1 - It's the retailers' fault: we don't set prices

Posted on 12 Jul 2007 at 10:59

Verdict: False

This one's an old favourite of Microsoft's. When PC Pro asked the company why Office 2007 was up to 70% more expensive in the UK than the US, a spokesperson told us: "It's up to our partners to set pricing. We're not allowed to fix prices - that would be illegal."

Nonsense, says our economics expert. "With software, like any good, it's the owner or manufacturer that sets the price," says Alexander Grous, associate of the London School of Economics. "That's particularly true of software, where there's traditionally been no real way of fixing a price. It isn't like a bike or a car, where there's a history of parts and costs. Software has always been priced in terms of: 'What do we think we can flog it at?'"

Software companies choose the price that best suits each market and then the resellers have to fight over whatever margins they can make. "It's Microsoft that sets the price and the retailer simply adds his margins," agrees Loughborough University economist Professor Eric Pentecoste. "In a competitive market, those retail prices are likely to be very similar." Which is why most retailers sell the same product for near-identical prices, until someone starts a price war.

At the heart of this issue is whether software companies charge UK resellers the same wholesale price they charge in the US. With Microsoft, that wholesale figure is as elusive as Lord Lucan's lost left sock. "We're not in a position to share the confidential pricing information that you have requested," the company told PC Pro.

"Microsoft has a global pricing policy and you can't sell out of region, it's like with DVDs," says Ian Jenner, Microsoft business manager at software distributor Enta Group. "I think it's got it right and it's certainly the same price across Europe, but I don't see its pricing deals with anyone else, so I can't be sure we're not paying more in the UK than they are in the US."

Other critics are more vociferous in questioning wholesale equality and feel retailers carry the can for pricing policies that milk the UK. "Microsoft comes to us and tells us what rate we can have its software at, then we add what margin we need to survive, but that's the same in the US," said the CEO of one UK reseller, who was too concerned about ruffling Microsoft's feathers to go on record. "The difference is... we pay significantly more than retailers in the US."

Even Amazon.co.uk is dismissive of the idea that it's competing on a level playing field with its US big brother, Amazon.com, and says it can't even send UK customers to its US site to pick up a bargain. "The difference in pricing of Microsoft Vista on Amazon.co.uk and Amazon.com is driven by the recommended retail price we're provided by Microsoft," the company said in a statement. "UK customers are able to purchase a vast array of products from Amazon.com and have them shipped over to the UK. However, Microsoft Vista isn't one of these products due to an agreement we have with Microsoft, which precludes sales of the product on Amazon.com to people outside the US."

Back to 'Rip-off Britain: excuses exposed'.

Author: Stewart Mitchell