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How much would you pay for a brand new iPhone 5 (the iPhone new in 2012) that looked exactly like an iPhone X and was indistinguishable by anyone else? If it's

How much would you pay for a brand new iPhone 5 (the iPhone new in 2012) that looked exactly like an iPhone X and was indistinguishable by anyone else? If it's less than the price you would pay for a real iPhone X that price difference is because of quality improvement and not fashion. There are more rigorous ways to account for the fashion effect, but this thought experiment shouldshow that a significant part of the price difference is because of quality improvements.

tfehring 8y ago
I'd probably be willing to pay more than 41% (the 16%/year discount taken from your article, compounded for 6 years) but less than 100%, which implies that your conclusion overstates the value (to me in particular) of quality improvements during that time. Of course, I don't actually have the option to get the same experience from an iPhone 5 today that I could have 6 years ago. As an alternative, consider a budget Android smartphone manufactured today. It's possible to spend significantly less than 41% of the price of an iPhone X (or an iPhone 8, for that matter) for a device whose quality is, I suspect, better in every way than an iPhone 5. If 16%/year is taken as the true rate of quality improvement, doesn't that imply that the fashion effect has an impact on consumers who continue to purchase iPhones?
- GatorD42 8y ago
  I didn’t word the hypothetical that well. A better way to think about it would be a brand new iPhone 5 that to you looked and felt like an iPhone 5, but magically appeared like an iPhone X to everyone else. The “fashion effect” is the zero sum feeling someone has from having the latest version of a product. The actually dimensions / screen size and screen to body ratio of the iPhone X are actually technical improvements. My argument is people would not pay that much for an iPhone 5 that looked like an X to other people and hence conferred its status. If people really were willing to pay close to the price of the X in such a situation it would be an argument that the fashion effect plays a significant role. I don’t deny it has some influence, only that technical improvements are the main influence of prices. If you are still willing to pay more than 41% of the price of an iPhone X for an iPhone 5 that everyone thought was a X, I think that would make you pretty unusual. Used versions of the iPhone 5 seem to be going for under $100 on eBay. Even assuming a discount for new vs used, that would mean you value the iPhone 5 about $200-300 more than a typical eBay buyer. In response to your Android hypothetical I would argue that Android phones have advanced more rapidly than iPhones over the past 5+ years, and that there is some system lock in. Also I don’t really want to get into the quality debate in this area, though I would note that Android phones exhibit year over year price depreciation similar to iPhones.
  - tfehring 8y ago
    Makes sense. >Used versions of the iPhone 5 seem to be going for under $100 on eBay. Even assuming a discount for new vs used, that would mean you value the iPhone 5 about $200-300 more than a typical eBay buyer. An iPhone 5 purchased today would run poorly with current software, and the battery life would probably have deteriorated due to age. I took your question to mean that I’d get the same experience that I’d have gotten from purchasing a new iPhone 5 in 2012.

tfehring 8y ago

I'd probably be willing to pay more than 41% (the 16%/year discount taken from your article, compounded for 6 years) but less than 100%, which implies that your conclusion overstates the value (to me in particular) of quality improvements during that time. Of course, I don't actually have the option to get the same experience from an iPhone 5 today that I could have 6 years ago. As an alternative, consider a budget Android smartphone manufactured today. It's possible to spend significantly less than 41% of the price of an iPhone X (or an iPhone 8, for that matter) for a device whose quality is, I suspect, better in every way than an iPhone 5. If 16%/year is taken as the true rate of quality improvement, doesn't that imply that the fashion effect has an impact on consumers who continue to purchase iPhones?

GatorD42 8y ago
I didn’t word the hypothetical that well. A better way to think about it would be a brand new iPhone 5 that to you looked and felt like an iPhone 5, but magically appeared like an iPhone X to everyone else. The “fashion effect” is the zero sum feeling someone has from having the latest version of a product. The actually dimensions / screen size and screen to body ratio of the iPhone X are actually technical improvements. My argument is people would not pay that much for an iPhone 5 that looked like an X to other people and hence conferred its status. If people really were willing to pay close to the price of the X in such a situation it would be an argument that the fashion effect plays a significant role. I don’t deny it has some influence, only that technical improvements are the main influence of prices. If you are still willing to pay more than 41% of the price of an iPhone X for an iPhone 5 that everyone thought was a X, I think that would make you pretty unusual. Used versions of the iPhone 5 seem to be going for under $100 on eBay. Even assuming a discount for new vs used, that would mean you value the iPhone 5 about $200-300 more than a typical eBay buyer. In response to your Android hypothetical I would argue that Android phones have advanced more rapidly than iPhones over the past 5+ years, and that there is some system lock in. Also I don’t really want to get into the quality debate in this area, though I would note that Android phones exhibit year over year price depreciation similar to iPhones.
- tfehring 8y ago
  Makes sense. >Used versions of the iPhone 5 seem to be going for under $100 on eBay. Even assuming a discount for new vs used, that would mean you value the iPhone 5 about $200-300 more than a typical eBay buyer. An iPhone 5 purchased today would run poorly with current software, and the battery life would probably have deteriorated due to age. I took your question to mean that I’d get the same experience that I’d have gotten from purchasing a new iPhone 5 in 2012.