Law of One Price Explained: Impact on Australian Markets in 2025

Imagine walking into a Sydney electronics store and finding the exact same smartphone model you saw online from a US retailer — but at a much higher price. Why does this happen, and should global prices really be identical? The answer lies in a core economic principle: the Law of One Price (LOOP). In 2025, as Australia’s economy navigates shifting trade policies, currency swings, and digital disruption, the Law of One Price is more relevant—and more complex—than ever.

What is the Law of One Price?

The Law of One Price states that in efficient, frictionless markets, identical goods should sell for the same price when prices are expressed in a common currency. It’s a concept underpinning much of modern trade theory and is closely linked to purchasing power parity (PPP).

• Key Assumptions: No transport costs, no tariffs or taxes, perfect information, and no barriers to trade.
• Example: If gold trades for AUD $3,100 per ounce in Melbourne, it should sell for the equivalent amount in London, New York, or Tokyo, after accounting for exchange rates.

But in reality, prices often diverge. Understanding why helps Australians spot opportunities—and pitfalls—in global commerce.

How the Law of One Price Plays Out in Australia

Australia is a classic test case for the Law of One Price. As a resource-rich, export-driven nation with a small population and high import reliance, Aussies are acutely aware of price gaps between local and overseas goods. Here’s how LOOP applies in 2025:

• Electronics & Fashion: Despite digital marketplaces and fast shipping, Australians often pay a ‘down under’ premium for global brands. For instance, a flagship laptop might cost AUD $2,500 locally versus AUD $2,000 from a US retailer—even after adjusting for currency.
• Petrol Prices: Global crude oil prices are largely set by international markets, so LOOP is more evident. However, local taxes, transport, and refining costs create gaps. When global oil surges, Australian bowsers feel it almost instantly.
• Groceries & Food: Fresh produce is less subject to LOOP due to perishability and high transport costs. Imported packaged goods, however, often reflect global pricing trends, especially for items like coffee and chocolate.

Case Study: The 2025 Aussie Dollar
In early 2025, the Australian dollar has experienced moderate volatility, trading between 0.65–0.70 USD. This fluctuation affects the local price of imported goods. If a product is priced at USD $100 overseas, it could cost between AUD $143 and $154 at those rates—before considering shipping, GST, and retailer margins.

Limits and Realities: Why Prices Still Differ

The Law of One Price is a useful guide, but the real world is messier. Here’s why Australians still see price gaps in 2025:

• Shipping and Logistics: Australia’s distance from major manufacturing hubs means higher freight costs, especially for bulky or low-margin items.
• Taxes and Tariffs: GST (10%) applies to most imported goods over $1,000, and some product categories attract additional tariffs or excise taxes.
• Market Power and Distribution: Local distributors and retailers may have limited competition, allowing for higher markups than in hyper-competitive overseas markets.
• Regulatory Barriers: Product standards and safety certifications can limit parallel imports, especially for electronics, cosmetics, or pharmaceuticals.
• Brand Strategies: Some global companies use regional pricing to maximise profits, setting higher RRPs in Australia than elsewhere.

Recent policy moves—such as the 2025 review of parallel import restrictions and continued scrutiny of digital marketplace competition—are designed to narrow these gaps, but differences remain.

What Does This Mean for Aussie Shoppers, Investors, and Businesses?

For Shoppers: Savvy Australians increasingly use price comparison sites and buy direct from overseas sellers when possible. The rise of global e-commerce platforms like Amazon and Alibaba has made LOOP more visible, though local protections and shipping costs still matter.

For Businesses: Importers must constantly monitor currency movements and global price shifts. Exporters benefit when LOOP holds—ensuring commodities like iron ore or wheat fetch similar prices worldwide—but must hedge against swings in the AUD.

For Investors: Understanding LOOP is crucial when assessing companies exposed to global price competition, such as retailers or resource firms. Policy changes—like the 2025 federal initiative to enhance digital marketplace transparency—could shift profit margins and share prices.

2025 Policy Watch: What’s Changing?

• Digital Goods: The Australian Competition and Consumer Commission (ACCC) continues to monitor geo-blocking and regional pricing practices in digital content and software.
• Parallel Import Rules: Ongoing consultations may relax rules further, especially for books, electronics, and branded apparel, potentially narrowing price gaps.
• Consumer Awareness: Government campaigns in 2025 encourage consumers to challenge unjustified price differences and report anti-competitive conduct.

As global commerce becomes more interconnected, LOOP’s influence will only grow—but so will efforts to address its limits for everyday Australians.