Does the 3G radio really add an extra $400? ... If phones weren't subsidized, the list prices would be quite different. No doubt it does not cost an extra $400

Does the 3G radio really add an extra $400? ... If phones weren't subsidized, the list prices would be quite different. No doubt it does not cost an extra $400, but don't make the mistake of assuming that in the absence of long-term contracts suddenly all prices will be based solely on production cost. See software for example. Does Photoshop really cost Adobe $X00 more than Photoshop Lite? No, they're both free. Companies will charge what they can, sometimes with highly varied pricing for products of similar cost, especially when the marginal cost of production is low but the cost of R&D is high. This is the price discrimination necessary to run a successful business.