Treasury warns intervention into IT pricing could be detrimental

Treasury has released its own submission to the Federal Government’s inquiry on IT pricing, saying the industry should focus less on making pricing equitable through force and more on creating a hospitable business environment for potential competitors which would naturally reduce higher costs.

It’s a small glimpse into the government’s likely response to the inquiry – that is, to do little to actively stop higher prices – but IT experts say the current environment suits major IT players.

“I think the Australian market remains highly attractive for international vendors, because of the profits they could potentially extract here,” Telsyte research manager Foad Fadaghi told SmartCompany this morning.

“I’m not sure how worried we need to be about the attractiveness of our market.”

However, the Treasury submission suggests the opposite. It notes the IT Commission has found that price discrimination has been sustained traditionally through sufficient demand from Australian consumers, and lack of competitive rivals.

“Regulating businesses’ ability to make pricing decisions should only be considered where it is evident that without intervention, there would be persistent and substantial economic detriment,” it says.

Throughout the submission, Treasury argues it would be better for local players to come up with solutions for competitive pricing, saying the price difference creates “opportunity”. It also says the same for digital products, saying the government should encourage local players to provide alternatives.

“This may include removal of any barriers to entry to the Australian market that may exist, particularly those which would prevent alternative suppliers and substitute products that could help to place additional competition on existing suppliers.”

“The market for IT products is still relatively young – consumers would be best-served by measures designed to foster the development and expansion of the Australian marketplace, rather than through any measures that are designed to force a particular, short term, outcome.”

However, Fadaghi says rather than being immature, the local market is quite developed.

“I’m not sure how worried we need to be about the attractiveness of our market for foreign vendors,” he says.

“We have a strong economy with high demand for technology products, and that’s evident when you look at the uptake of smartphones in Australia.”

“We’re not world-leading, but we’re certainly in the top echelon.”

Treasury does point out there are ways consumers can get around higher prices, and says the government should focus on current anti-competition laws which could create a more hospitable environment without price discrimination.

And it also argues many companies marking up digital products without a basis for recouping higher costs will be caught out by their customers.

“Firms employing this strategy over the longer term risk reputational damage or loss of goodwill or even their profits. It can provide consumers with greater incentives to ‘vote with their feet’ where they are unsatisfied with the prices offered to them in the Australian market.”

“While there may currently be price differences for IT products that are not based on cost of supply – improving competition and educating consumers can serve to mitigate these differences.”