Does small market size really explain high prices in smaller countries?

Hello,

I keep seeing the same supposedly economy argument over and over for high food product prices and it's the small market size. This is an excuse given for high prices of products in smaller countries where the population is 5-10 million or similar when comparing to major countries with population of 50-100 million etc. Example is how many grocery store giants like Lidl have higher prices in eastern Europe compared to central Europe. Salaries, land and rent are far more expensive in the bigger countries and this is a major factor for the end prices of products yet somehow the prices are lower in such big countries. I don't see how the pricing of small vs large market explain that. Especially when Temu ships all over the world for FREE in just 5 to 7 days.

Also economy 101 states that there could be no room for speculation in a 5-10 million people's market, as it opens room for rivalry and competition. When a country has such population it obviously has the room for many businesses that can handle transportation and shipping. We are not talking about a multibillion investment here. It cost 12 million pounds to open a Lidl in the UK for example, but you don't even have to open a major store. All you need is a small $30k shop close to Lidl that sells the same basic food for 30% discount and you will still be profitable.

To me it doesn't make any logical sense when we compare the prices in a village or small town. The prices there are far cheaper when compared to any major city of the same country. How come the rule completely doesn't apply to the absurdly small market size a village or a small town has? Not to mention how much lack of competition there is. By the rule's logic the smaller the market the higher the prices… I don't find the logistics much of a problem either when comparing the two scenarios – in one situation you need to transport over thousands of km products for 1 million people market share (capital city of a small country). In the other situation you need to transport from the big city to the village at just 100 km range thus the villager even pays premium, because the product is carrying an additional transportation expense.

One argument for the high prices is the distance the products have traveled, but if we do the math the transportation cost is negligible per each unit of product. Economies of scale make the cost like 1 cent per unit. I am so glad Google gives a similar result to my expectations.

"Based on European logistics data for 2024–2025, the estimated cost for a large retailer like Lidl to transport 1 kilogram (kg) of goods over 1000 km is approximately €0.01 to €0.05 (1 to 5 euro cents)."

A far better explanation that I have is corruption combined with speculation. With corruption you can crush competitors using many different dirty ways.