Problem Focused Exercise: Are you being charged too much for music downloads?
1
Scenario
Many of us now download music. This exercise considers the prices that different
groups of consumers are paying and why.
Task 1
Read the attached extract and then answer the following questions.
Write your answer either hard copy or in your own word
processing file in order to compare to our feedback.
(a) What form of barrier allows Apple to charge different prices to UK
customers compared to other European customers? Explain why, if this
barrier was not in place, the prices paid would tend towards being the
same wherever the customer is located.
(b) Apple refers to its pricing structure as being based on ‘market influence’.
It is not clear exactly what is meant by this. The following questions relate
to what this possibly means.

Is Apple’s market power in the UK different from that of the rest of
Europe because of a different competitive situation in the UK
compared to the rest of Europe?

Are there different elasticities (price and/or cross and/or income)
for UK customers for music downloads compared to European
customers?

How may Apple be using these factors to increase its prices and
profits?
(c) Do you think Apple is offering good reasons for the higher prices and why?
Continued on the next page
Copyright: Embedding Threshold Concepts Project
11/09/08
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for Employment and
Learning (DEL) under the Fund for the Development of Teaching and Learning.
Problem Focused Exercise: Are you being charged too much for music downloads?
2
Are you being charge too much for music downloads?
Based on: European Commission Launches iTunes Price Probe by Staff 7:00 AM EST,
February 25th, 2005, The Mac Observer
http://www.macobserver.com/article/2005/02/25.3.shtml
Apple charges around 14% more in
Great Britain than in other European
countries for music downloads. In
Britain , to download a single track,
customers are charged 79 pence
(€1.14) at the iTunes Music Store while
at other of Apple's other European
music Web sites the same track costs
€0.99 (68 pence). Apple does not
allow those with a UK-based address
or credit card to use the French or
Germany iTMS sites, so residents in the
UK cannot buy at the lower prices.
The problem was identified by the
British Consumer Association, Which?
who informed the British Office of Fair
Trading. This Office brought Apple's
pricing policy to the European
Commission’s attention in December
2004. The Commission has confirmed it
looking into allegations of
discrimination by Apples iTunes against
UK consumers. A spokesman for the
European Commission, Jonathan
Todd, reported that the investigation is
in "the early stages". A time frame for
when a decision would be handed
down has not been given.
Which? and the British Office of Fair
Trading contend Apple's refusal to
allow cross-border shopping is a
breach of European Union laws. These
require that British shoppers should be
able to enjoy the same advantages as
their counterparts in the rest of the EU.
In a statement Apple defends its
pricing structure arguing that its pricing
policy is based on market influence
and the price it pays for each song in
each country. They declared "The
underlying economic model in each
country has an impact on how we
price our track downloads". They went
on to say "That's not unusual. Look at
the price of CDs in the US versus the
UK. We believe the real comparison to
be made is with the price of other
track downloads in the UK."
(Historical Note: In January 2008 the European Commission welcomed an announcement
by Apple that it was to equalise prices for song downloads in Europe within six months.)
 Feedback
Copyright: Embedding Threshold Concepts Project
11/09/08
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for Employment and
Learning (DEL) under the Fund for the Development of Teaching and Learning.