The Senate is currently looking at the differential between overseas and Australian prices for software. I have looked at international price discrimination before – but here are a few more thoughts.
1. Why are prices higher in Australia?
There seem to be three potential answers here. First, it could reflect cost differences. If costs of delivery to Australia, costs of retailing in Australia, costs of logistics in Australia, and so on, are higher than overseas, this would explain some price differentials. But this does not explain software that is downloaded over the Internet. The cost of sale to Australia is the same as delivery to anywhere else. After sales support is probably out of an office in India so that does not seem to explain price differences.
Second, international companies may be avoiding price changes. I have discussed this here for Apple – although as the commentators note in the blog, the differences in taxes explains the price difference pretty well. Also, if ‘price stability’ and expected exchange rate changes were the main factor we would expect to see Australia’s prices higher about as often as they are lower than overseas prices. It does not explain why Australia’s prices would be uniformly higher over time.
Third, price discrimination. If demand for the products in Australia is less sensitive to price increases than overseas demand then third degree price discrimination (or market segmentation) will lead to prices that are higher here than overseas. Of course, this raises the question of why demand is less sensitive in Australia. One reason that is sometimes put forward relates to arbitrage. The ‘tyranny of distance’ means that it might be more difficult for Australian consumers to duck across to a low price country to buy the goods than someone in Europe or the US. However, that also seems less relevant for software than, say, shoes. If I need an overseas IP address and an overseas credit card to get the ‘local’ overseas price, then it would seem just as hard for people in the US as for people in Australia to ‘arbitrage’ and buy in a low price country.
At the same time, price discrimination appears to be the best explanation. Why is Australian demand less sensitive to price may be unanswered, but it appears that the relevant software sellers believe it is true and so charge us more.
2. What can we do about it? There is no reason why Australian’s should just sit by and face the wrong side of international price discrimination. Parallel importing can help for physical goods if a reseller can buy enough overseas and resell in Australia. (I suggest a ‘freedom to buy’ law in the comments to a previous post.) Parallel importing can be difficult enough for physical goods, but is effectively impossible for software if we respect IP rights.
So for software, the answer may be via IP and copyright laws. If there are any IP or copyright requirements that limit the ability of an Australian to buy the product ‘overseas’ (say through Internet download) whether for own use or resale, these barriers should be removed.
Second, a company selling a software product in Australia through a subsidiary could be required to also make the product available to Australians through any other legitimate overseas source. In other words, if, say Adobe, chose to sell its software in Australia via the Internet, then it could do so. But it could not stop an Australian equivalently downloading it from any other legitimate overseas site. Of course this would require a legal change.
One result is that the company, like Adobe, might stop offering the product in Australia. So, the law could also be altered so if the company does not sell in Australia and refuses to allow Australians to buy from a legitimate overseas site, then a ‘use it or lose it’ requirement kicks in and any person can buy the product from a legitimate source overseas and resell in Australia without any IP or copyright violation.
These solutions would need some legal changes but I for one cannot see why an Australian (or anyone else) should be stopped from buying a legitimate piece of software from any legitimate site anywhere in the world. To the companies – hey guys, welcome to the border-less world of the Internet!