Price Discrimination or Anti-Canadianisms (or Neither)?Microsoft's pricing for Student Versions Windows 7

Some of my students have pointed out that in the US, students may purchase Windows 7 for $29.95 (US), whereas the price for Canadian students is $39.95 (Cdn), even though the currencies have recently been trading for about $1C = $.95US.

Is the price elasticity of demand so much lower in Canada that Canadian students are charged the higher price?

Or does Microsoft just have an innate dislike for Canadian students?

Or is there an intermediary in Canada who has raised the relative price here? If the latter, why don't US intermediaries charge more?

If the lower US price is viewed as promotional pricing, why wouldn't the promotional price be just as effective in Canada?

Why is there this difference in the profit-maximizing prices in the two markets? Or is one or both of the prices not the P* that we draw on all our graphs?

Comments

[Gabriel]

Cost differences? That large?

[Dan Maas]

This is a common complaint about software sold in Europe, which is often priced at the same number of Euros as the US price in dollars.

[EclectEcon]

Gabriel, that was what I was trying to address. The student edition at those prices is a downloaded product, so the costs should be the same from the perspective of Microsoft. But here, as with many other products, a Canadian distributor negotiates an exclusive contract to be the Canadian distributor, and the insertion of this extra institution (with objectives not quite in line with those of Microsoft) likely affects the pricing decision.

[Jeff H]

Is it easier to get pirated copies of the the software in the states?

[EclectEcon]

Jeff,
My understanding is that most pirate sites on the internet are not in North America, so the cost of getting a pirated copy should be about the same in the two countries.

[Jeff H]

@: Professor Palmer

If there is indeed a single Canadian distributor, perhaps what we are seeing is a form of monopoly pricing. This would contrast the US market where several licensed distributors are competing in a oligopolistic market, which would lead to lower prices than in the Canadian market.

Is that what you had in mind?

[Econ 1020 Student]

When I read this article, one thing that I thought about were the insane prices of video game software in the U.K and presumeably the rest of Europe. Game prices in the U.K. are about fourty to fifty GBP, which compared to CDN or USD, is over double the prices that we pay here. Factoring in currency rates, games in UK are commonly =>$100 USD. Think about that...paying OVER DOUBLE for what the price ought to be. Surely the increase in price can't be from shipping alone (which is even inane to start off with)? Could it maybe be from copyright issues? Software regulations? Either way, it is a sure fact that UK people will get screwed over buying the latest AAA games. And they will buy it. They have no other choice. Even "importing" games from US wouldn't work because of the PAL system Europe uses(you would need a pirated console-a whole other issue), and any savings would be negated due to shipping and custom costs. Damn, UK must really hate video games.

Another idea that I got from this article: global market prices vs. country market prices and global market equilibrium vs. country market equilibrium. Interesting to compare the concepts...I would comment further, but I really would like to play Modern Warfare 2 and DJ Hero now, NTSC-style of course.

[Jeff H]

I think the simplest explanation is that the price elasticity of demand for Canadian students is lower than that of American students. This results in a higher P* for the Canadian market than the American market.

[Ronnie]

They probably made the decision on pricing a long time ago and haven't changed it since because it hasn't been a problem for them.