Tech companies have given the proverbial middle finger to those complaining about high prices in Australia, leading the consumer group Choice to demand strong government action.
But despite firms showing little interest in reducing their prices based on political pressure from the likes of the Labor MP Ed Husic, a new submission to the parliamentary IT pricing inquiry by the federal Treasury warns any direct regulation of prices by government could do more harm than good.
Last week Lenovo launched its ThinkPad X1 Carbon in Australia, which it says is the world's lightest 14-inch Ultrabook. It will start at $1999 here, compared with $US1299 in the United States.
Earlier this month ASUS released its Transformer Pad Infinity tablet in Australia at a recommended retail price of $999 – much higher than the US price of about $US600.
Lenovo said it priced its products to ensure they were “competitive with local market offerings” and that by buying Lenovo products in Australia consumers were “supporting local Australian jobs” as well as securing local support and warranty.
Asus trotted out the same line frequently used by vendors to justify gouging Australian consumers: smaller market, logistic and shipping costs, exchange rates, promotional costs and training. All of these excuses have been unpersuasive to consumer groups and the Productivity Commission.
Choice's head of campaigns, Matt Levey, said the IT pricing parliamentary inquiry was a “great start” but wouldn't amount to much if it did not produce “strong recommendations which prompt equally strong action”.
“Unfortunately aph.gov.au is littered with examples of detailed reports into significant issues which sit around collecting dust,” he said. “It's not so much the inquiry which is the problem, but how the government responds.”
Huge mark-ups for Australians
Choice studied more than 200 prices for IT products and identified an approximate 50 per cent price differencebetween what Australians and US consumers pay for more or less identical products including music downloads, games and computer hardware. Dell computers were 41 per cent more expensive while Nintendo Wii games were up to 88 per cent more.
Since it conducted its analysis in July consumers have written to Choice with further examples; in some cases they could see the lower price on the US site but the sites blocked them from bypassing the Australian price when ordering:
- Norton Internet Security two-year subscription: $149 v $US79
- Roxio Easy VHS to DVD for Mac: $139 v $US79.99
- Asus laptop (same specs): $1400 v $US680
- Garmin GPS: $189 v $149
Choice wants the government to investigate whether tools to stop consumers accessing lower prices in overseas markets – such as “geo-blocking” on websites or region-coding – are anti-competitive.
In many cases, the wholesale prices charged to Australian retailers by multinational vendors are significantly higher than those offered to overseas retailers, meaning there is no way they can offer a competitive price. In the case of prices for music downloads, Apple blames the record labels while music industry sources say Apple's market power gives it the ability to set the price.
The Labor MP Andrew Leigh wrote a submission complaining that Amazon's range of books for the Kindle in Australia is hundreds of thousands of titles smaller than in the US, and the books that are sold in this market are significantly more expensive than everywhere else.
Monash University's chief information officer, Dr Ian Tebbett, said high IT prices in Australia diverted resources from research and education, and particularly for students of low socio-economic backgrounds, “the costs of IT in Australia will add to their decision not to take up higher education”.
Price discrimination maximises profits: Treasury
Treasury wrote in its submission dated August 9 that price differentials that aren't based on differential costs of supply will “generally decline over time, providing there is sufficient competitive pressure or low barriers to entry”.
But while the internet allows consumers to detect when firms are charging higher prices in one country – and buy from cheaper overseas markets – in general there were “incentives for suppliers, in the form of profits, to engage in price discrimination”.
Treasury said the evidence suggested Australian consumers pay higher prices for IT products than consumers in some other markets, but not necessarily the highest globally.
“To that end, improving local competition and increasing access to international markets are 'no regrets' measures that can assist in ensuring Australian consumers and business have access to goods and services at internationally competitive prices,” Treasury said.
But it warned against “more interventionist measures” that seek to dictate terms on which consumers and business transactions take place, saying this may stifle innovation and reduce competition further. It said firms should generally be free to set the prices they want
The Competition and Consumer Act (previously the Trade Practices Act) used to prohibit some forms of price discrimination by firms but the prohibition was repealed in 1995 because it reduced price flexibility and was detrimental to competition.
“Treasury considers that the current competition laws are capable of addressing anti-competitive conduct without the need for a specific price discrimination prohibition,” Treasury said.
Vendor excuses don't hold water: Productivity Commission
The big tech companies, largely through the Australian Information Industry Association (AIIA), blamed retailers, market size, freight costs, warranty differences, rents, taxes, wages, penalty rates and importation and transport costs as some of the reasons why Australian prices are higher.
But the Productivity Commission, politicians and consumer groups have all said these cannot possibly explain the huge 50 per cent and higher mark-ups faced by Australians on some products.
The commission found that arguments made by international suppliers to defend regional price discrimination are “not persuasive, especially in the case, for example, of downloaded music, software and video where the costs of delivery to the customer are practically zero and uniform around the world”.
Adobe, one of the worst offenders when it comes to price discrimination on software products, has yet to contribute a proper justification for its pricing to the IT pricing inquiry, instead using its submission to state it had already provided feedback to the AIIA.
Other big tech firms like Apple and Microsoft refused to appear at the first public hearings for the inquiry late last month. Apple's written submission to the inquiry was confidential and therefore cannot be published.
The Productivity Commission acknowledged that there were extra costs of doing business in Australia and the size of the market meant retailers in countries like the US – which buy larger volumes – were able to obtain goods for less.
“While Australia may be relatively close to manufacturing centres in Asia, costs can depend on trade volumes rather than distances travelled, meaning that Australia's trade routes can be more expensive than those for other countries,” Treasury said in its submission.
Treasury also noted that the recent strength of the Australian dollar has meant the prices of goods in overseas markets are now cheaper in Australian dollar terms. And while exchange rate fluctuations occur instantly, prices of goods aren't as easily or as quickly changed to reflect this.
This can cut both ways. In 2008, following the depreciation of the Australian dollar, Australia was the cheapest place in the world to purchase an iPod, the Commonwealth Bank has said.
Mr Husic said there would be another public hearing for the inquiry in the coming weeks.