More of software – and other – price discrimination


The Department of BCDE (as reported in the SMH) argues that the price discrimination faced by Australians for software and other ‘electronic goods’ is best left to the market.

For physical goods, some Australian shoppers already ”rent” mailing addresses in the US, and arrange to have the products then sent to Australia. Some consumers may also turn to piracy as a way to get digital content at foreign prices, it said.

I agree that the market will find lots of ways around the price discrimination (and indeed already has). Also, in the longer term, software pricing will probably drop due to innovation and new products. Apps have revolutionised software and price discrimination tends to exist for goods that are ‘platforms’ or ‘unique’ products that are protected by copyright (e.g. specific films). However, there are two points:

  1. Some of those ‘market solutions’ open consumers to legal liability – piracy is the obvious one. If we want to leave it to the market then market solutions have to be legal. Having some sort of ‘use it or lose it’ relating to software and other electronic goods copyright/IP would help if put together with a ‘free to buy overseas if cheaper overseas’ clause. Some comments on my earlier post suggested this was revolutionary. It isn’t. We already have use it or lose it requirements in other parts of the law (e.g. mining exploration rights under these provisions) and they are the basis of the parallel importing laws for books (albeit that these laws are NOT a model to be copied!).
  2. The problem is not just in software. Again the market can (and has) developed work arounds for many other products (e.g. re-routing shipments) but in general these are accessed by the well educated and the well off, not by the vast majority of Australians who would really benefit from the ability to ‘buy cheap’ clothing, footwear, etc. So a solution really shouldn’t just focus on software and electronic goods, but look more broadly on lowering barriers to Australian’s accessing cheaper international prices.

So I think a ‘leave it to the market’ approach is naive. We need to discuss reforms to help Australia avoid being on the ‘expensive side’ of international price discrimination. If we can’t improve the system through legal reform, so be it. But there is no point leaving it to the market if the most popular and common solution – piracy – opens up consumers to legal liability.

5 Responses to "More of software – and other – price discrimination"
  1. 16 July 2014 – The Software Pricing Commission (SPC) has defended its finding that more than 10,000 iPhone developers were too slow to adjust their pricing after an overnight change in the exchange rate.

    Their tardiness left various apps priced from 1 cent to 5 dollars higher than the corresponding Exchange Rate Adjusted Country Adjusted Price (ERACAP), placing developers and Apple in breach of the Fair Pricing Act 2014 and liable for a $500 million fine.

    “We had to act after receiving a complaint from Google,” said chairman Dr Nice Job from X University. “ERACAPs are independently calculated by the Software Pricing Centre here at X University.”

    Apple has denied that its decision to remove the iPhone from the Australian market was a response to the SPC decision.

    According to Dr Job, it has increased its staff of lawyers to handle the workload, and has commissioned three independent studies into Multination Price Discrimination in Software.

    “This is an area where Economics can really contribute,” said Dr Job.

  2. LOL Tony, but completely irrelevant. I am not saying that we want a regulator or watchdog. What we need is to remove barriers that exist in the market. These may be regulatory (e.g. in IP and copyright law) or due to market power. What we need to do is identify these barriers and remove them. There already is lots of parallel importing in some areas including retail, but in other sectors (software, shoes, clothing to name a few) it is stymied by barriers to trade. Let’s find the barriers and get rid of them.

    Note I am not saying that Adobe or anyone else can’t charge what it likes in Australia. What I am saying is that a consumer should be able to say “fine, but I choose to buy off your US or UK site where you set a price that I prefer”. Or a business person should be allowed to say to a manufacturer, “set whatever wholesale price you like in Australia, but I am setting up a US operation (or contracting to someone else) who will buy wholesale in the US and ship to Australia for retail sale”.

    There is sometimes an unfortunate Panglossian view that ‘markets as they currently are must be the best possible’. I disagree with that view. I am saying that we can actually make international markets work better by removing regulatory barriers or market power distortions.

  3. Stephen, in the case of software applications for the iPhone the barriers are technical – Apple has set things up so that the only way to get software onto the device is via their App store. This makes the idea of parallel importing a techincal impossibility. What do you suggest in such a case?

  4. Interesting – I don’t know whether or not Apple could claim that it is impossible for Australians to download an App from the US store as they are on an Australian network. I suspect that there are lots of technical wrinkles to any solution and no one simple answer will ‘fit all’ cases (but then it is the job of the Courts to interpret the law and its breadth).

    One suggestion by a colleague is to impose a tax to change incentives. If the Australian price is above the US price then the seller is taxed the difference. May be difficult in a world of floating exchange rates but would have the side benefit of raising government revenue!

  5. That would be amusing. We already tax the goods when foreigners sell them too cheaply to us (“dumping”) and now we’d tax them when they sell them too dear (“gouging”).

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