Rug-Buying Economics


Shopping for rugs in Istanbul is de rigueur for tourists, and we were no exception.

The rug-buying guide advises buying what you fall in love with and then bargaining for it. So we did and obtained what we thought was a very good deal. As I usually do, I offered the seller a check to save him the credit card commission. But he wanted a credit card — and he also mentioned that there is no extra charge for shipping, customs, or anything.

I was amazed and inquired why. Simple, he says: The Turkish government gives a subsidy of 100 percent on all ancillary expenses on rug exports if the seller does more than $5 million in business. The subsidy is only placed on the excess above $5 million.

Such a marginal subsidy is more efficient than subsidizing all sales; why reward companies for what they would do anyway?

The only problem is that it favors the larger firms; if there are some economies of scale in this industry anyway, this just moves the bottom of the total cost curve still further to the right.


I would have thought that a check in foreign (to the seller) currency would have been the worst possible form of payment. My bank charges a hefty fee for processing non-US$ checks, and on top of that they give an unfavorable exchange rate. I agree with #3 that a cash payment in US$ or euro (or even in Turkish lira) would have been looked upon more favorably.


My guess is that bigger businesses simply have more political clout and that it has nothing to do with sound economic principles.


"Such a marginal subsidy is more efficient than subsidizing all sales; why reward companies for what they would do anyway?"

I'm no economist so I wonder about this. It rather seems to be normal in my country (Norway) to subsidize small businesses who may struggle to either start up or stay alive. The big businesses already do pretty well and as such is not prioritized for subsidy. After all there is only so much to go around.

Is it more important to help big business get bigger, or give small business a chance at success?

John B. Chilton

Instead of a check, did you offer him cash in the form of Euros or Dollars?


This is a bit off topic, but it reminds me of one of the more wonderous days of my life. About 1991 I was in Kashmir and found myself trying to buy rugs. At the time there was alot of conflict (and recently), and that day, my last in town, I was in the rug merchant shop and gunfighting broke out and the two of us were pinned down. All the time, several hours, we were looking and haggling over carpets, ducking and peeking out the window. In the end it was all charged on Amex. Finally the fightig moved on and we went to his house for tea. When it was time to leave he handed me an envelope with the charge slip and asked me to please take it to his brother in New Dehli, which I did. When I got home some months later, all the rugs were there. I always hoped that all was well with him. Kashmir was a wonderful and beautiful place. May they find peace.