Two internet book vendors, Amazon and Bookdepository, have different pricing schemes: usually books are cheaper at Amazon, but Bookdepository does not charge shipping and handling fees. When you live abroad, shipping is relatively expensive, and therefore the difference is usually significant (in favor of Bookdepository). But there is one more issue that makes things a little more intricate: tax. Merchandise is taxed, shipping fees are not. In Israel, if you import goods that cost more than $50, you have to pay a 16.5% tax. Therefore, if one buy books that cost at Bookdepository more than $50 and at Amazon less than $50, then for buying at Bookdepository one needs to pay tax (and not shipping and handling fees), whereas for buying at Amazon one needs to pay shipping and handling fees (and not tax).
The decision problem that the buyer faces is clear. However, this brings up the following pricing scheme: the vendor can ask the buyer to choose whether he wants to pay for shipping and handling, in which case the price of the merchandise is lower, or he/she prefers not to pay the shipping and handling fees, but then the merchandise is more expensive. The total amount that the vendor receives is the same; the total amount that the buyer pays is different. In fact, the buyer may be willing to increase the total amount he/she pays to the vendor, if the price of the goods falls below the maximal amount that is free of tax.
One may wonder how often it happens that the books you desire cost less than $50 at Amazon and more than $50 at Bookdepository. By Murphy’s law, this will happen the next time you make an order. It happened to me in my last order of books.
2 comments
May 31, 2011 at 5:48 am
Ron
In fact, a rational decision maker, might split an order of more than $50 into several orders of less than $50 each. It might be the case that by doing so, he would spend some more on handling fees but save even more on tax.
What is the optimal splitting policy, then? The optimization problem gains more and more dimensions. But then, giving it another thought, the strongly dominant strategy is to download an electronic copy (there’s always a friend of a friend who knows how to do it) free of charge. It saves fees, taxes, the base price, the computational resources, and even the rain forests. If you feel it ain’t right, send a dollar to the author. it is probably more than his share anyhow.
June 1, 2011 at 1:41 pm
Yuval
Perhaps in order to prevent such schemes (or to have more incomes), the Israeli tax rules actually relate to the total price of the imported product (including shipping fees).
The dividing scheme (into a few deliveries each below 50$) may still be useful.