The digital price divide

CHOICE research has found that Australians are paying 50% more for IT products.
 
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01.CHOICE research exposes price discrimination

digital-price-discrimination-lead

CHOICE research conducted for a submission to a Parliamentary Inquiry has again showed that Australian consumers are paying more for IT software and hardware products.

We found that Australians are paying on average 34% more for software, 51% more for iTunes music, 88% more for Wii games and 41% more for computer hardware than US consumers.

The impacts of high IT prices

High IT prices disadvantage all consumers, and create even more barriers for people on low incomes or in remote areas, who are less likely to have access to either the internet or a computer.

The digital price divide also prevents businesses from fully engaging in the digital economy, increasing costs and inefficiencies that flow on to household consumers.

With one Microsoft software product*, it would be cheaper to pay someone’s wage and fly them to the US and back twice, and get them to buy the software while overseas.

The causes of high IT prices

Industry groups have proposed a number of local causes for digital price disparities, such as rental, labour and transportation costs, GST and profit margins.

However, CHOICE’s analysis suggests that all these five factors combined account for only 22-27% of retail prices in both Australia and the US. The remaining 78-73% comes from the wholesale cost of the goods to the retailer.

It seems most likely that wholesale costs are higher in Australia due to international price discrimination from large companies. The result is higher retail prices which hurt consumers and retailers alike.

Companies enforce price discrimination through so-called ‘effective technological measures’ such as region lockouts on DVDs and video games.  They can also use technological measures which detect Australian web users in order to charge them higher prices online.

What CHOICE wants

We believe an effective way to bring Australian IT prices into line with those overseas is to increase competition between large international suppliers and parallel importers who sell genuine IT products, but at cheaper prices.

CHOICE’s three recommendations to combat international price discrimination are:

  • Educate consumers through government initiatives so people know their rights when shopping online - particularly in relation to returns and refunds, accessing legitimate parallel imports from foreign markets, as well as privacy and security.
  • Investigation by the Federal Government into whether technological measures enabling suppliers to discriminate against Australian consumers, such as region-coding or identifying IP addresses, should continue to be allowed.
  • Keep the low-value threshold (LVT) exemption for GST and duty on imported goods unchanged at $1000.

You can read CHOICE’s full submission to the Inquiry into IT Pricing.

CHOICE has previously noted Australian’s higher retail prices in a submission to the productivity Commission last year.

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*Microsoft's Visual Studio 2010 Ultimate with MSDN (New Subscription) has a monetary price difference of $8,665.29 between Australia and the US.

 
 

 

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