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A Dangerous Game

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The recent E3 conference in Los Angeles saw Sony and Microsoft debut their latest eighth-generation game consoles after nearly seven years. The unveiling of both the £4 and Xbox One has been highly anticipated by the gaming community, and it was the first time that the rival tech giants launched their game consoles simultaneously.

In the build up towards E3, the internet was abound with price speculations, especially after the shocking £3 prices back in 2006, when it was set at US$499, US$100 higher than the Xbox360.

When Andrew House, Sony's CEO, finally announced that the £4 would be priced at US$399 and £349 respectively at the press conference, he was met with cheers and applause from the crowd. This is significantly cheaper than the Xbox One, priced at US$399 and £429.

While the new prices are a welcome change, British gamers have less to cheer about, as they have to fork out US$546 for the £4 and US$671 for the Xbox One (£1 to US$1.57).

The mystery of price discrimination continues to puzzle many consumers, and Microsoft defends its international price policies on factors such as "tax, tariff and exchange rates." Yet, these seem like empty excuses that fail to fully justify the price differences.

Firstly, there is no doubt that the UK release price of a £4 at £349 is inclusive of 20 per cent VAT while the price tag of US$499 is not inclusive of sales tax rates which varies across individual cities and states in the US. If we deduct the VAT, the £4 will cost £291 (US$457), nearly 15 per cent more expensive than across the Atlantic.

The second factor listed by Microsoft was tariff, yet according to HM Revenue & Customs, game consoles are duty free and thus, it does not explain the UK price hikes.

The final factor of exchange rates might be a factor in pricing decisions, as seen in Apple and Abercrombie & Fitch's decisions to raise prices in Japan due to a weakening Yen. However, Sony is headquartered in Japan, and this fails to explain the difference between prices in the US and the UK.

As Pam Woodall's Big Mac Index have shown us, international companies hardly ever operate on a single global market model. Prices are set in individual countries according to cost structure, customer perceptions, local operating costs and competition within the market.
British consumers have consistently been paying more than our American counterparts for tech goods and services.

A 13" Macbook Air retails for £849 (£707.5 before VAT) in the UK and $999 pre tax in the US, translating into an 11.2 per cent difference. Spotify Premium costs £120 in the UK, but only £77 in the US.

So why are we paying more in the UK? Richard Wilding, professor of supply chain strategy at Cranfield School of Management, suggests these companies "simply see the UK as a market where they can charge more."

With the rise of an increasingly integrated and convenient ecommerce industry, companies are finding it more difficult to set differentiated prices in individual countries without facing consumer dissatisfaction, as displayed in a recent Australian Federal Parliament inquiry into Microsoft's price hikes in Australia.

With rumours of an October release date for the £4 and November for the Xbox One, both will likely be on every gamer's Christmas wish list. To avoid getting ripped off, I suggest getting someone in the States to buy one for you or simply buy on American sites; after all, there are no import duties on game consoles.

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3 Comment

Correction Posted on Friday 6 Dec 2019

"To avoid getting ripped off, I suggest getting someone in the States to buy one for you or simply buy on American sites; after all, there are no import duties on game consoles."

Microsoft has already announced, and confirmed (multiple times), that consoles are region locked to the country they are purchased in. If you purchase a console from a U.S. retailer, you must buy ALL of your games from U.S. retailers too. Games sold in the UK will NOT work on a U.S. console. Then there is the fact that there have been statements from Microsoft that games bought in the U.S. will not activate on a UK xbox account (which is required for ALL xbox one games) so even if you do manage to buy the games they won't work without the use of a VPN and U.S. xbox live account. If your VPN fails during the required "check-in" and reveals your real location, you lose all access to your games. Basically, you are telling people to buy a brick.

A smarter choice would be to buy the PS4 from a U.S. site since it has no such restrictions.

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Correction Posted on Friday 6 Dec 2019

Microsoft announced today that all of the above mentioned restrictions have been abandoned due to overwhelming customer outrage. It seems they finally pulled their collective head out of their butt.

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J Posted on Friday 6 Dec 2019

It was your comment on here that turned them, Correction.

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