For immediate release: September 30, 2008
The Big Mac Provides Insight into Global, Local Price-Setting Behaviors, Says Dallas Fed
DALLAS—The price of a McDonald's Big Mac may provide a glimpse into the factors that shape regional, national and global pricing, according to the September issue of the Federal Reserve Bank of Dallas' Economic Letter.
The September Economic Letter can be found at: http://dallasfed.org/research/eclett/2008/el0809.html
In "The Big Mac: A Global-to-Local Look at Pricing," Anthony Landry, research economist for the Dallas Fed's Globalization and Monetary Policy Institute, finds price-setting behaviors for a relatively simple product like the Big Mac are quite complex.
"The Big Mac illustrates the magnitude of the price variations that can occur and suggests how difficult it is to dismantle the international dimension in prices," Landry writes.
Large differences in Big Mac prices from country to country are partially explained by transportation costs, trade barriers and income disparities, according to Landry.
Domestically, location-specific factors like wages, rents, consumer demand and local competition all influence Big Mac prices.
Within the U.S., Big Macs show large price gaps, Landry states. A Dallas Fed research sampling of 150 McDonald's across America conducted in April found the cheapest Big Mac was $2.24 in Adel, Ga. The most expensive was $3.84 in downtown Philadelphia.
"To be more specific, it's cheaper to operate in largely rural Adel, Ga., than in downtown Philadelphia, where McDonald's restaurants compete for space with banks, retailers and other business," Landry writes.
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