Fashion arbitrage: The US Dollar conundrum

In economics, arbitrage is the practice of taking advantage of a price differential between two or more markets by buying something for a lower price in one market and selling it for a higher price in another market, preferably instantaneously, to avoid the risk that price gap will close.

With the plummeting US dollar, many European brands have decided to take a hit on margins instead of lifting prices to reflect the current exchange rate. They want to stay competitive with their American counterparts and don't want to turn off American consumers with astronomical prices.  But the resulting lower US prices have led to an opportunity for some seriously lucrative fashion arbitrage. For example, a New York Times article published this week reveals that the Yves Saint Laurent Downtown bag costs $1495 at Bergdorf Goodman in New York, but costs £910, about $1796, at Harvey Nichols in London.

Savvy consumers can make money by buying bags and other fashion products in the US and then flogging them in Europe and Asia -- at prices higher than in the US, but lower than the International price.