Are airport duty-free shops really cheaper?

There are two kinds of taxes you can possibly avoid buying in duty free shop:

• Excise tax — this typically applies to alcohol and tobacco, in some cases perfumes (also fuel and firearms, but these aren't sold in airports ;-)
• VAT (sales tax) — if and only if you're traveling from EU to destination out of EU. It's also possible to get VAT refund for stuff that you bought outside of airport, but there are restrictions.

Excise taxes vary widely, but generally they are quite high on tobacco, for example US Federal Excise Tax is $2.11 per pack of cigarettes. And there can be state excise tax on top of that. With alcohol the excise tax is calculated based on alcohol content, thus it's higher for distilled spirits, and practically irrelevant for wine of beer. And still, even for distilled spirits it's much less in relation to total price than in case of tobacco. Eg. US Federal Excise Tax for 750ml bottle of 80 proof spirit is $2.14.

Standard VAT ranges anywhere from 15% to 25% depending on a country.

Now for "is it cheaper" part: from my experience it's almost always cheaper in case of cigarettes, even if you don't get VAT return. In case of alcohol if you don't get VAT return, than usually you can get better price at a supermarket, than the difference made by not paying excise tax. In case of not paying VAT, YMMV.

In case of all other products: even if you're getting VAT return, still the price in airport shops is that much higher, that you're not gaining anything at all. It's rather kind of last resort for these who either don't have time or simply forgot to shop for gifts.

This is actually two questions:

• is the airport duty free a cheaper way to buy something in country X than other stores in country X?
• is the airport duty free a cheaper way to buy something than buying it at home?

When I bring wine or rum into Canada, Canadian customs doesn't care whether I bought it a duty free or not. So if prices or selections are better at some random store, buy it there. (Of course, unless you travel to the country a lot, the chances are you won't know the duty free prices while you're just wandering around.) But if you do, and you see a good deal (compared to home) go for it.

You need to know how much of something you can bring home duty free (Canada will only let you bring one carton of cigarettes, and only two bottles of wine, so going beyond that will cost you) and what that item costs at home.

I used this logic to get two very nice bottles of Australian wine that would have been $40 in Ontario for just $20 Australian each. That was in a wine store in a tourist mall, so perhaps I could have got them for $16 Australian by putting in more effort, but I wasn't motivated to do so. (And by buying them in advance, I was able to pad them into my luggage and not have to drag a heavy plastic bag around on the airplane, my terminal change at LAX, and the drive home.) On a different trip, I got a $40 (in Ontario) bottle of rum for $12 at an airport duty free in Turks and Caicos.

If you have no idea where stuff is produced, or what it costs at home, do not buy it at the airport duty free. I have seen plenty of examples where things are far more expensive at the airport duty free than they would be at home.

Friends ask me to buy Tobacco at duty-free shops, since cigarettes are heavily taxed in my country (France, 80% of the price are taxes). That's the only product I buy for friends at duty-free shops.

Lots of people don't know that Luxury items (such as perfume, wine…) can be de-taxed (VAT) at the shop where you bought them. Ask for it and show proof you're a foreigner. This way is cheaper than duty-free.

Local handicraft / productss tend be more expensive at duty-free shops. For example jade stones bought on a local market in China were bargains. Even Swiss chocolate "Toblerone" was more expensive at Zurich airport than the local store in France, Germany, or Los Angeles airport.

Expanding a bit on Kate's answer, I can offer anecdotal evidence that at least in Cambodia, booze is definitely significantly cheaper in town than it is at the duty free shop in the airport at Siem Reap. I picked up a liter of Jack Daniels in the duty free shop when we arrived earlier this year. That evening we walked out into town and found a very well stocked grocery store. The bottle of JD at the airport was $33 US (virtually all transactions in Cambodia are with US currency). The exact same bottle in the store was $22 US, exactly 2/3 the "duty free" price.

Totally subjective impression: No, they are not cheaper. But people would pay more just for not paying taxes on something.

That's true specially if you compare the price to the online price. They might though be cheaper than the high-street price for an item. An exception for cigarettes might apply too.