The Big Mac Index vs. The Little Mac Index

Price comparison of the same product across countries is an interesting analysis to see how products are cheaper or costly in various countries. The Economist’s famous Big Mac Index uses the Big Mac burger of McDonald’s for this comparison. CFR tried a different approach using Apple’s iPad minis. Their research shows that the average price differential between countries based on the iPad is only 9% which is not as huge as the one using the Big Mac.

Click to enlarge

Little Mac vs Big Mac Comparison

Source: Our Little Mac Index Flame-Broils The Economist—Yet Again, CFR

From the article:

The Economist magazine’s famous Big Mac Index uses the price of McDonald’s Big Macs around the world, expressed in a common currency (U.S. dollars), to estimate the extent to which various currencies are over- or under-valued. The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose.

But burgers travel badly.  So in 2013 we created our own index—one that better meets the condition that the product can flow quickly and cheaply across borders.

The Geo-Graphics Little Mac Index compares the price of iPad minis across countries. iPad minis are a global product that, unlike Big Macs, do in fact travel the earth with their owners.

As can readily be seen in the graphic above, our Little Mac Index shows that the law of one price holds far better than the Big Mac Index – as it has done consistently over the past several years. In January, the average overvaluation of the dollar according to the Big Mac Index was 26 percent – a Whopper.  According to our Little Mac Index, the average overvaluation was only 9 percent – Small Fries.  This suggests it’s time to deep-fry their index and move over to ours.

Though this CFR comparison is interesting, the one flaw is that unlike iPad minis the Big Mac burger is an everyday product that is easily available and may be affordable to most people in countries around the world. Apple’s(AAPL) products are exorbitantly expensive in emerging countries and unlike developed countries, Apple does not have a cult-like followers in those countries. So The Economist’s example is a better comparison than the CFR’s Little Mac.

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