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.