Sometimes, the same goods and services can cost different amounts based on where we are when we buy them. This phenomenon is known as “geographical pricing,” and based on what (and where) we’re talking about, those price differences...can be pretty major.
As a shopper, it can be a little shocking when we run into a store on the island of Maui to pick up a gallon of milk and end up paying twice as much for it as we would in our hometown in Illinois. But think about it: how many milk-producing dairy farms are there in Hawaii? The answer is “not many,” which means that the gallon of milk we just bought probably had to be refrigerated and shipped from a dairy on the mainland. Refrigeration and shipping cost money. The farther the product has to travel, the higher those costs are, and they are often passed onto the end consumer.
Geographical price differences aren’t only due to shipping and travel costs, though. Laws, regulations, and tax structures can also influence how much something costs in a given area. This is why, for example, gas tends to be more expensive in California than in other states. Not only does it usually have to travel to get there (not a lot of oil refineries in the Golden State these days), but the demand is high, the gas tax rate is high, and the state has specific fuel mix requirements that increase how much it costs to produce. And just as with our Maui milk, those costs are largely absorbed by the consumer.
There are other things that can impact geographical pricing—the average income of an area, for example, or how much competition for that good or service exists nearby—but in general, the thing to remember is this: when it comes down to it, the price of certain goods and services can be heavily influenced by the same three things that drive the real estate market: location, location, and location.