<p>This could be for several reasons:</p>
<ol>
<li><p>this can be because coca-cola is tradable good whereas Big Mac is non-tradable. You would expect the law of one price to hold better for tradables than non-tradables. Even though the prices/wages in tradable sector affect those in non-tradable (e.g. Balassa-Samuelson effect), there is no good reason to assume the law of one price actually holds for non-tradables.</p>
</li>
<li><p>Limitation of Big Mac or Coca-Cola etc indexes are that they also capture effect of local taxes, import duties, competition etc.</p>
<p>As far as data show the taxation in the US and France are not exactly same (e.g. see <a href="https://stats.oecd.org/Index.aspx?DataSetCode=CTS_ETR" rel="nofollow noreferrer">OECD</a> and <a href="https://www.uscib.org/value-added-tax-rates-vat-by-country/" rel="nofollow noreferrer">USCIB</a>).</p>
<p>As pointed in the comments there are likely differences between level of coopetition in US vs Fr retail, and fastfood.</p>
</li>
</ol>

CC BY-SA 4.0
2021-11-07T14:46:38.473Z
Regarding (1), the opposite seems to be true: the Big Mac exchange rate is close to the actual market rate, while the CocaCola rate is much different. So I suspect (2) is the reason.
Daniel
CC BY-SA 4.0
2021-11-03T14:39:04.887Z
2021-11-03T14:39:04.887Z
1muflon1
<p>I have an assignment that requires me to pick an item and use it to create my own price level index, similar to Big-Mac index.</p>
<p>In March 2021, the price of 0.5 litre Coca-Cola in France was 0.97 Euro and in the United States was 2.75 USD. Therefore, the “Coca-Cola exchange rate” was 2.84 USD per Euro. (Source: <a href="https://www.globalproductprices.com/France/coca_cola_price/" rel="nofollow noreferrer">https://www.globalproductprices.com/France/coca_cola_price/</a>)</p>
<p>However, in 2018 the price of Big-Mac in France was 4.2 Euro. Meanwhile, in the United States it costs only 5.65 dollars. This ratio is 1.35 USD per Euro, approximately half of the one derived from price of Coca-Cola. (Source: <a href="https://data.nasdaq.com/data/ECONOMIST/BIGMAC_FRA-big-mac-index-france" rel="nofollow noreferrer">https://data.nasdaq.com/data/ECONOMIST/BIGMAC_FRA-big-mac-index-france</a>, <a href="https://data.nasdaq.com/data/ECONOMIST/BIGMAC_USA-big-mac-index-united-states" rel="nofollow noreferrer">https://data.nasdaq.com/data/ECONOMIST/BIGMAC_USA-big-mac-index-united-states</a>)</p>

CC BY-SA 4.0
2021-11-03T08:29:35.600Z
I find the example of Coca Cola interesting, but you have to remember that Coke is mainly bought in supermarkets, which set the price themselves. This is different from the Big Mac sold directly in a McDonald's. 

I would consequently think about an example where a product is sold directly by a branch of the company in question.  An example of this could be a typical footlong tuna sandwich from Subway.
chopschoc
<macroeconomics><international-trade><exchange-rates><purchasing-power-partity>
Why is there such a big difference of purchasing power toward Coca-Cola between Euro in France and USD in USA, comparing to Big-Mac?
martinrhan
# Why is there such a big difference of purchasing power toward Coca-Cola between Euro in France and USD in USA, comparing to Big-Mac?

(Asked by: username_0 on 2021-11-03)

I have an assignment that requires me to pick an item and use it to create my own price level index, similar to Big-Mac index.

In March 2021, the price of 0.5 litre Coca-Cola in France was 0.97 Euro and in the United States was 2.75 USD. Therefore, the “Coca-Cola exchange rate” was 2.84 USD per Euro. (Source: <https://www.globalproductprices.com/France/coca_cola_price/>)

However, in 2018 the price of Big-Mac in France was 4.2 Euro. Meanwhile, in the United States it costs only 5.65 dollars. This ratio is 1.35 USD per Euro, approximately half of the one derived from price of Coca-Cola. (Source: <https://data.nasdaq.com/data/ECONOMIST/BIGMAC_FRA-big-mac-index-france>, <https://data.nasdaq.com/data/ECONOMIST/BIGMAC_USA-big-mac-index-united-states>)

**Tags:** macroeconomics, international-trade, exchange-rates, purchasing-power-partity
> **Comments:**
> **username_1**: I find the example of Coca Cola interesting, but you have to remember that Coke is mainly bought in supermarkets, which set the price themselves. This is different from the Big Mac sold directly in a McDonald's.   I would consequently think about an example where a product is sold directly by a branch of the company in question.  An example of this could be a typical footlong tuna sandwich from Subway.  

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## 1 answers

### Answer by username_2 on 2021-11-03. Score: 0 | Accepted answer

This could be for several reasons:

1. this can be because coca-cola is tradable good whereas Big Mac is non-tradable. You would expect the law of one price to hold better for tradables than non-tradables. Even though the prices/wages in tradable sector affect those in non-tradable (e.g. Balassa-Samuelson effect), there is no good reason to assume the law of one price actually holds for non-tradables.
2. Limitation of Big Mac or Coca-Cola etc indexes are that they also capture effect of local taxes, import duties, competition etc.

   As far as data show the taxation in the US and France are not exactly same (e.g. see [OECD](https://stats.oecd.org/Index.aspx?DataSetCode=CTS_ETR) and [USCIB](https://www.uscib.org/value-added-tax-rates-vat-by-country/)).

   As pointed in the comments there are likely differences between level of coopetition in US vs Fr retail, and fastfood.

> **Comments:**
> **username_3**: Regarding (1), the opposite seems to be true: the Big Mac exchange rate is close to the actual market rate, while the CocaCola rate is much different. So I suspect (2) is the reason.  

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