BMW Group is an international automaker, with both German and American sales. BMW X3 M is the automobile brand. This model can be found on both American and German markets at differing prices. It is expected that the law of one pricing would be applicable in this case, but market differences make it difficult to know how. The index could not be exact as the market prices of commodities can vary depending on the respective needs and uses. According to the Big Mac index, the Euro has been 16% less valued than the US dollar since July 2020. The alternative product selected is the BMW X3 M, which is priced at $69,900 in the United States and €59,415 in Germany. Using the Big Mac Index, the suggested value of $69,900 in Germany is €51,630. The exchange rate for purchasing power in both countries is equal. $69,900 can buy 13,238 Big Macs. In terms of actual value, the market exchange rate for $69,900 is €57,096. It is impossible to have purchasing power parity when $19,900 will buy 13238.64 Big Macs (U.S.) and just 14,640.05 (Germany). This implies that if a BMW X3 M costs $69,900 in the United States, it must cost €51,630 in Europe to be viewed as having a comparable value. To get the suggested value of €51,630, $69,900 is added, although the actual market value of €51,630 is $63,208. This indicates that $69,900 in Germany is equivalent to $77,299 in the United States (BMW in the U.S. URL: https://www.bmwusa.com/vehicles/m-models/x3-m/pricing-features.html). BMW in Germany’s website address is https://www.bmw.de/de/neufahrzeuge/m/x3-m/2019/bmw-x3m-inform.html.
According to the GDP-adjusted value, a BMW X3 M costs 15% less in the euro area (€51,630) than in the United States ($69,900) at the current exchange rate. The BMW X3 M’s price should drop by 17% depending on the per-capita GDP changes. Therefore, $18,270 is the GDP-adjusted cost. The law of one-price states that the absence of trade restrictions influences price flexibility on the markets and reduces the buyers’ ability to manipulate the prices. (Schmidt 2016). Arbitrage options must be available to avoid lower prices destabilizing economic relationships when there is price divergence across different markets.
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