Why are games consoles cheaper in America?
BBC News website, 12 June 2013 http://www.bbc.co.uk/news/magazine-22868787
Sony and Microsoft have unveiled the prices of their new games consoles, and as usual British gamers will have to cough up more for the identical pieces of kit. Why is this?
Sony announced the price of its new Playstation 4 console in Los Angeles to rapturous applause. At $399 it is significantly cheaper than Microsoft’s Xbox One, priced at $499.
But British gamers have less to cheer about, however. As usual, they will pay much more than their American cousins for the same machines – £349 ($546) for the Playstation and £429 ($671) for the Xbox.
The huge disparity has come to be expected by customers on this side of the Atlantic, but how do the companies explain the difference?
“There are many factors that influence the final price of consumer electronics in different markets,” a spokesman for Microsoft says. “This includes, but is not limited to tax, tariff and exchange rates.”
Tax is certainly a major factor. In the US, sales tax varies from state to state and is added to the headline price at the checkout. In the UK, the 20% VAT charge is included in the price you see.
Even accounting for tax, though, the consoles are more expensive in the UK – around £36 more for the Playstation, and £39 for the Xbox.
Import tariffs do not come into play here. The UK does levy charges on certain items, but consumer electronics are usually exempt. Laptops, mobile phones and video games consoles are duty free, so Customs Duty does not affect the final price.
In terms of exchange rates, it seems reasonable for the companies to protect themselves against a fall in foreign currencies. That may partially explain the higher price charged in the UK by US based Microsoft. Sony is headquartered in Japan, though, which doesn’t explain a difference between prices in the US and the UK.
|PS4 UK||PS4 US||Xbox UK||Xbox US|
|Price in sterling||£349||£255||£429||£319|
|Price before sales tax||£291||£255||£358||£319|
Sony attributes much of the disparity to the cost of doing business in the UK. David Wilson, head of PR in the UK, says, “It’s cheaper to do business in the US,” and adds that operating in lots of small European countries is more logistically challenging than in the US.
Richard Wilding, professor of supply chain strategy at Cranfield School of Management, doesn’t think it explains the full difference in price.
Much heavier television sets cost less than £40 to transport from a factory in China to a shop in the UK, he says, so moving a smaller games console would be a fraction of that. “I doubt that the difference in transport costs would be more than a few pounds,” he says.
He suggests a much simpler explanation: “I suspect they simply see the UK as a market where they can charge more.”
Patricia Davidson, author of The Shopaholics Guide to Buying Online, agrees that while some of the cost could be down to market size, it is also a cultural phenomenon. “The problem is that we put up with it. It’s a rip off,” she says.
When asked the crucial question – whether they plan to make a bigger profit margin on consoles sold in the UK – neither company is willing to answer.
Hugh Langley of TechRadar says it makes sense for Sony and Microsoft to charge different prices worldwide, and doesn’t think ill-feeling towards the brands will be widespread. “Prices are very different all over the world. People just want to know if they’re getting value for money based on what else is out there in their own country,” he says.
Both companies seem to be banking on British gamers taking that view. It isn’t a strategy that has failed them in the past, and it seems unlikely to change in the foreseeable future.