Living Economics

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To enhance profit, businesses often sell non-interoperable versions of the same products in different markets.

A Palm Zaire PDA is a useful gadget on long overseas trips. It holds all your addresses and phone numbers, appointment calendars, and notes on important items. That is, as long as its battery lasts. If you are in a country with 220 volt AC power, it is difficult to recharge the battery with its 110 volt AC battery charger.

And if you think the overseas DVD movies are bargains, wait till you try to play them on your home DVD player. Like battery chargers, DVD movies have region locks on them. Only DVDs coded for region 1 or all regions can be played on U.S. DVD players. Similarly, DVDs coded for region 1 cannot be played on players marketed for other regions.

Hewlett-Packard Co.'s latest inkjet printers are designed to work with only ink cartridges that are sold in the same region as the printers.

Such examples are quite common even in our globalized economy. There may be other reasons for making more than one version of the same products. But region locks on standardized products undeniably allow companies to more effectively price discriminate among regional markets. Specifically, the higher price charged for a product in a higher-income market cannot hold if the same product is sold at a much lower price in a lower-income market. Arbitrage among the markets will eliminate most of the price difference.

Region locks also preserve the product-cycle revenue streams by forcing consumers in different regional markets to go through all the chronological steps of product introduction. For example, U.S. movies are released in theaters in different countries at different times of the year followed by DVD sales. So the DVD version may be out in the U.S. market when the same movie is shown overseas. If DVDs are not region-coded, they might cannibalize the overseas theater markets when the DVDs are exported without authorization.

Region locks are of course not air tight. The cheapest DVD players are known to have been made without any region locks. But the locks do not have to be air tight to protect market profit.

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