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Comparing a few Lego products at the official online store, I found U.S. prices seem to be consistently around 70% of those in Europe given current currency exchange rates. That's a surprising difference. Given that U.S. import tariffs apply to products manufactured in Europe (such as Lego), one would expect the price difference to be the other way around.

What is the primary reason for this price differentiation? Better competition in the U.S.? Lower taxes? More wealthy Lego fans in Europe?

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I'm going to guess that part of it is that the 19% sales tax is included in the EU but in the US sales taxes are normally applied only when you purchase (partly because they vary depending on your location). So a US purchaser might find state, county and city taxes applied. –  Mσᶎ Aug 14 at 12:40
    
That is correct. In addition consider the market; LEGO's number one and largest marketplace is the USA. They can afford to keep their prices low because they sell huge volumes. Also there is competition; LEGO is considered an expensive toy here as well, compared to other brands. If they would go any higher they would loose their customers. –  TheBrickBlogger Aug 14 at 14:48
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Western Europe is LEGO's largest market, not the US. theglobalcmo.com/lego-global-marketing –  62Bricks Aug 16 at 1:52

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To answer this question, we must first check the accuracy of your observation that "U.S. prices seem to be consistently around 70% of those in Europe given current currency exchange rates."

Using data provided by Brickset, which pulls data from the online listings at shop.lego.com, we can compare the prices of sets released in 2014 that are listed with prices in both USD and EUR.

I downloaded this data and used a spreadsheet to analyze the prices. Using the 2013 average USD to EUR exchange rate of 1.3282465 I converted retail prices from EUR to USD. On average, the retail prices on the US site are 77.06% of the retail prices on the sites where prices are listed in EUR.

So your observation is close to the apparent actual difference in listed prices, although it is closer to 80% than 70% on average.

The member states of the EU each set a value-added tax (VAT) on items sold in those countries. This rate currently varies from 15% (Luxembourg) up to 27% (Hungary). LEGO includes the VAT in the listed price in countries where it is collected. This means the listed retail price is higher than the actual base price of the set. If you assume a VAT rate of 25% and adjust the list prices accordingly, then comparing the USD prices to the EUR prices shows that US list prices are actually about 96% of EUR prices. This is an average - many sets sell at a similar or lower actual base price in Europe than in the US (when expressed in USD).

For example Set 60045 Police Patrol sells for $44.99 USD in the US. It sells for 39.99 EUR in Germany. The VAT in Germany is 19% and today's exchange rate is 1.3398. To get the base price of the set in EUR, divide the list price by 1.19. That gives us a base price of 33.60 EUR. Multiply that by the current exchange rate and the USD price you would pay in Germany for this set is $45.02 - just three cents more.

Here is the data I use in a spreadsheet format, sorted by their prices in USD. The calculated columns on the right show the EUR prices converted to USD and the bases of EUR list prices assuming 25% VAT.

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Thanks. I guess the fact that the base price without taxes is similar implies that LEGO slashes its profit margin in the U.S., to offset the effect of import tariffs. I found this article helpful too. –  Gruber Aug 18 at 7:28
    
Perhaps, but LEGO has a factory in Mexico, which has a free trade agreement with the US and Canada. Also, labor costs in Mexico are much lower than in Western Europe. –  62Bricks Aug 18 at 11:13
    
Each state with a sales tax has its own law about whether sales tax has to be collected for online sales. For example, I live in a state that has a sales tax, but my state says that online retailers only have to collect the tax if they have some kind of physical presence in the state. There is no LEGO store in my state, so when I make a purchase at shop.lego.com, no sales tax is collected. On the other hand, there is an Apple store in my state, so online purchases from Apple are taxed. Some retailers, like Amazon, collect sales tax for all states, regardless of the local law. –  62Bricks Aug 18 at 11:35
    
So this shows how Lego prices in Europe roughly match US prices in the US, but sadly Canada gets screwed, with before-tax prices that are 20-30% higher than the US even factoring in the exchange rate. –  Mr. Shiny and New 安宇 Aug 19 at 3:53
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Actually, Canada's base prices are very close to those in the US after you factor out the 5% VAT and using the current exchange rate of 1.09 CAD to USD. I have added more columns to the spreadsheet that show, on average, US base prices are 93% of Canada base prices (converted to USD). –  62Bricks Aug 19 at 23:07

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