The Manager’s Guide to Big Macs

Adrian E. Tschoegl, Wharton School of the University of Pennsylvania
Robert Grosse

Abstract

We have found that deriving the business implications of abstract concepts such as Purchasing Power Parity (PPP) is a daunting task for many students, even international ones. Yet, as managers they will need to understand some basics implications of exchange rate deviations from PPP for their businesses. One of the simplest and at the same time most useful tools for thinking about exchange rates – and planning for how to deal with them – is the Economist magazine’s annual survey of McDonald’s Big Mac prices around the world. The present article offers a tongue-in-cheek perspective on the key lessons one can learn from this tool. The simplest lesson is that prices of products that you may be purchasing can be dramatically cheaper from foreign sources. This thinking opens the way to a number of additional lessons that we present in the context of several fictional managers from different industries.