Stephen observes that higher prices are the result of price discrimination provided Australian consumers are less price sensitive than their US counterparts. To explain the lower price sensitivity of consumers, he suggests that Australians have fewer opportunities to purchase abroad; but this obviously applies less to software purchases than to other products. Joshua points out that if digital piracy is more prevalent in Australia, then the price sensitive segment of consumers does not participate in the official market and the remaining consumers are less price sensitive. More often, “behavioural” or ad hoc explanations are invoked for why Australians are less price sensitive. Stephen concludes with the open question: Why is Australian demand less sensitive to price may be unanswered, but it appears that the relevant software sellers believe it is true and so charge us more. A possible answer for why this price discrimination occurs lies in the Australian market structure beyond the software market. Consider for a moment a world with two commodities, “real goods” and “software”, which are substitutes: if the price for software rises, consumers buy less software and more real goods, and vice versa. Now if the software provider is a monopolist, then its price and the price for real goods are strategic complements: an increase of the price for real goods raises the price the software publisher should charge for its software; a lower price for real goods lowers the optimal price with which the monopolist responds. When both types of goods are sold by monopolists of this sort then the resulting price equilibrium is called Bertrand equilibrium with differentiated products and it results in prices above the perfectly competitive level and below the levels the monopolies would charge if the two markets did not interact. Suppose now that the market for real goods in the US is competitive while in Australia this market is dominated by a small number of firms, resulting in prices for real goods (those other than software) that are higher in Australia than in the US. In the absence of software arbitrage the software monopolist will now optimally charge a lower price in the US than in Australia—simply by responding to the lower price for real goods in the US. The software publisher thus benefits from the lack of competition in the market for real goods in Australia and enjoys higher profits.