off shore cheap production from countries like Bangladesh, India and China.
But other sectors with substantial US imports like the book industry and the automobile sector seem very slow to react to the greater purchasing power of the Canadian dollar. There are therefore opportunities for creative investors and entrepreneurs who might want to challenge the hegemony of existing retailors either by promoting direct purchase and importation from the US via the internet or by literally setting up a parallel business to what exists but passing on the benefits of the cheaper US dollar directly to Canadian customers.

Nevertheless, while things may change over the medium term for the short term, frictions and inflexibility prevails and market clearance works very differently from the dominant neo-classical economic theory. For Keynesians and post-Keynesians this comes a s no surprise and this is precisely why they argue that involuntary unemployment can occur and last for far longer than neo-classicals claim in the absence of government fiscal and monetary intervention.