Commentary on Euro Pricing Flamefest

[LZ_69]

OK... here's what I in my naive European mind calculate.

The game is 150$ in America, correct (I checked Amazon.com)? Let's just change the $ to € and we will have accounted for a "hefty retail markup". Adding the German VAT of 19% to that I get 178,50€, a price I would have paid happily. However, the actual price here in Germany will be 240€ (and just for the record, I can recall a single instance where prices were significantly lower than the SRP).
Now is shipping that expensive that it costs an extra 60€ per box? For some reason I can not believe that.
Furthermore, what about other electronics? What about Guitar Hero 3 with a 99$ / 95€ price? Is Activision taking a large, HUGE hit on their profit margins? What do they do right that you do wrong?

Don't get me wrong, I'd love to buy rock band, but that price is ridiculous and the attempts to justify it don't really work for me.

Then I gues you don't get to own Rockband, go and play at a friends house.

[ToasterJ]

The discrepencies in pricing between the United States and European territories aren't easy to break down. However, it seems HMXGLo has gone a decent ways toward explicating HMX's position. I'm simply going to add some details, and lend some theory to the basic story told here.

Shipping: A few explanations here. As you would learn in a principles of Macroeconomics course, energy has a disproportionate affect on aggregate supply. If the cost of say, gasoline differs between two areas, then the economies of those two areas are going to show the affects of that difference in nearly every single market. this is largely due to the sheer amount of energy that goes into any product. By the time materials have been harvested, shipped, processed shipped, molded, bought sold and rebought and shipped again, your product has used a pretty significant chunk of energy. Europe, as you all almost certainly know, pays a great deal more for gasoline than Americans do. Blame it on the US having their fingers in everyones oil, blame it on Taxes and socialistic economic constructs in Europe, the end result is the same: Things cost more in Europe. Another part of this could be tariffs imposed on importing the game on top of the extra cost of trucking the units around. So, a significant amount of difference could arise here.

Video Games are Elastic Goods:
The price elasticity of demand is an economic term for something very simple: How much the price of a good affects the demand for the good. For example, gasoline is generally inelastic, since when prices go up, people still need it and have to buy it in the short run (until they get a bus pass or a bike or whatever they might do). However, video games have an estimated price elasticity of demand of -2.58 (reference: Indirect Network Effects and the Product Cycle: Video Games in the US 1994-2002) What this means is that for every 1% increase in price, the sellers of a video game can generally expect to lose 2.5% of their demand. As you can see, it is a generally very bad idea to charge more than you need to for video games. It is Not in a merchants best interest to gouge you, and I assure you that EA and Harmonix have hired more than enough economists to be able to know this. This is what HMXGLo meant when he talked about non-essential goods. For a general explanation of Elasticities, check here: An explanation of Product Elasticities

There are a myriad of things that could lend to an explanation of whats going on here, but I assure you that "those capitalistic pigs" are surely not behind it. In fact, there's evidence to suggest that a more capitalistic environment might have prevented the price from reaching this level, though you may end up paying more for your health care. Its all about incentives and trade-offs. Sorry Europe is going to be paying more for such a great game, but now you just have to check your own indifference curves and make a choice as a consumer.

Matthew J Price
Student of Economic Theory
Idaho State University

[blazetorch]

Well-written and extremely interesting read. Thanks for sharing HMX.

[Maggot_Brain]

Explain again how games imported to Europe tend to cost about 40% (including GH3 with guitar) more than in the US, yet Rock Band will cost over 100% more?

[LZ_69]

The discrepencies in pricing between the United States and European territories aren't easy to break down. However, it seems HMXGLo has gone a decent ways toward explicating HMX's position. I'm simply going to add some details, and lend some theory to the basic story told here.

Shipping: A few explanations here. As you would learn in a principles of Macroeconomics course, energy has a disproportionate affect on aggregate supply. If the cost of say, gasoline differs between two areas, then the economies of those two areas are going to show the affects of that difference in nearly every single market. this is largely due to the sheer amount of energy that goes into any product. By the time materials have been harvested, shipped, processed shipped, molded, bought sold and rebought and shipped again, your product has used a pretty significant chunk of energy. Europe, as you all almost certainly know, pays a great deal more for gasoline than Americans do. Blame it on the US having their fingers in everyones oil, blame it on Taxes and socialistic economic constructs in Europe, the end result is the same: Things cost more in Europe. Another part of this could be tariffs imposed on importing the game on top of the extra cost of trucking the units around. So, a significant amount of difference could arise here.

Video Games are Elastic Goods:
The price elasticity of demand is an economic term for something very simple: How much the price of a good affects the demand for the good. For example, gasoline is generally inelastic, since when prices go up, people still need it and have to buy it in the short run (until they get a bus pass or a bike or whatever they might do). However, video games have an estimated price elasticity of demand of -2.58 (reference: Indirect Network Effects and the Product Cycle: Video Games in the US 1994-2002) What this means is that for every 1% increase in price, the sellers of a video game can generally expect to lose 2.5% of their demand. As you can see, it is a generally very bad idea to charge more than you need to for video games. It is Not in a merchants best interest to gouge you, and I assure you that EA and Harmonix have hired more than enough economists to be able to know this. This is what HMXGLo meant when he talked about non-essential goods. For a general explanation of Elasticities, check here: An explanation of Product Elasticities

There are a myriad of things that could lend to an explanation of whats going on here, but I assure you that "those capitalistic pigs" are surely not behind it. In fact, there's evidence to suggest that a more capitalistic environment might have prevented the price from reaching this level, though you may end up paying more for your health care. Its all about incentives and trade-offs. Sorry Europe is going to be paying more for such a great game, but now you just have to check your own indifference curves and make a choice as a consumer.

Matthew J Price
Student of Economic Theory
Idaho State University

Awsome post Matthew! keep up the good work at Idaho State!!

[DMSTEPHENS]

Explain again how games imported to Europe tend to cost about 40% (including GH3 with guitar) more than in the US, yet Rock Band will cost over 100% more?

I don't know how much the shipping costs, but they can get about 3 copies of GH3 in the space of 1 Rock Band box.

[ToasterJ]

El_Metal_Metal: Thats right, you did, however I had begun my post before yours was up, so wasn't aware you were going to say it.

Maggot_Brain: Possible explanations: A) Theres considerably more mass in the rockband box, and shipping costs may rise more than proportionately to the mass or volume shipped. B) There are often tariffs imposed on goods of more than a certain value. for example, it costs a lot of money to import diamonds. Electronic goods are subject to taxation as well and if a package of software or hardware exceeds a certain value it may be subject to a higher level of taxation. Perhaps Rock Band crosses a threshold that GH3 does not.

Those are two possibilities, and I have not put time or effort into finding others, but I'm sure my list is incomplete

[thibest78]

And DLC songs need to be imported too ???

[Legoftime]

Well...at least we've finally got some sort of explanation.

Unfortunately it seems a bit bollocks!

The direct conversion between $ and £ for Rock Band comes to about £90 add the VAT = £105.75 so are you really telling me it costs about £70 per unit to ship to the UK?

Also...

--This is probably already well understood by folks on these forums, but the built-in VAT tax boosts the price by an additional 17.5% in the UK, and more elsewhere in Europe. That’s not the whole discrepancy, but it’s a big chunk of it.

So 17.5% is a big chunk of the 100% mark up?

I probably will get Rock band eventually but not until it's reduced to a reasonable price and definitely not at launch. But the impression I'll get from this that EA/Harmonix/MTV are just another bunch of moneygrabbing bastards!

[John_S]

OK... here's what I in my naive European mind calculate.

The game is 150$ in America, correct (I checked Amazon.com)? Let's just change the $ to € and we will have accounted for a "hefty retail markup". Adding the German VAT of 19% to that I get 178,50€, a price I would have paid happily. However, the actual price here in Germany will be 240€ (and just for the record, I can recall a single instance where prices were significantly lower than the SRP).
Now is shipping that expensive that it costs an extra 60€ per box? For some reason I can not believe that.
Furthermore, what about other electronics? What about Guitar Hero 3 with a 99$ / 95€ price? Is Activision taking a large, HUGE hit on their profit margins? What do they do right that you do wrong?

Don't get me wrong, I'd love to buy rock band, but that price is ridiculous and the attempts to justify it don't really work for me.

You're looking at the PS2 version with all peripherals. The Xbox 360 and PS3 versions both cost 180 USD.

Also, the game is highly multi-player based. Not everyone I know has rock band, but most people play it. What happens is one person (me in this case) gets rock band and him and his friends play it together. 1 rock band w/ all peripherals can generally satify 4 people partially, 2 completely. If price is truly an issue, just pay together. I will admit, it does seem high, but it DOES actually cost a great deal to ship a 3 x 2 x 1 ft (approx 1 x .6 x .3 meters) box weighing about 25 lbs. (11.36 kg) over the atlantic ocean, then to stores all over europe.

Also, if you find it cheaper, guitar hero guitars, and any standard USB microphone or Xbox 360 headset will work with rock band, so you can get it a lot cheaper without the peripherals and use those as substitutes. The only thing you'll miss are drums, and the was the first peripheral to release by itself, and you could purchase by itself in a few months cheaper.