tip off
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Parliamentary inquiry likely to take on big IT companies over pricing

One of the greatest frustrations of Australian consumers – the extraordinary differences in IT prices between Australia and elsewhere, and the cavalier refusal of major IT companies to explain them – is set to be examined at a Parliamentary inquiry.

Crikey understands that as a result of a campaign by Labor MP Ed Husic, the government is considering undertaking a Parliamentary inquiry into IT price differentials and legal options for preventing them. Husic flagged his interest in establishing the inquiry in a speech to Parliament in March.

Among the biggest offenders is Apple. Apple prices its own products differentially in Australia – a 17inch MacBook Pro costs $2899 here compared to US$2499 (currently $2408) from Apple in the US – $250 more than the US product with 10% GST. But its iTunes services also features a remarkable array of outrageous pricing differentials. The album Up All Night by British zygote band One Direction is $14.99 for Australians but US$9.99 ($9.63) for Americans, a difference of 55%. Adele’s 21 is US$10.99 ($10.59) for Americans but $16.99 here, a difference of 60%.

Apple has persistently refused to explain the reason for the price differences, or whether copyright owners or Apple itself are responsible for the blatant gouging of Australian music fans.

However Apple is far from alone in the practice – Husic, who has conducted a long-running campaign on the issue – has used Twitter (@edhusicMP) to identify example after example of companies such as Microsoft, Adobe and Canon and games companies selling hardware and software in Australia at prices sometimes double those of the same products offshore. To take only the most obvious example, Microsoft’s Office suite ranges in price from US$119 ($114.69) for a home version to $350 ($337.32) for a single licence professional version in the US; the same range is $169 to $499 here, with both available by download.

Nor is IT the only industry where this is rampant, as Crikey showed last year, gouging of Australian consumers is widespread across a range of major product categories.

Australian consumers aren’t the only victims of the practice; businesses face inflated costs for key inputs like software and equipment. Adobe’s Creative Suite Premium software, for example, costs American buyers US$1,899 ($1830) but will set back Australians purchasers $2,886.30 before GST. The parliamentary inquiry is likely to examine the impact on business as well as consumers.

The Productivity Commission looked at the issue of differential pricing in its inquiry into the retail industry last year and declared itself unimpressed:

The Commission is also aware of the longstanding practice by which some international suppliers set differential regional prices. This effectively treats consumers in one region as willing, or able, to tolerate significantly higher prices than those in other regions. Australian consumers have an increasing awareness of such price differences and are now able, in many cases, to circumvent them by directly ordering online. This represents an example of ‘parallel importing’ which is the import of genuine products without the permission of the local licensee. Some international suppliers have attempted to defend price discrimination due to the cost of supplying a remote and relatively small market like Australia, which in some cases has its own unique requirements. These arguments, in most cases, are not persuasive, especially in the case, for example, of downloaded music, software and videos where the costs of delivery to the customer are practically zero and uniform around the world.

The inquiry may struggle to identify workable legal solutions to the problem given the difficulties of imposing Australian competition law on overseas-based companies. In 2001-02, the Allan Fels-era ACCC grappled with the issue of regional coding of DVDs, ostensibly a copyright protection mechanism but in fact a mechanism for overcharging consumers; the ACCC eventually settled for declaring that chip modifications that enabled DVD players and game consoles to play foreign-sourced DVDs was legal.

But it will put substantial pressure on the biggest offenders to finally publicly explain to Australian consumers why they continue to get ripped off compared to consumers overseas.

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  • 1
    Indiana Jones
    Posted April 15, 2012 at 5:31 pm | Permalink

    And about time too!

  • 2
    Sean Doyle
    Posted April 15, 2012 at 6:15 pm | Permalink

    On a slight tangent, could Husic please explain why it costs $233 to renew an adult Australian passport while it only costs $125 to renew my Irish passport, a procedure that requires documents to be sent to and the passport sent from Ireland? It’s not as if the Australian passport is more useful when travelling the world, as anyone who has spent time in the dirty rotten foreigners queue at Heathrow while the citizens of several of Britian’s former enemies such as Germany, France, et al. are whisked straight through no questions asked.

  • 3
    Scott
    Posted April 16, 2012 at 10:14 am | Permalink

    More money into a dodgy reports that will offer no real solutions. Save your the 5 million and go back to basics.

    The fact of the matter is every economist/financial analyst knows why it’s more expensive in Australia than the American markets (IT centric, but you can apply these rules to any industry)

    1. Size of the market : Bigger market = more suppliers = more competition = reduced markups = lower prices
    2. Lack of a domestic IT investment: Australia has basically no domestic IT market to counteract the offshore providers and so is in no position to influence prices with lower priced local competitors.
    3. WACC – With interest rates high relative to the US, the average cost of capital in Australia is higher than in US (even in IT which is financed mainly through equity rather than debt). Hence business need to make higher returns to make economic profits (exceed the WACC of a company) in Australia. In a small market like ours, the only way to do that is to increase prices.

    So there you go. The only way to bring prices down would be to invest in a domestic IT industry and/or reduce interest rates (can’t do much about the size of the market). Both of which are pretty much beyond the Government. So another inquiry will do nothing except throw some cash down the drain.

  • 4
    JJulieJ
    Posted April 16, 2012 at 2:20 pm | Permalink

    It’s not just IT products, many items are more expensive in Australia than overseas.

    Paper books are typically double overseas prices (after currency conversion), so are ebooks.

    Last year I bought some linen trousers at Marks and Spencer in Singapore for roughly AUD 45. The identical trousers were in the shops over summer, from a major fashion label, at $169. I’ve bought shoes overseas for half the price (after currency conversion) of the identical shoe here.

    Fly from London to Sydney return and most of the time the ticket price will be significantly (over 50%) cheaper than flying from Sydney to London return. For example a return economy airfare on British Airways in October this year would cost $1592 departing London versus $2472 departing Sydney, a business class fare is $4238 departing London versus $9862 departing Sydney! The same applies to other travel such as cruises – book them from Australia and you’ll pay more than if they were booked from Europe or the US.

    We need more than just another enquiry on Australian pricing, we need action. Consumers are getting more and more savvy and will find alternative places to shop, particularly online.

  • 5
    Matt Hardin
    Posted April 16, 2012 at 5:55 pm | Permalink

    I am not sure about your arguments there Scott. The thrust of the article was about downloadable content from giant global comapnies.

    1. The whole world is your market and the marginal cost of supply is essentially zero to every customer.
    2. The companies that provide these products have few competitors outside of themselves i.e the ones mentioned in the article (or are you suggesting that Microsoft, Apple and Adobe have serious market pressure on them elsewhere in the world that does not exist, and is not accessible from, here).
    3. These companies do not need a presence here, nor do they need to borrow money here. The products are developed, sold and delivered from the US (or wherever the programmers are).

  • 6
    cannedheat
    Posted April 16, 2012 at 8:20 pm | Permalink

    Couple of points:
    1. Calling consumer electronics and software ‘IT’ is confusing – thought you were talking about EDS, IBM, InfoSys etc.
    2. The why is simple – because they can!

    Australians have been trained to simply accept high prices forever. Monopolies, gouging, lockin, bank fees, excessive cost of trades, etc… but I digress.

    In the past high prices were because the exchange rate was poor and imports expensive. Now with the dollar over parity with the US the local franchises are having a party.

    Don’t forget that only a short while ago we were at 0.5USD = 1AUD!!

  • 7
    Graham R
    Posted April 17, 2012 at 12:43 am | Permalink

    Zygote band – priceless, Mr Keane.

  • 8
    Nawaz Jay
    Posted April 17, 2012 at 4:27 pm | Permalink

    c’mon really? a 5 min actually look at the apple site will show that the Aus site INCLUDES tax and the American one EXCLUDES it…take away the GST from the Oz pricing and the difference isn’t that much and could be easily explained by foreign exchange hedging and extra freight/smaller economies of scale from smaller market etc etc.

    the iTunes differential however is a rort…you just dilute your argument with your incorrect stuff.

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