A few years ago I had the idea of using iTunes song prices to form an index to illustrate whether currencies were under- or over-valued. The iTunes index indicated significant over valuation of currencies relative to the US dollar in a way that was not correlated with the Economist’s Big Mac index. While this may have been tied up with an unusually low price for iTunes songs in the US, the relative prices across other countries were still puzzling. In contrast to the usual presumption on price discrimination, the higher the average income of the country, the lower the iTunes song price. The same was true for iPod games.
Today, Horace Dediu provides a careful analysis of pricing for Apple’s hardware (e.g., the graph to the left). It reveals continuing puzzles but none so much as Apple TV. Apple TV is 25 percent more expensive in Finland as you would expect. But in Finland the amount of content you can purchase is far more limited than the US. That makes it objectively less valuable. A similar case can be made for iPads that also are more expensive there. So why would Apple set prices so high?
One explanation, of course, is that Apple cares most about the US market and basically prices goods elsewhere at a higher price to stop parallel importing. This is borne out a little with respect to iPad pricing in Brazil. There, Apple appears to engage in some discounting but not so much that, taking local taxes into consideration, someone would find it profitable to import to the US from Brazil.