Shifting Shades of Grey – International Price Discrimination and Australian Copyright Law

Since the 1970s Ramsey pricing has been acknowledged as an optimal departure from marginal cost pricing in a defined case. That case is where a supplier needs to incur high fixed costs to produce a resource necessary for supply and the marginal costs of supplying each customer are negligible. Marginal cost pricing in such a case will generate a loss, so that if that form of pricing was all that a supplier could use it would generate insufficient incentives for that supply to be undertaken by the private sector. Ramsey pricing is commonly thought to apply in regulated markets where infrastructure of a common carrier nature is supplied by private capital such as telecommunication networks, railways and toll roads. But Ramsey optimal price differentials may also arise in the absence of a regulator where certain intellectual property subject matter is produced privately such as major motion pictures or pioneer pharmaceuticals. Ramsey price differentiation is price discrimination between those segments of market demand with low elasticity (high value users) and those segments with high elasticity (low value users), discrimination which can only be undertaken successfully where arbitrage is inhibited. Its desirability was one of the reasons why the prohibition on price discrimination was repealed from Australian competition law. However when undertaken by a copyright owner across borders, Ramsey price differentiation usually involves price discrimination as between nations and this raises more complex issues than when price discrimination is entirely internal to a national market. In this essay I explore some of context to the recommendations made in The Australia Tax Report which substantively were for Australian reforms to restrict the ability to prevent arbitrage when price discrimination is engaged in by copyright owners internationally. In particular, I observe the paradox in the report's failure to clearly express principled policy reasons for opposing international price discrimination of copyright when such discrimination might approximate in at least some cases Ramsey optimal differentials. I conclude with the suggestion that only by making that policy opposition clear can all the costs and benefits of any reform be properly comprehended