Getting to the bottom of great tech rip-off

First world problem it may be, but Australians are being ripped off blind on their purchases of digital music, videos ebooks, computer games and IT hardware.

And it's perfectly legal.

Incensed tech-head, and federal MP Ed Husic has been spearheading a parliamentary inquiry into why, for example, Australian fans of Bruce Springsteen, must fork out $16.99 in the Australian iTunes store for his greatest hits album when American buyers can rock out for $12.47 ($US11.99).

At that rate, it's as if the dollar were still the ''pacific peso'' at US70¢, not the strong-armed $US1-plus it commands today.

Husic's inquiry this week heard from industry groups claiming the price difference was due to higher costs in Australia, including transport, rent, labour and consumer warranty rights. Which, when it comes to a digital products distributed electronically, doesn't pass the sniff test.

Another reason could be Apple is setting prices for where Australia's dollar used to be, failing to realise that the dollar is much higher. Which would be quite the oversight - the dollar having broken parity with the greenback two years ago.

No, the reason Aussies pay more for their IT products is price discrimination, pure and simple. But unlike other types of discrimination, racial, sexual etc, price discrimination is harder to stamp out.

All businesses would love to be able to practice price discrimination - charging different consumers different prices depending on their willingness and capacity to pay. But competition keeps them in check. In a perfectly competitive market, customers can switch to whichever supplier offers the lowest price, driving all prices down. Prices end up reflecting the marginal cost to the supplier of producing one more unit. For digital products, you'd think that price would be pretty low.

But, of course, when it comes to music, there can be only one real producer. There's only one Boss, after all, meaning musicians can, to some extent, defy the marginal cost rule.

When it comes to the distribution of digital products, the market is also far from competitive. Apple controls a large slice of the digital device pie, with some rivals from android and others.

But once you have bought an Apple device, you are confronted by a monopoly supplier. You could buy CDs and upload them, but if you want to buy on the spot, iTunes is your only choice.

This gives iTunes and other such distributors enormous pricing power. And they're living the dream, discriminating between customers on their willingness to pay.

Australia, with our low jobless rate and relatively rosy economic growth figures, is wearing its relative good fortune on its sleeve. It's like going shopping in a used car dealership wearing a mink coat. Ah madam, I have just the car for you!

So what can be done? Well, short of enforcing a global system of Soviet-style price controls, there is not a lot that can be done by governments.

One potential avenue would be to make it impossible for retailers to discover the location of buyers. Today it is possible to use a person's IP address to tell which country they live in. But the free market remains the consumer's best hope.

By drawing attention to the issue, Husic's inquiry may help to make consumers more price conscious.

Vastly inflated prices become a brand issue for the likes of Apple, Microsoft and Adobe. People could decide to buy a competitor's device or product next time. The threat alone could force those suppliers to reduce prices. Internet sites employing price discrimination have backed down in the face of a consumer backlash.

When it comes to physical products like laptops and devices, consumers can use third parties to help them import the goods at foreign prices. For instance, a third party in the US can buy the product at US prices and ship it to Australia. Any costs of transport and administration would still be cheaper for the Australian customer than paying the marked up Australian price.

If this practice were to become widespread, IT product producers could lower prices in response.

In the meantime, the rip-off remains.

Jessica Irvine is the author of Zombies, bananas and why there are no economists in heaven: The economics of real life, published by Allen & Unwin.

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