Comment by jgrahamc | Hacker News Reader

Comment by jgrahamc | Hacker News Reader

I don't think it's that strange. Let's compare the cost of the same MacBook Air in the US and France.

1. MacBook Air 11-inch : 64GB in US is $999.

2. MacBook Air 11-inch : 64GB in France is €1,049

3. $1 = €0.80 at the current time.

So you might think the MacBook Air should be €800 (999 * 0.80). So why it is €249 more? France levies 19.6% TVA (sales tax) on goods and the tax is included in the display price; the US levies sales taxes by state and these are not shown in the displayed prices (sales tax calculated based on destination).

So, what you need to compare is the pre-tax price on both machine. The pre-tax price of the MacBook Air in France is €877. Thus Apple is charging €77 more for the MacBook Air in France than in the US.

The issue is tax rates not Apple.

If you look at the UK you'll find that

4. MacBook Air 11-inch : 64GB is £849

5. $1 = £0.65

So, the £ equivalent of the $999 machine is £650. UK VAT (sales tax) is 20% and thus the pre-tax price of the machine is £707. So Apple is charging £57 more in the UK than in the US.

The other thing is that the price they set at launch doesn't change when the exchange rate changes. So Apple doesn't set the price relative to current exchange rates, but relative to whatever rate they're hedging against. So don't look at the current rates, look at the long term futures rates.

Yes, its likely the Euro will reduce further against the dollar (given the current situation in Europe), so Apple needs to build in a buffer to account for this.

Maybe, but did it need to do that since the Euro was introduced? The crazy USD-Euro price differences have persisted since the Euro was introduced. Apple is not the only offender, by the way.

Although not as massive as it looks in the first place, there is still a discrepancy. The new MBP-Retina top config is 2799 USD -> 1805 GBP. In the UK store, it's 2299 GBP, less 20% vat -> 1916 GBP.

So they're taking more than a 100 quid extra from each UK customer, "just because".

Well, don't forget our lovely European regulations. The costs of hiring employees and handling business in Europe is higher than in US if I'm not mistaken.

Finally, I'd guess that Apple pays its contractors in USD. So if today 1 USD = 0.8 EUR, Apple needs to consider the fact that tomorrow it may be 1 USD = 0.9 EUR, and the price needs to reflect this scenario as well (they cannot change the price every single month to reflect the current USD/EUR conversion ratios).

These are details, but add them together, and you'll arrive at that 10% price difference (I guess)

The european regulations are cheap compared to the legal risks of operating in the states. So, thats not it.

Exchange rate? You keep assuming prices are based on costs. They are not. They are based on profit.

So, when the population in a country has more money to spent, or better but, there where the median, rather than the average, income is the highest, the prices will be too.

So, its cheap in the US because americans are generally more poor, except for a few that throw the average. Off course, "poor" is a very relative concept in this regard.

Income inequality leads to lower prices, and lower margins.

The data don't really seem to support that view of things:

http://en.wikipedia.org/wiki/Median_household_income

>The european regulations are cheap compared to the legal risks of operating in the states.

Cite?

Agreed - it seems once a week or so, someone says this on HN, but I don't see any references to a source.

It presents an odd, and totally unscientific, conundrum: I see people on HN claiming it's very legally risky to do business in the US, and many of the people I work with and socialize with who are in leadership positions here see doing business in the EU as overly regulated and difficult to make a profit at. I suspect both of them have missed the mark. Largely, I suspect that both groups have built their opinions out of news articles or other fractional views - which tend to focus on the most sensational, rather than the most common.

That being said, there are some interesting contrasts to be made, and at least some scholars have indicated a growing convergence between the nature of the two legal systems, at least in some regards.[1]

[1] http://www.law.columbia.edu/center_program/legal_theory/pape...

This is true, price is based on purchasing power. If the public has more money to spend OR IS WILLING TO SPEND MORE then the business will set the price higher.

The european regulations are cheap compared to the legal risks of operating in the states. So, thats not it.

You would need to provide some evidence of this since it is completely counter intuitive. Just look at where US treasuries compared with European bonds to compare which countries/continents are viewed as having less legal risks.

Exchange rate? You keep assuming prices are based on costs. They are not. They are based on profit.

You are correct, if French people will pay more for an Apple product and Apple can price discriminate, they will.

So, when the population in a country has more money to spent, or better but, there where the median, rather than the average, income is the highest, the prices will be too.

Well, median income is not the deciding factor for willingness to pay, but would certainly be a contributing factor. Supply and demand equations could be more complex or less complex depending on the situation.

So, its cheap in the US because americans are generally more poor, except for a few that throw the average. Off course, "poor" is a very relative concept in this regard.

This is untrue, proven by the other person's link to wiki.

Income inequality leads to lower prices, and lower margins.

This is untrue also. The price of gold watches and private jet flights are not affected by income inequality, but rather the size of the target segment (wealthy people). A highly polorized economy with 50% really rich vs 50% really poor would by far more jet rides than a country with a distribution toward the center.

> Just look at where US treasuries compared with European bonds to compare which countries/continents are viewed as having less legal risks.

To be fair, you're comparing apples to oranges. Government bond prices reflect the default risk of the government in question. 'Legal risks' include things like getting sued because of perceived defects of your product. Some statistics about that would be interesting, but probably vary greatly by sector: medical devices probably involve lots of ass-covering, whereas something like paper notebooks probably incur fewer lawsuits.

To be fair, you're comparing apples to oranges. Government bond prices reflect the default risk of the government in question.

They also reflect overall competitiveness of the country in question which by definition includes legal risks. This is primarily driven from currency fluctuations. In Europe, the German Bund is currently priced stronger than Spanish bonds which is due to default risk.

If each country had their own currency (compare US to Europe as a whole), the bigger fear would not be default risk, it would be inflation risk. This inflation risk is a function of competitiveness.

'Legal risks' include things like getting sued because of perceived defects of your product. Some statistics about that would be interesting, but probably vary greatly by sector: medical devices probably involve lots of ass-covering, whereas something like paper notebooks probably incur fewer lawsuits.

I agree with your assessment of what legal risks are, but keep in mind it is more to do with the change in legal structures rather than current legal structure. If there is no change, businesses can make projections and be confident in them. If there is a risk of change, that is perceived as a larger legal risk.

I don't have statistics, but I would say that a country (France) which elects a president that is perceived as socialist (radical change from previous president) has far more legal risks than the relatively stable US.

I think the OP was talking about the costs of lawsuits and their effects on business, not risk of doing business in general in various places.

Also: I don't think that, in the context of France, the change in presidents is really all that radical. I suppose I could be proven wrong, but I don't see them as being that much further apart than, say, GWB and Obama, even if the latter two are shifted 'rightwards' compared to what the center is in France.

Don't forget the EU also levies additional duties on imported black goods.

Well, don't forget our lovely European regulations. The costs of hiring employees and handling business in Europe is higher than in US if I'm not mistaken.

That's a cost I'm willing to take. I don't want sweatshops like China, or CEOs who can threaten all employees with at will firings if they don't give up their stock options (Zynga IIRC). Give me good old fashioned rights any day.

The MacBook was built in a sweatshop in China -- unless your nation has import tariffs, European regulations won't help that. But the price of a MacBook is still higher than in the US.

I believe the UK also has better consumer protection laws than the US like being able to return a product within 28 days of purchase to get a full refund.

http://en.wikipedia.org/wiki/Consumer_protection_in_the_Unit...

Most of those laws are European law, that would apply to all EU countries.

The euro is doing really poorly vs the dollar now, it was the same difference when 1 eur got you 1.4-1.5 USD.

> US levies sales taxes by state

Or, in the cases of Oregon and New Hampshire, does not levy it at at all.

Apple products sold in Europe have a base warranty of 2 years. In the US, only 1 year.

There are various levies and duties, as well as storage and transportation that will go into the price differential too.

Apple garnered £6 billion in sales in the UK in 2010, and paid only £10 million in tax.

http://www.telegraph.co.uk/finance/newsbysector/mediatechnol...

That's corporation tax, not VAT. Completely different.

I have a feeling there might be some costs associated with revenues of $6bn.

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