Pricing of computer products not all equal

Are consumers getting a raw deal on the price of locally available computer products?
 
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01 .Pricing wars

Brown boxes with price tags

In brief

  • Some products are significantly more expensive in Australia than in the US.
  • It’s not illegal for companies to have different prices in different countries for the same product even after local adjustment.
  • You can save money if you buy from overseas and ship to Australia.

It doesn’t take long for a net-savvy consumer to compare the cost of computer products here and overseas. And with a bit of research you’d quickly discover that there can be big differences in prices for the same products.

The obvious question is why? And is it fair?

Companies can set their own prices for products and services, provided they’re not involved in illegal pricing activity. However, despite international trade and e-commerce, the local price for technology products is often higher than the US. This is also true for products like cars, books and clothing.

Maybe it’s just the extra costs involved in getting products to our shores — shipping, for example — or the simple difference in exchange rates between the Aussie and US dollar, Pound and Euro. But a quick price comparison of some popular computer products would suggest there's more going on than mere currency differences and shipping costs.

We surveyed a range of computer products — software, an external hard drive, MP3 player, printer and PC game — to compare the Australian prices with US prices. On the whole, local prices were significantly higher.

Please note: this information was current as of May 2008 but is still a useful guide to today's market. 

 
 

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Price comparison: American and Australian prices

$US price [a] [b] $AU price [a] $US price converted
to $AU price [c]
Difference
Windows Vista Ultimate (complete) $399 $751 $436 $315
Windows Vista Ultimate (upgrade) $260 $495 $281 $214
Windows Vista Home Premium (complete) $240 $455 $260 $195
Windows Vista Home Premium (upgrade) $160 $299 $175 $124
Windows Vista Home Basic (complete) $200 $385 $218 $167
Windows Vista Home Basic (upgrade) $100 $199 $108 $91
Apple Time Capsule (500GB) $299 $429 $327 $102
Apple Time Capsule (1TB) $499 $699 $544 $155
Sony 8GB Video MP3 Player 170 $319 $186 $133
HP Officejet Pro K8600 printer $299 $599 $328 $271
Call of Duty 4 PC game
$50
$100
$53
$47

Footnotes

[a] = list price
[b] = not including local taxes
[c] = conversion as at 21 March 2008 ($AU1=$US0.92)

 

Microsoft Vista

Vista boxWhen Microsoft released its new operating system — Windows Vista — many consumers in Australia were shocked at the prices. Vista Home Basic, the entry level version, retails for $385 for the complete package. The US price is $US199.95, approximately $218 in Australian dollars, almost half the cost.

Vista Ultimate retails for around $750 here while in the US it sells for $US399, approximately $436. Even taking into account GST, you’d expect Vista Ultimate to retail for around $500, yet its $750 price tag is 50% more expensive for Australians.

Microsoft's reply
"Our prices vary by region and are determined based on a variety of market specific factors including, but not limited to exchange rate, local taxes, duties, local market conditions and retailer pricing decisions."

Apple Time Capsule

Apple time capsuleThe Apple Time Capsule is an external hard drive and wireless router that is available in 500GB and 1TB versions. But again there’s a significant difference in pricing. For example, in Australia, the smaller 500 GB version retails for $429, while it retails for $US299 (approx $327) in the States.

Similarly the 1TB model retails for $699 in Australia and $US499 in the US, which equates to about $544. Again even with GST the product is at least $100 more expensive here.

Apple's reply
"When calculating Australian price points, we take into account freight, currency exchange fluctuations, Australian GST, Australian standards compliance and other local costs. Pricing shown in the US is ex-tax. Our pricing policy, where possible and taking into account the costs listed above, is competitive with international pricing."

Sony MP3 player

MP3The Sony 8GB Video MP3 player (NWZA818) retails for $319 in Australia and $US169.99 (around $186) in the States. As with the other examples, the price differences are significant and many consumers might wonder why that price is so high.

Sony's reply
"Sony does not produce and freight the same product to all markets. The Australian versions of products need to be adapted to comply with Australian standards and local regulations. Australian marketing expenditure is amortised [divided] across a smaller number of products. Retail environments differ from country to country. [There are] exchange rate considerations. Other countries, including the US, do not include government taxes in their recommended retail prices ... Local prices are set in accordance with what is required to adapt the product to the local market, including freight, tax and local standards. Sony Australia works closely with its key retail partners to offer pricing structures that are realistic and relevant to the Australian market."

HP printer

PrinterThe HP printer range extends from full-scale commercial colour printers right down to home printers. We took one example, the Officejet Pro K8600 colour printer, and compared the prices.

It was a similar result to the other products in the snapshot — the Australian retail price is $599, while the US price is $US299 (approx $328). Again even with GST, the Australian price is well over $200 more expensive.

HP's reply
"There are a variety of factors that are taken into consideration when it comes to product pricing. Prices may vary from region to region and country to country because of different and often disparate market dynamics, sales channels and import taxes and duties, for example."

Call of Duty 4

Call of Duty boxCall of Duty 4 is a popular PC game (also available for Xbox, Nintendo DS and PlayStation 3) that can be bought here and overseas. Again, we found large differences in the prices. For example, the Australian recommended retail price is $99, while it’s listed from $US49.99 (around $53) on Amazon.com.

Additionally, the game can also be purchased as a 'digital download' directly from the Steam online distribution service. Here the product a user downloads is identical no matter where in the world they live — if you download Call of Duty 4 in the US or in Australia, you get exactly the same product.

Yet, via Steam, Call of Duty 4 costs $88.50 for Australians but $US49.95 (approx $53) for Americans, even though there are no extra costs involved such as shipping, local channel, market dynamics or duties at play — if anything the consumer pays for distribution with their ISP fees, yet it costs over 50% more.

Activision's reply
The local arm of Activision, which represents Call of Duty 4, said it is a wholesale pricing company and declined to provide further pricing information.

Different markets, different prices

Price tagsMost multinational companies group countries together into regions and sell their products to each region, sometimes at different prices. In economic terms, when a company sells identical goods or services for different prices in different markets, it’s called price discrimination. It’s not illegal and it’s a common practice across consumer markets like automotive and technology.

For example, when it comes to computer-related products, companies can use technological 'locks' such as region coding on DVDs, modified chips in games consoles and restricting consumers to local websites, to sell products at different prices in different markets because they hold the copyright.

Matthew Rimmer, senior law lecturer at the Australian National University Law College and author of Digital Copyright and the Consumer Revolution, says that "there’s been a long-standing tension between copyright law and consumer welfare and competition policy."

Consumer groups, such as CHOICE and Electronic Frontier Australia (EFA), a non-profit group that promotes internet users' freedoms and rights, have lobbied for fairer rights for consumers in relation to copyright. David Cake, EFA spokesperson, agrees that "technological means to enforce copyright tend to enforce the rights the copyright holder would like to think they have, and ignores the consumers' legal rights of fair dealing."

In recent years, there has been plenty of debate about the fairness of technological locks and several cases have even ended up in court. In a High Court case involving Sony PlayStation consoles and modified chips, Justice Kirby summed up the situation:

"By their line, the Popes of old divided the world into two spheres of influence. Sony, it appears, has divided the world (for the moment) into at least three spheres or markets. By the combined operation of the CD-ROM access code and the Boot ROM in the PlayStation consoles, Sony sought to impose restrictions on the ordinary rights of owners beyond those relevant to any copyright infringement.

"In effect, and apparently intentionally, those restrictions reduce global market competition. They inhibit rights ordinarily acquired by Australian owners of chattels to use and adapt the same to their advantage and for their use as they see fit."

What about parallel imports?

In 2003, the Howard Government amended the Copyright Act to allow parallel importation of software, including PC games and business programs. In effect, this means the copyright owner can no longer control who is allowed to import certain software.

This law has allowed more than one retailer, not just the exclusive owner of the copyright, to sell the same PC game or computer program. Retailers might source their products from the US, Asia or Europe in order to sell in Australia.

Copyright law was altered in this way to encourage competition and provide cheaper products for consumers. The parallel importation of software shouldn’t affect technical support services, which can be arranged through local companies or paid for by the user regardless of the origin of the product.

Copyright versus competition

The Australian Competition and Consumer Commission (ACCC) has been active in the area of price discrimination. David Cake says that the "EFA agrees with the position expressed by the ACCC that region coding (whether it is on DVDs or video games) is primarily a technological means to enforce price differentials that does not agree with Australia trade practices law."

Legal advocates, such as Matthew Rimmer, believe there is scope for the problem to be addressed, but it is a radical step. "There should be a complete lifting of all restrictions coupled with laws stopping companies using technological locks to get around those measures."

David Cake agrees:

"Australian law does need to be changed. EFA would like to see consumers enjoy their legitimate rights without artificial restrictions. Many recent changes to Australian law have been for the worst, in particular, the additional rules for enforcement of technological protection measures that were added to the Australian copyright law as a result of the Free Trade Agreement with the United States."
The question of technology pricing leads to the larger question of how far to go with liberalising barriers to trade. Calum Henderson warns that:

"Consumers are unlikely to see similar prices throughout the world unless there are no barriers to international trade. While this may include removal of technological restraints, like regional coding of DVDs, it also means free trade between countries for everything, including labour and products that are currently cheaper in Australia than other countries."
Copyright law and competition policy are complex and addressing inconsistencies is a difficult task. A review of law would give the opportunity to re-evaluate the current rules and the many inconsistencies. "There needs to be impetus for the intellectual property laws to be revised in line with competition policy," says Matthew Rimmer.

Is it fair?

CrateThe question of whether different pricing is fair depends on your point of view. Consumers want the best price and don’t want to pay more than they should, while companies want to maximise profits and cover the costs of selling into different markets around the world.

Companies must also deal with different dynamics in each market — costs, profit, standards compliance and distribution.

Calum Henderson, competition law partner at Deacons, said that companies will often charge different comparative prices in different markets because different pricing factors apply.

"In Australia, there are less potential sales so, generally speaking, people have to pay more, whereas in America there are a larger number of potential sales so they can have a lower price ... These companies also need to maximise revenue to attract and retain good employees and investors and to re-invest in the development of new technologies."
Software is also subject to copyright and other laws that are designed to allow creators to control distribution in different markets. Calum Henderson again:

"Any business will have more direct control over its prices when it owns the software copyright and consumers can’t conveniently get it from elsewhere in the world. The question is whether that is always a bad thing."
David Cake concurs, stating that pricing issues like this need to be judged on a case-by-case basis.

"There certainly seem to be some cases where there are real issues that make the Australian market distinct; for example, there were issues with compliance with Australian modem safety standards in the 1990s. There are other cases where it seems as if Australian consumers are paying a higher price for exactly the same product."

CHOICE verdict

There are many excuses for the higher prices that Australian consumers pay, however we question the validity of these when the same price discrimination carries over to identical digital goods delivered via internet download. Likewise, tax and standards compliance do not have a significant impact on many products showing this price differential.

If there are problems in international market segmentations that lead to higher prices then it is imperative that companies fix this and not leave it up to Australian consumers to pay for their outdated business models.


While Australians are legally able to circumvent region coding, it can be very difficult or impossible for many consumers in practice. Even though parallel importing is legal, companies can use other technological methods such as banning international IP addresses and credit card numbers to create barriers for consumers attempting to purchase cheaper items over the internet.

CHOICE believes that companies should not be able to use technological methods to price discriminate against Australians, and we are campaigning for better policies. For more details, read about our Communications campaigns.

What you can do

You don’t have to put up with exorbitant pricing — vote with your wallet. Look for alternative cheaper products or if this isn’t possible, consider purchasing from overseas and pay for shipment to Australia. In many cases, even with shipping costs, doing this is cheaper than purchasing these products locally at 'Australian' prices.

Using just one example from the products we’ve covered in this report — Call of Duty 4 can be purchased from www.play-asia.com for $AU38 with a shipping cost of $8 — a total under $50. Compare this to the local price of $99.95. That’s a half price saving, and delivered to your door.

It's generally easy to save money on software (including operating systems), as the packages are small for shipping. Shipping hardware can be a little more pricey, especially if you pay for insurance, but even so it can still be cheaper than buying locally.

But there are a few caveats to be aware of — check that products are suitable for you. For example:

  • If purchasing DVD movies overseas, you can buy both PAL and NTSC versions. Be sure to buy the one that suits your player and TV (some will happily accept both formats, but check first).
  • For console games (such as for the Xbox 360 or Nintendo Wii) be aware that while some games can be purchased region-free, others are restricted.
  • For hardware check that a device will handle Australia’s 240V mains voltage, and if you’re going for expensive goods consider how the warranty applies to overseas purchases. Some products have worldwide warranties, but others don’t.
  • Shop around. Some online shops will charge an excessive shipping fee as a means to make more money which could eat up the savings, while others ship at cost. There’s no hard and fast rule here, so spent a little time browsing for the best deal.
  • Also note that when the products arrive in Australia you could be charged GST, though small value items are usually ignored.

All up, the easiest way to send the message to companies that local products are overpriced is to use market forces: either don’t buy them, buy cheaper alternatives, or purchase from overseas. Not only will you put pressure on these companies, but you may save yourself money too.

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