General information about Switzerland

Why is Switzerland so expensive?

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Switzerland is an expensive country. If you asked a Swiss why this is so, he would probably talk about rents, the high standard of living, and high wages, but if you look more closely you will find that the main reason is the oligopolistic-corporatist structure of Swiss industrial, retail and distribution enterprises.

What does that mean? It means that people in Switzerland restrict competition as much as they can, organizing cartels and guilds to arrange oligopolistic prices which are far higher than the real value of the commodities or services involved. For example, with many imported goods the importer doubles the factory price and then sells to the retailer, who doubles it again. Thus the consumer ends up paying 4 times the factory price because there is no effective competition between sellers. In another country, sellers compete and lower their prices to attract more business, but in Switzerland they do not. Another example: In Switzerland, most trades are protected by corporations or guilds which restrict the number of people allowed to practise their particular trade, and set  high, mandatory prices for their services. The funny thing is that these corporations are canton-based and so there are usually 26 different corporations for the same trade, each with its own price structure.

Why is that so? Switzerland is a very fragmented market, with different cultures and different languages every 50 Km. Moreover, people do not like to move and will remain in the same area all their life. So the retailers, for example, in any given area have a small, well-defined market where they know all their competitors well. Therefore, they are better off setting up an oligopolistic price than competing over a small market.

Why does it work? Swiss people are accustomed to paying high prices and they do not like to question them. They will merely say, 'That's the price!'
The Swiss economy has always been organized like this and many people profit from this system, so there is considerable resistance to changing to a freer economy. For example, if someone asks why driving lessons are 20% higher in the next canton, the only people likely to go to Bern to discuss this are the driving teachers, so in the end the odds are stacked strongly in their favor and the prices remain as they are. Besides, the Federal Government of Switzerland is weak politically - even weaker than in the USA - so the only possible vehicle for reform is not strong enough to challenge conservative interests.

Of course there's also the Samuelson-Balassa effect at work : if a worker can earn a standard wage for, let's say, a factory job, why would he take another job earning less? So, the person who cuts your hair will earn something close to what he would earn in another job with the same skill level. The result is the most expensive haircut in the world. between SFR 35 to SFR 50 for a normal men haircut.

What's the bottom line? You'll probably pay more in Switzerland for many things, but you'll get higher-quality goods. And anyway, you can still drive up to the next country, usually only a few kilometers away, to profit from the lower prices without having to pay any significant customs duties.

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