Economic surplus

Economic surplus

As the victims of international price discrimination, Australians need to fight back

Australian consumers are paying more than those overseas. Source: wikimedia

When Woolworths is looking at parallel importation, you know that the Australian retail sector has a problem.

Today’s Australian Financial Review states that:

“Woolworths has been buying Australian-made Lynx, Rexona and Impulse deodorants from Singapore for 60 to 75 per cent of the price it pays locally”.

Of course, this is nothing new to most consumers. Fairfax media notes that:

“Australian shoppers are so besotted with online retailer ASOS, the British fashion site is flying nearly four jumbo jets full of clothing into the country each week. … Australian shoppers make a purchase from the ASOS website every six seconds”.

Parallel importing is where a retailer buys a product overseas and resells it here, avoiding the local arm of the relevant manufacturer.

It is not new. For example, Aldi has been parallel importing Nescafe instant coffee from overseas since around 2005. They are careful to point out that it is an imported product and to make sure consumers are not misled. And the coffee from Indonesia or Brazil is much cheaper than the ‘local brew’.

Parallel importing is just one part of the general move by Australians to purchase goods and services cheaper off-shore. These purchases appear to be driven by price discrimination. Manufacturers often sell products at a higher price in Australia than overseas. The most blatant examples appear to be in the software industry as reported to a parliamentary inquiry earlier this year:

“One example given last week was a suite of Microsoft products that in the US cost $2324, in Canada $3105, in Australia $4136 and $2324 in Singapore, an 86 per cent difference”.

However, examples are everywhere. I now have a lifetime supply of a well-known brand of toothpaste. It costs about one-third of the Australian price in India so my wife brought a bag-full home from her last trip!

Of course, manufacturers price discriminate between countries because it raises their profits. And they retaliate when Australian retailers or consumers try to undermine that discrimination.

When Aldi started parallel importing instant coffee, Nestle tried to intervene under the guise of ‘consumer protection. The ACCC looked into the matter and didn’t agree. (Conflict of interest warning – I was a Member of the ACCC at the time).

As the Australian Financial Review notes:

“[w]hen the manufacturer … discovered that Woolworths was parallel importing three of its top-selling brands, its first reaction was to shut down Woolworth’s source of supply …”.

And for software buyers, try to download from an overseas site at a lower price and you will quickly have your location checked and the download blocked.

International price discrimination against Australia is hurting our retail sector. There are a lot of problems in our ‘bricks and mortar’ retail sector at present. It is under siege by the internet. And in some areas it will undoubtedly die. However, we do not need our retail sector undermined by multi-national companies who choose to charge higher prices in Australia.

And the solution is clear. Australians – whether businesses or consumers – should be ‘free to buy’ legal products from any where in the world for own-use or resale in Australia. In many areas this can be achieved by simple legislative change. In other cases, like software, there are issues of intellectual property and copyright. But if a consumer is purchasing a legitimate product in an overseas country, our copyright and intellectual property rules should not prevent that consumer using (or reselling) that product in Australia.

When it comes to international price discrimination, Australia has long been the bunnies. It is time for the bunnies to fight back!