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Software Price Gap Between the US and Europe
Kensai7 writes "A quick comparison between same versions of mainstream software sold in the USA and the EU markets show a big difference in the respective price tags. If you want to buy online, let's say, Adobe's Dreamweaver CS3, you'll have to pay $399 if you live in the States, but a whopping E570 (almost $900 in current exchange rates!) if you happen to buy it in Germany. Same story for Microsoft's newest products: Expression Web 2 in America costs only $299 new, but try that in Italy and they will probably ask you no less than E366 ($576!). How can such an abyssal difference be explained? I understand there are some added costs for the localized translated versions, but I also thought the Euro was supposed to be outbuying the dollar. Where's the catch?"
That's simply not true.
There are thousands of Windows distributors in the US. Though MS might be the final arbiter of who gets to distribute MS products, they rely on widespread distribution networks to provide the constant revenue stream they need to stay in business.
With foreign sole distributorships, the only stipulation is that the distributorships provide a certain level of sales and income back to MS (for example). So within the country, the sole distributor sells the product for at least cost, then adds in his cut, then pumps the price up because he has no competition to drive his prices down.
Since the sole distributor acts as a monopoly within the country, the retail outlets have to bear the cost that the distributor charges, and the customers have to bear the costs passed down from the retail outlets.
Yes, it's capitalism, and it's grounded in well understood economics. But it isn't "Supply and Demand at work" in a free market sense.
Back in the 90's when I was shipping software to Europe, the price I'd charge the wholesaler was the same I'd charge local wholesalers. Getting through customs however, wasn't trivial. Import duties in the 90's which were separate from VAT were running around 15-20%. The wholesaler paid that on top of the price he paid us and added his markup which he passed on to the retailer. The retailer turned around and added his markup to the price he paid which included the duty cost plus the wholesaler's markup on the duty cost. By the time it got to the customer, the customer was paying markup on markup on duty plus regular retail-wholesale markups. What initially appeared to be a relatively small duty cost mushroomed into a sizable burden.
I was talking to one of the wholesalers about it and he laughed it off by saying 'yeah, but we get trains!' He'd then piss and moan about his more savy customers buying directly from retailers in the states and avoiding the double markups. That of course, reduced his market which meant he raised his prices more to cover his fixed costs.
Another factor driving prices in Europe was the fact that we'd sign exclusive distribution agreements so a wholesaler owned the market for a specific country. We did that because the wholesaler handled the translation and marketing costs in the specific country (we were a small company). Since he was the only source for a product, there wasn't any price competition. Here in the states, we'd wholesale with 5-6 distributors and those 5-6 companies were cut-throat with each other. The ones who couldn't compete on price, didn't survive.