take for instance Witcher 3, the price is 59.99 Euro (before discount), which is far more expensive then the $59.99 USD, and for the british pound it is 49.99. I know they give in store credit to make up that difference, but what I want to know is why do they need to do that in the first place? why can't they sell the game for $59.99 USD equivalent in regions currency : like 43.97 in Euro and 35.23 in British Pound?

Reasons given in this thread, read the paragraph that starts, "Alright, but why is regional pricing needed for those [...] newer games"
http://www.gog.com/forum/general/letter_from_the_md_about_regional_pricing

Also read this follow-up thread..for pacification if needed ^^
http://www.gog.com/forum/general/getting_back_to_our_roots

They can, but they wont, or rather the publisher chooses not to. Many have tried all manner of excuses for the practice but it boils down to, they want to get the most they can for their product wherever they can. Can't exactly blame them for that.

Retail stores have worked hard in your region tricking customers into paying inflated prices for products and they don't want to let all that hard work go to waste. Rather than offend local stores (or rather, happy to share in the inflated prices), online sales are set to match the inflated price in your region.

The internet and digital sales have gone some lengths to making this practice harder to excuse, so some publishers choose to block activation of their product if the location you bought it, doesn't match the location you try to use it. Its becoming as bad as DRM in my opinion, a corrupt practice that abuses the consumer of your product.

I'm sure GOG means well trying to offer back some of that inflated price as store credit, but I won't have a bar of it, its just encouraging the corruption to continue. I could perhaps import a physical copy from a location with a cheaper retail average, pay for shipping and still come out under the publishers recommended retail price for my region. In a world with the internet and digital distribution, the notion just feels idiotic.

I'll just wait until the game is a couple of bucks. Sure hope some of that $3 trickles through to the developer.

Some of those prices are inflated, sure, but some are actually deflated. Games in India for instance, can't be sold for the price in the US as that would be equal to days labor fee or even more.
This surely won't justify for example selling in pounds for the same amount as in dollars (and thus paying x pounds instead of x dollars), but you do have to take into account that living in a country with higher rates of anything, should have it's take on the games industry too. It's like paying taxes, the more you earn, the more you should* pay,
even if it's digital goods that supposedly cost the same to manufacture to the same publisher (which isn't obviously true, as retailers/distributes/etc can incline regional taxes too, and sometimes offer regional content [translation packs, etc] that require additional costs).

* Even though the really rich obviously pay much less due to their corrupt (any involvement is corrupt by definition as it changes towards your position in expense of everyone else) involvement in the economy of scale.

If I am not wrong, I have understood that Namco Bandai have forced them to regional price. That very same thing happened with The Witcher 2. http://www.igxpro.com/2011/12/23/namco-bandai-decide-to-be-bullies-force-gog-com-to-price-witcher-2-by-region/1912760

They weren't forced to go with Bandai again for W3 though so don't make it sound like this is all on them. Fact is, it's not just CDP but even GOG who has admitted that regional pricing is 'a thing' these days and getting around it is really not a great option anymore. (probably not in a small part because the tax paradise where they had their money flow go through has eroded over the last 5 years). And for CDP, when you make a game, you want to see as much return as you can get.

Take Witcher 3 for instance. Looking around the net, the physical copy is actually cheaper than the digital release for the UK and many places in the EU. So why can't GoG and Steam charge the same price as a physical copy in each of those regions?

I read that letter from GoG about regional pricing, but it didn't explain why digital releases are more expensive than the physical releases in many regions of EU and the UK.

Witcher 3 digital is 49.99 (before pre-order discounts) in UK, but Witcher 3 physical copy is 35.00 in the UK. Looking at many regions in the EU (Euros), Digital price is 59.99, but the physical version is 49.99.

This is why I am confused. GoG talked about publishers being contractually obligated to offer the same price as physical release, yet the physical stores are selling the game for cheaper than the digital release, even cheaper than the discounted digital prices for many places. At the same time I did find many places where the digital and physical releases were the same price.

Well, you can blame them actually. Publishers wanted a global market, they wanted global access to everyone in the world, but now they expect to be able to cherry pick what parts of a global market they want and just toss away the bits they don't. It's market manipulation of the highest order.

If many governments actually really gave a fuck about games, they'd probably hang Valve together with most of the publishers they work with by their balls for price fixing. It's about as anti-competitive as it gets. If we had major corporations doing this with clothes, or food, their CEOs would be doing jail time right about now.

In my country it's the reverse. I can't find the 3rd part anywhere, but the first Witcher retails for $20. Why do you think that I never bought a game legally before online distribution services picked up.

yeah, I know everything breaks down for the ex Easter Bloc countries, which is why I have been limiting my conversation about the UK and really the western countries of Europe. Basically where this regional pricing actually screwing with those counties and being higher than the US equivalent and/or higher than the retail versions.

Well, it's screwing me too, because I have to pay the same price as those in Western Europe, yet I make many times less.

ouch, sorry to hear that.

You sure? I make a good deal less than 600 bucks per month atm and that's more than many others in my city, while having to pay 300 for a really (!) small appartment of course.
People still have the mid 90s image of western Europe in their heads but those times are long gone.