Global Differential Pricing

The power and convenience of the internet has made a substantially wide range of goods and services available to consumers. However, this comes with a downside in many cases as international consumers get charged more for the same product if they are located outside the selling company's home country. This is called differential pricing or price discrimination. There are two main reasons most companies practice this: maximizing profit and reducing negative effects on competition by limiting sales in certain countries. Some examples include iTunes, Google Play Store, Amazon, Steam and others which charge prices that differ based on your home country or region.

In order to understand this topic, we have to define different ways of charging customers. There are three charges that can be based on:

1. The gross price

2. The net price<br>

3. The perceived price (i.e., how much the consumer pays)

3 major methods companies use to charge customers:

1. According to their residence or country of origin<br>

2. According to their location<br>

3. According to their behavior or habits<br>

4. According to their income or purchasing power<br>

5. According to their territory or market share

Perceived price is what a customer feels he/she pays for a good or service, it is based on attributes such as: time and place of purchase, kind of payment method, store image and loyalty programs. This can change when one channel (online) offers a different price from another (offline). If a company decides to charge online customers less than offline customers due to costs related to physical stores, it can lead to the perception that the product is meant for lower income consumers. Net price is what you pay minus what you receive in return for your payment. It includes different expenses such as the costs to provide and store the product, any transaction fees and taxes. The price of a good is calculated based on all these costs.

Some companies are aware that international pricing can be illegal under competition laws (see also International Trade Regulation). Some have argued that such practices might be acceptable to specific markets or as part of a package, while others argue that they can only be undertaken by large multinational corporations who have extra efficiencies through their scale.

The most common case of differential pricing is the "right to return" with respect to consumer goods which are sold in one country but not in another. In the European Union, this right is provided by the national member states except in Denmark, Germany and Sweden. The Commission argued that producers in these countries could not take advantage of lower costs of customer returns arising elsewhere within the EU. The case was taken to court by producers in Denmark and the UK.

In Europe, most EU laws apply equally to all member states with some exceptions for agriculture, fisheries and tax laws. However, a company can still sell any product throughout the whole EU without having to worry about each local legislation (except for VAT). This is because every country has a maximum limit for every type of product. So, for example, every product in Europe must be safe and include certain features even if it has another legislated feature in one country.

European Union law does not allow member states to discriminate between local and foreign companies when it comes to direct sales (i.e., for goods that are not sold through exclusive distributors). However, this law does not necessarily apply when it comes to the distribution of goods. This is why many different companies have their own stores and why the prices can be different from country to country (see also Country-specific trademark). For example, many Spanish clothing brands have their own stores, with the prices being higher than those in some Eastern European countries.

Several companies use a different pricing in the same country depending on each customer's location. It might be based on the customer's residence or his/her IP address (see also Price discrimination). This practice can be illegal under competition laws if it includes all suppliers or is only applicable to certain competitors. For example, in 2012, the European Commission fined Microsoft for offering prices for Windows and Office software which varied depending on where purchasers were based within the EU and given that no other suppliers were offered these prices. Some country specific websites might offer a different price from one country to another. Such price discrimination can be illegal under EU law if it is not based on local circumstances or if it is discriminatory.

In some countries there are different rules concerning the price of products based on their country of origin. For example, in Germany, real estate prices are regulated so that local consumers enjoy lower prices than foreigners who purchase properties in Germany.

There are a wide range of possible reasons for differential pricing. The goals might include:

A large number of companies use different pricing depending on customers' home country or region. It is done mainly by online e-commerce platforms. The main reasons considered by them are:

This practice can be legal under competition laws if it is necessary to provide a certain feature to one customer when it is not offered to another customer in another country. For example, sometimes a website might offer customers who are based in the UK and Ireland a special deal with some extra benefits on top of the regular website price to those customers, but this offer will not be available to the customers based outside these countries.

A wide number of companies use different pricing depending on customers' income, purchasing power, location or territory. This can be legal under competition laws if it is done in a way which is not discriminatory. For example, an online store might charge more to users who live in wealthy areas, because that area has more people who can afford to pay higher prices. Some countries encourage differential pricing based on income by offering goods at lower prices to poorer citizens. In some cases this type of price discrimination is illegal and the government will allow only discounts based on age (e.g., children's discounts) or location (e.g., local surcharge for electricity).

Conclusion

In theory, it is illegal to charge different prices on the same product depending on customers' residence or their country of origin. In practice, this type of price discrimination is potentially legal if there are reasons behind the different pricing. For example, it might be based on the customer's location and purchasing power or paid for by a local authority to encourage consumption in an area.

Differential pricing between customers can be caused by many other factors as well. The main goal for a company which is considering differential pricing between customers should be to earn more revenue from each customer. If this goal cannot be achieved within one region then differential pricing should be avoided in that region.