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  • Featured, News - Written by on Monday, August 8, 2011 12:15 - 20 Comments

    Rotten Apple: Prod Commission targets tech tax

    Australia’s Productivity Commission has sharply criticised international manufacturers for marking up their prices for the Australian market in the draft of its landmark report into the retail sector, particularly singling out iconic technology giant Apple in its examination of how so-called “regional price discrimination” affects local consumers.

    In its report released last week, the Commission said it was aware of the “longstanding practice” by which some international product suppliers set regional prices which effectively treated consumers in one region as “willing, or able, to tolerate significantly higher prices than those in other countries”. The comments were first reported by ZDNet.com.au.

    Some suppliers, the Commisison said, had attempted to defend such price hikes by attributing them to the cost of supplying “a remote and relatively small market like Australia”.

    However, it added, “these arguments in most cases are not persuasive, especially in the case of downloaded music, software and videos, for example, where the costs of delivery to the customer are practically zero and uniform around the world”.

    The Commission particularly singled out Apple in its analysis, noting that price differences on the cost of applications, video and music downloaded from the company’s iTunes music store was “a common example raised as reflecting international price discrimination against Australian consumers”.

    “For Apple, strong brand loyalty from consumers which drives higher demand for their products and a lack of competitive rivals in Australia has helped sustain the price discrimination,” the Commission noted, recognising that consumers were finding workarounds such as other music and video streaming sites, or using fake American billing addresses to buy content from Apple’s US store.

    The news comes as debate over Apple’s prices has recently been raised in the Federal Parliament by Labor MP Ed Husic, who criticised Cupertino and other technology companies in late March for hiking prices in Australia. At the time, Husic noted he would write to the managing director of Apple Australia seeking answers on the matter, although it is unclear as to whether Apple has yet responded.

    Since that time, however, Apple has taken several steps to bring more uniform pricing to Australians; with some App Store prices becoming very similar across jurisdictions after an update in July.

    In addition, although prices on Apple’s new Mac line-up released in late July still displayed some price differences between the US and Australia, a number of commentators flagged the markup as being less proportionally than in the past.

    Apple wasn’t the only technology vendor to be singled out in the Productivity Commission’s report.

    The agency gave a number of examples, for instance, where products manufactured by companies like Canon, Sony (including games for the PlayStation console) and more were seen to cost more when bought in Australia. Typically the products could be bought for less through online retailers than through shopfront retailers, although the cost was also usually higher when bought from Australian online retailers than when bought from international players.

    In one example, the L.A. Noire video game cost as little as AU$48.98 when purchased from one international retailer, but as much as $104.99 in Australia — despite the fact that the game was actually developed in Australia.

    “It is widely and frustratingly understood by adult gamers in Australia; we are grossly discriminated against when it comes to retail prices on video games (as well as other retail products),” wrote one video gamer in the Productivity Commission’s report.

    “My personal level of frustration grew even further as the Australian dollar reached parity with the United States dollar and prices here only climbed. Still we are being told to pay more than double in retail stores.”

    Retail giant Harvey Norman also came under attack, with the Productivity Commission quoting an article which stated the same LG refrigerator had cost AU$2,500 at a Harvey Norman store — but under US$1,500 through Amazon to consumers in the US.

    Compared with some other technology suppliers, Apple’s markups are not as steep as they could be, however. For example, PC manufacturer Lenovo was forced to mount a spirited defence of its Australian pricing in mid May this year, despite launching its flagship new ThinkPad X1 laptop in Sydney for $560 more than the same hardware will cost in the US.

    Microsoft also regularly marks up prices for the Australian market, but perhaps the worst known culprit is Adobe.

    In Australia, Adobe launched its Creative Suite 5 Master Collection in April 2010 for AU$4,344 for the full edition, and AU$1,503 for the upgrade edition. In the US, the same software cost US$2,599 (at that time, AU$2,816.45) for the full edition — more than AU$1,500 less. The upgrade edition cost US$899 (at that time, AU$974.22) — more than AU$500 less.

    Shades of grey
    However, the picture may not be as black and white as it appeared.

    The Productivity Commission’s report also noted that Australian retailers suffered higher costs than some of their international peers — such as higher wages, higher rent and more. Some of the price rises may also be taking place at the distributor layer rather than the retailer layer — with retailers being forced in some cases to pass the costs on to the consumer.

    In April last year, after it released its CS5 Suite, Adobe raised the cost of doing business in Australia as a key factor in how it set its prices.

    In late April this year, after the video game Portal suffered price hikes for the Australian market, Ron Curry, the chief executive of the Interactive Games & Entertainment Association, which represents a number of large and small games manufacturers locally, raised other issues to help explain local prices, such as the cost of shipping boxed copies of video games to remote retail outlets across Australia.

    With large amounts of mandatory annual leave allocations, public holidays (such as the Easter long weekend just passed), superannuation, high levels of taxation, occupational health and safety insurance and more — local regulations also ensured it was “very expensive” to run a company locally, according to Curry.

    Lastly, Curry pointed out that much of the time, wholesale prices were set in the US and the UK and then imposed on Australia. If the value of the Australian dollar appreciated, Curry said, international distributors may up their price as well, to maintain their own margin on sales — with Australian retailers being caught in the middle.

    “Some Australian retailer submissions highlighted the wholesaler or distributor prices which put pressure on their cost of goods, and as a result, their sales prices to consumers,” the Productivity Commission noted in its report.

    The Commission is taking written submissions to help shape its final retail report until the 2nd of September. The draft report is available online in full.

    Image credit: 惟①刻¾, Creative Commons

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    20 Comments

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    1. Mark
      Posted 08/08/2011 at 12:25 pm | Permalink |

      Apple has the worst reputation based on previous performance with pricing, but i think over the last few years they have shown the biggest improvement, most of their prices now within a few percent once you take GST into account (eg mac air us$999 vs au$1099)

      • Posted 08/08/2011 at 12:31 pm | Permalink |

        Apple has definitely improved, but there are still weird fluctuations … quoting from this article:

        http://delimiter.com.au/2011/07/21/mac-markup-apple-levies-aussie-tech-tax/

        “It’s a similar situation when it comes to the pricing on Apple’s new Thunderbolt Display. The new model will sell in the US for $999 (AU$928.84). However, Australians will pay more than AU$270 more for the exact same hardware.”

        Even if you take GST into account, that’s still $170 markup (17 percent) for the exact same hardware shipped from the exact same factory.

    2. EricInAdelaide
      Posted 08/08/2011 at 12:30 pm | Permalink |

      “….local regulations also ensured it was “very expensive” to run a company locally, according to Curry”

      Yep, demand cheaper iPads! Demand lower wages for workers (who then won’t be able to afford an iPad, anyway).

      Curry is treading in dangerous territory in pointing the finger at “… mandatory annual leave allocations, public holidays (such as the Easter long weekend just passed), superannuation, high levels of taxation, occupational health and safety insurance …” and “higher wages”.

      He may only be point the (obvious) issues out, but he may also be creating a stick that can be waved (by the mischievous) at certain workers who may be considered “responsible” for the higher prices.

    3. EricInAdelaide
      Posted 08/08/2011 at 12:34 pm | Permalink |

      Oh yeah, “Rotten Apple” may have been a cute headline (always fun when you are your own sub-editor), but what happened to Rotten Canon and Rotten Sony and Rotten Microsoft and, “the worst known culprit”, Rotten to the Core Adobe?

    4. Posted 08/08/2011 at 12:35 pm | Permalink |

      I don’t want to keep jumping to Apple’s defence, but the real culprits are Adobe and Microsoft. Until someone starts complaining about a 100% markup on Creative Studio or Visual Studio software packages, which do not suffer from costs of shipping boxes around, jumping up and down about a 4% discrepancy on iphones really is petty bullshit.

      • Posted 08/08/2011 at 12:35 pm | Permalink |

        (To clarify, I’m yelling at the productivity commission, not you, Renai)

        • AM
          Posted 08/08/2011 at 12:46 pm | Permalink |

          +1

          Hardware is a tricky case, but for downloaded software…..no excuse.

      • Posted 08/08/2011 at 2:06 pm | Permalink |

        Given that Apple is one of the largest distributors of third-party software in Australia courtesy of the iTunes App Store, and given that prices in said store are set by Apple and are routinely higher for countries outside the US … I fail to see how this is “petty bullshit”.

        Sure, as noted in the article, Apple isn’t the worst offender. But unlike Adobe and Microsoft, it directly controls the prices of hundreds of thousands of other pieces of content and applications. The fact that you would ignore that role and treat Apple as just another distributor of its own hardware and software speaks to an unwillingness to examine the company’s often monopolistic role controlling entire categories.

    5. AM
      Posted 08/08/2011 at 12:44 pm | Permalink |

      When I queried Adobe about price differences, the canned response included the phrase “…the perceived value of the product….”

      While I find the inherent honesty refreshing, it seems would could all save some bucks by trashing their product reputation.

      Or maybe they could just cut us an even break.
      That sounds a lot nicer and easier.

    6. Jared
      Posted 08/08/2011 at 1:59 pm | Permalink |

      Anyone who buys games on Steam will know this common and ongoing problem – made even more frustrating as you buy games in USD. Lose money on the “Australian Region Pricing/Tax” and then the exchange rate!

      • Posted 08/08/2011 at 3:28 pm | Permalink |

        +1

        I see this problem on Steam quite a bit :(

        • AM
          Posted 08/08/2011 at 3:31 pm | Permalink |

          Going off-topic….I’ve recently become a steam junkie.
          Have you seen the QuakeCon2011 pack?

          Added that sucker to my library last night and all I was browsing for was Commander Keen.
          Total win!

    7. Paul
      Posted 08/08/2011 at 3:29 pm | Permalink |

      Another issue relating to music costs via iTunes is that local distributers seem to have a say in the pricing also.
      The Beatles box set when released here was about $100 dearer than buying through Amazon but on a par with the physical box set sold locally.
      So not all prices might be under Apples control.

      • Posted 08/08/2011 at 3:35 pm | Permalink |

        I think it’s a complex ecosystem; and the consumer doesn’t have access to the whole picture at this stage :(

        So many interlocking contracts etc …

    8. Mark
      Posted 09/08/2011 at 12:36 pm | Permalink |

      with the falling dollar some apple product now cheaper here than in the USA

    9. Matthew
      Posted 09/08/2011 at 1:24 pm | Permalink |

      The major issue is at the wholesale level. Having been both directly and indirectly involved in retails over the last decade(not just electronics but other sectors), I’ve frequently seen cases where the street price in other markets shipped to Aus is less than the local wholesale price. This is most common when dealing with brands that are in high demand(think apple and the like) or where there is little competition for the product(ie.. Adobe suites). Cost of local distribution isn’t always the issue as in some cases the product is being shipped straight to store from overseas warehouses/factories.

      This is an area the ACCC should get involved as it is a small number companies setting the wholesale price either direct to retails or through a wholesale network with pricing not being competitive with a international market.

      International pricing is possible I deal with one company whose manufacturing base is out of Germany and get goods at a wholesale rate that would allow me to be competitive with US and Euro based retailers.

    10. Corsair
      Posted 11/08/2011 at 1:52 am | Permalink |

      I just don’t understand why Apple can’t just sell everything on iTunes at its US Dollar price?

      Why does it have to charge each country – especially Australia – a different amount?

      If companies want me to buy their software or whatever they have to start treating customers fairly. With something like iTunes – which has no physical impairment at all – we should not be paying $1.69 AUD for a song that is $0.99 US.

      That is just one example (the other being video games, the lack of global distribution of services such as Hulu, etc).

      If companies want consumers in Australia to go about getting content legally they have to provide that content without screwing us over.

      Until then – they can get stuffed.

    11. Justin
      Posted 16/08/2011 at 11:07 am | Permalink |

      Don’t forget good old Epson in the Australian tech industry price gouging. Epson 4900 is USD$1495 in US and AUD$2907 (ex-GST) in Australia. Epson 7900 is USD$2995 in US, AUD$5995 (ex GST) in Australia. Got to love that 100%+ price difference.

    12. Shayan
      Posted 31/10/2011 at 12:03 pm | Permalink |

      Apple is fucked up. Seriously your pricing policy is just bullshit and is pretty much convincing me not to buy apple phones anymore.

      In Australia, an unlocked iPhone 4S 16 gb from the website costs AU $799
      while
      In USA, an unlocked iPhone 4S 16 gb from the website (available from November) will cost US $649.

      (Note – Aus currency value is higher, so a $799 phone in Aus will cost US$856.4)
      (US $649 is AU $ 605)
      That is a price difference of $200. It is ridiculous and I suggest apple users in Australia starts boycotting their phones until Apply rectifies this nonsense. (or just starts buying their phone from USA)




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