Prices in the US vs UK and Europe

[superfrank]

Last week I was looking at getting hold of a copy of Adobe's Dreamweaver software (CS5.5) to use with Adobe's Business Catalyst for a possible small online business venture.

I was on the Adobe website and the software was priced at $399 (excluding sales taxes). When I tried to buy it, it wouldn't let me and directed me to the UK site where exactly the same software is priced at £357 (excluding VAT).

I did a quick calculation with the exchange rate at the time and the price was 42% more expensive in the UK. This is software for download so there are no shipping cost considerations. Out of interest I went to the German site and a similar price difference existed there.

How can this be? Is it just that Brits and Europeans will pay over the odds or what?

It's not just software either it's almost everything - have a look at computer hardware, and that's made in China.

This must put US businesses at a great advantage over UK and European ones. Say, for example, you are a business that exports good and services - if the business is US based and can get huge savings on all its capital expenditure compared to its competitors in the UK and Europe, then they are at a big advantage (especially when you consider that land, property and social costs for business are also much lower on average in the US).

No wonder people are talking about the US economically decoupling from the UK and Europe.

Any thoughts?

edit:
http://www.zdnet.co.uk/news/it-at-work/ ... -40088600/

Adobe defended its pricing structure, attributing the difference to the complexities of the European market.

"The cost of doing business in UK and Europe is significantly higher per unit of revenue earned than it is in North America," David Gingell, Adobe's senior marketing manager for EMEA, told ZDNet UK. "For example, in a large homogenous market like North America, we can achieve certain economies of scale that affect pricing. In the European Union, by contrast, we must support two major currencies, diverse regional market situations and 15 languages, all of which results in higher costs."

[Photon]

The biggest reason why most physical goods costs more in the UK than almost anywhere in the world is due to high property (occupancy) costs. Rent, Rates, Service Charge and Insurance is so much higher in the UK than most places mean that large portion of sales goes in just paying these costs leaving retailer no choice but to pass on these costs.

But for an online software company this argument just doesn't wash so its very strange indeed. I wonder whether this general trend for physical goods to be pricier in the UK is pulling everyone else to piggyback and profit handsomely in the UK to compensate for lack of fat profit margin in the US.

I wonder whether there is some type of regulation capping the charges to be imposed in US but not in the UK. It definately worth following with Adobe to seek an explanation just in case it pure pricing error which is remot but possible.

[superfrank]

I wonder whether this general trend for physical goods to be pricier in the UK is pulling everyone else to piggyback and profit handsomely in the UK to compensate for lack of fat profit margin in the US.

I think that's it - they know that they can get away with it, so they do.

The OFT should be hammering down on this sort of malpractice to benefit UK companies' competitiveness - but as usual the UK is a complete pushover.

[superfrank]

I wrote to the OFT and just received their reply.

Dear Mr Xxxxxxxxxx

Thank you for your email of 5 March 2012 regarding your concerns that the same computer software is sold cheaper in the USA compared to prices in the UK.

By way of background, the mission of the Office of Fair Trading (OFT) is to make markets work well for consumers. We achieve this by promoting and protecting consumer interests throughout the UK, while ensuring that businesses are fair and competitive. Our primary duties include the enforcement of competition law, and the application of consumer protection legislation in respect of matters that adversely affect the collective interests of UK consumers.

The main law covering competition in the UK is the Competition Act 1998 (the Act). In brief, the Act contains two main prohibitions. The Chapter I prohibition prohibits price fixing or other anti-competitive agreements which prevent, restrict or distort competition. The Chapter II prohibition prohibits conduct which amounts to an abuse of a dominant position.

In general, the price that a business sets for a particular product or service is a matter for its own commercial judgement. The OFT does not have a role as long as prices are not arrived at by agreement, or do not reflect an abuse of a dominant position or anti-competitive practices in the UK.

The existence of price differences for the same product between countries and regions is not in itself sufficient to prove that a price is anti-competitive. The difference in price charged by Adobe for products in the UK and the USA may be accounted for by factors such as differences in local sales taxes, exchange rates and any other country specific features, including the relative price sensitivity of consumers (what consumers are willing to pay) in each country.

Before any formal action can be taken under the Act, further evidence would be required to suggest that prices were contrary to prevailing market conditions. At this moment on the basis of the information provided we have no evidence to suggest anti-competitive agreements or behaviour in the supply of Adobe products.

In view of this, we will not be taking any action in relation to your complaint at this time. We, do however, appreciate the time you have taken in bringing this matter to our attention. Our intention not to make further enquiries at present does not preclude us from revisiting the matter should further information be provided to us.

Yours sincerely,

Matt Lacovara
Enquiries and Reporting Centre
Office of Fair Trading

i quoted them prices before sales tax/VAT so that isn't an issue, and exchange rates can't be used as an excuse for such huge discrepancies. i guess it's the price sensitivity thing, i.e. they can get away with it so they do.

there is no way the US authorities would put up with this kind of thing if it were the other way round, so why do we?

[superfrank]

Dear Mr Xxxxxxxxxx
Thank you for your further email of 19 March regarding your concerns about Adobe
software being more expensive in the UK than in the US. You have asked us to investigate
your concerns further as you believe the price difference is unjustified.
While we note your additional comments about exchange rates and taxes, as explained in
our previous letter the difference in prices may be accounted for by other country specific
features, including the relative price sensitivity of consumers (what consumers are willing
to pay) in each country. In view of this we would need further evidence to suggest that
prices were contrary to prevailing market conditions before we could consider taking
action under the Competition Act 1998.
You have also mentioned that Adobe will not allow UK consumers to purchase its products
from the US website. We should clarify that the Office of Fair Trading (OFT) only enforces
UK and EU competition law. We can therefore only consider practices and behaviour that
restricts, prevents, distorts competition in the UK and more widely within the EU. In view
of this, while we understand your disappointment at not being able to benefit from prices
offered to US consumers, the OFT is not in a position to take action in relation to US
companies refusing to allow UK consumers to purchase from a US website.
The OFT is therefore unable to assist you on this matter. However we appreciate the time
you have taken in contacting us.

[nomadic]

superfrank: Having grown up in the U.S., this is something that has always mesmerized me during my time in Europe. Starting years back even with things as basic as a pair of Levi's costing 3x or more as much. Or a pair of Nike’s that would cost GBP 90 in London, but less than $100 in New York – this even at a time that the GBP/USD fx rate was 2:1.

Part of it stems I believe from the standard business model of the past in Europe being more of a “high margin but low volume” whereas the U.S. leans more on a “high volume, low margin” model (companies like Ryanair being the exception). Traditionally, it made some sense since the U.S. market offered more opportunities for economies of scale than the highly fragmented European market. (Hence one the key driving forced behind the concept of the European common market). Additionally, various currencies and fluctuating exchange rates made it less obvious. This even happens across Europe from country to country. Even to this day. Although for all of the vitriol directed at it, the Euro has done some degree of harmonizing prices (some would say they have only been harmonized upwards however).

While US / UK pricing gives a stark example, you can also find “unnecessary” discrepancies between UK and Euro prices. Or Swedish/Norwegian/Danish crowns. Or especially Swiss francs. In the end, if a company is doing its pricing correctly, they know that the price should be set at a level where price/volume yield the greatest profit, not on a cost-plus basis. If you are running your company efficiently, then your price is determined simply by what the market will pay. And for whatever reason, many European consumers are simply accustomed to paying higher prices (in a way that American consumers are not), and continue to do so.

there is no way the US authorities would put up with this kind of thing if it were the other way round, so why do we?

Eh, I disagree here. As a converse, take a look at the pharmaceutical industry. Many European companies regulate prescription drug prices in a way that doesn’t exist in the U.S. Therefore many pharma companies (which I would guess would include many European companies such as Glaxo, Novartis, Roche, Sanofi, etc.) operate with a model whereby they "take what they can get" in terms of price in Europe and then turn around and gouge American consumers, where prices are basically uncapped. (Just to be clear, both American and European pharma companies work in this manner). While healthcare is a huge issue in the U.S., that’s basically a facet that I never even hear mentioned. U.S. Congressional noise-making is usually reserved for complaining about prices that are too LOW (for example "dumping" accusations against Japan in the '80's and more recently exchange-rate manipulation against China)...

[superfrank]

hi nomadic,

thanks for your interesting reply.

i just think that if it was agreed at world level (WTO) that prices for the same product could not diverge more than a certain amount that it would be very good for trade and competition and ultimately benefit everyone.

the other thing (imho) that would be very good for trade and business is forcing all banks to exchange currencies at spot (or very close) for purchases. atm if i, as a UK consumer, purchase something from the US using a VISA card they they cream 10% off the top (using a phoney exchange rate nowhere near spot) for doing absolutely nothing but get away with it because of a monopolistic position.

free trade is not as free as many people seem to believe.

[nomadic]

hi superfrank:

I also absolutely detest getting gouged on exchange rates and foreign exchange fees! I found a VISA card about a year ago that's no so bad though (no foreign transaction fees and fairly accurate exchange rates applied to purchases), but of course I had to "upgrade" my card and incur an annual fee for the benefit...

i just think that if it was agreed at world level (WTO) that prices for the same product could not diverge more than a certain amount that it would be very good for trade and competition and ultimately benefit everyone.

Unfortunately, I think this would be very difficult to implement since the cost structure of a product can vary so significantly. For example, you could have a software product, like your Adobe example, where the costs of getting that product to another market are minimal... but you could also have a physical product produced in one country, but exported across the world (a bottle of Evian for example), where the transport costs are significant % of the sale price... or a physical product that is re-produced locally with mostly local inputs, labor in particular. To me, it's correct that a Big Mac in Kuala Lumpur should be a lot less than one in Geneva... and I wouldn't want McD's to have to charge Malaysians more for a Big Mac just to justify their price level in richer countries.

But I do see your point. Perhaps it would be more feasible to start implementing such a policy at an EU or EEA level first (if it can't be done successfully at that level, then no hope for doing so at a WTO level)... and perhaps they could focus specifically on "virtual" products such as software, music, video, etc.

free trade is not as free as many people seem to believe

Fully agree with that!

[superfrank]

good points. yeah the Europeans love to have a go at the Americans and it would give them something useful to do.

maybe i'll send my complaint to the appropriate EU body.

[Iron]

I'm sure that, after giving you a very polite rebuff, they'll file it in the bin...

Jeff

maybe i'll send my complaint to the appropriate EU body.

[superfrank]

Apple, Microsoft and Adobe summoned by Australia
http://www.bbc.co.uk/news/business-21406745

the Aussies are trying to do something about it.

The Australian newspaper quoted Ed Husic, a member of parliament, as saying that according to some estimates the price of some of goods in Australia were as much as 60% higher than in the US.

"Given the widespread use of IT across businesses and the community, the prices paid for hardware and software can have a major commercial and economic impact," the politician was quoted as saying.