Question

Despite the fact that rental rates for commercial space and labor costs are generally higher in big cities than small towns; the prices of many products – such as electronics and clothing – are higher in small towns than in large cities. Can you explain this? Reference:

Answer 1

Final price of a product depends on cost of all expenses including distribution expenses. In small cities demand for electronics and clothing are not that like larger cities. It also distances more than port and receiving center. This is one of the reasons these products are costlier in smaller town than cities. All imported product also testifies the same. In big cities retailer offers discount to the customer from MRP because competition is more competitive in larger cities. Here market is also higher so smaller margin upon higher quantity increase the net revenue as compared to higher margin and lower quantity in smaller town.

Reference- Are big cities always more expensive? By WEF