Australian Price Fixing: Potential Impacts
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In an ongoing inquiry, the business practices of tech titans Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Adobe (NASDAQ: ADBE), eBay (NASDAQ: EBAY) and Microsoft (NASDAQ: MSFT) vis-à-vis Australian customers have been under scrutiny by various groups. Most notable is the investigation being conducted by an Australian parliamentary committee, which has the ability to create the most disruption for the companies involved. In addition to its ability to force changes in pricing procedures taken by these players within the country, the committee has demanded access to various internal documents that are expected to settle the matter. Ultimately, while the impact of a negative result would not have a major impact on any of these companies, the precedent is important.
As recently as July, a consumer advocacy group alleged that individuals in Australia pay between 34 and 88% more for IT products and consumer electronics than do purchasers in other venues. While Microsoft has alleged that the reason for the pricing disparity is a higher cost of doing business within the country, Apple, Amazon and eBay are known to add what has become known as an “Australia tax.” The committee that has been investigating the matter possesses local subpoena power to compel the production of documents, and has noted that all of the above players have been unusually uncooperative during the investigation.
The two primary questions that the Australian committee is trying to answer are whether there is a legitimate basis for the higher prices and if, even if such a disparity is discovered, those costs may be passed on to Australian customers. Central to the discussion is a practice known as geo-blocking, which directs customers from specific geographic regions into specific areas of a company’s website. This is the primary mechanism by which companies are able to effectively charge different prices. If the measure falls in Australia, some industry insiders have speculated that a single global price may be established so as to avoid similar entanglements elsewhere.
An Editorial Sidebar
Without wishing to sound either callous or unkind, I am not completely clear on what authority the Australian government thinks it has over the prices charged by these five companies or any others. Since it has not been suggested that there is any type of collusion in play – and the idea that these five behemoths would or could get together and agree to stick it to, excuse me, Australia – each of these companies should be free to charge whatever they like to whomever they like. Is the idea that huge American technology companies just don’t like Aussies?
If we can accept as a premise that there is some legitimate reason why these products cost more in Australia, and if you have read the statutory language that governs e-commerce in that country it is not hard to imagine that costs are higher, then the suggestion that global consumers should bear the heightened cost because Australians don’t like it is frankly absurd. To put this is context, this is tantamount to suggesting that because American emissions standards are higher, Honda should have to charge Japanese car buyers more so as to normalize the higher price of an American version that meets those standards.
While the sales generated by these companies in Australia are not insignificant, they are not keeping any of them in business either. I would be interested how the Australian people, who have voluntarily chosen to buy these products at higher costs, would feel if Apple said, “fine, no more iPhones,” or if Microsoft told Australian companies, “we’re sorry, but in order to not devastate margins, Windows and Office are just no longer available.” This is obviously a fanciful suggestion, but it is based on a legitimate question. The issue of the Australian government’s subpoena power over an American company is an entirely separate issue that I will leave unaddressed, but it raises similar questions.
Ultimately if Adobe or Apple or eBay is forced to turn over sensitive internal documents and price normalization is forced on these players, the companies will be faced with two choices. End geo-blocking and set a single, universal price or accept lower margins in Australia. Under the first option, this will likely lead to either higher costs to all consumers or tighter margins for the companies. While this story has remained largely in the periphery, it has the potential to impact some of the largest tech players in the U.S.
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Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Microsoft. Motley Fool newsletter services recommend Adobe Systems, Amazon.com, Apple, and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.