8 ms·

This is economics. The price of a product in a competitive market tends to its marginal cost -- the cost to produce one additional unit. The marginal cost of a

This is economics. The price of a product in a competitive market tends to its marginal cost -- the cost to produce one additional unit. The marginal cost of an iPhone is $450 in parts and labor. The R&D costs are fixed costs, not marginal costs, they don't vary whether you sell 1 million iPhones or 10 million iPhones. Most of iOS's costs are fixed. Even if you amortize the cost of it across the number of phones sold each cycle, it will be insignificant. Apple employs ~12,000 engineers. If all 12k cost $1million per year, it would cost Apple $12 billion a year. Apple revenue in 2019 was $260 billion, or 4.6% of revenues. Apple gross profit was $104 billion. So if Apple had to somehow cut some rent-seeking streams and eat $12 billion, their profits would only be reduced 12% Now we know these figures are way overboard. Employee costs aren't $1 million per year for every engineer. All 12k engineers are not working on iOS or the App Store, etc.

scarface74 6y ago
This obviously comes from a misunderstanding of economics. The price of a good is what people are willing to pay for it. Why are people willing to pay more for Nike’s than Converse? There are literally hundreds of Android phones, yet people are willing to pay more for iPhones. People have been paying a premium for Apple’s goods for forty years. Instead of complaining about the evilness of Apple, maybe the problem is the incompetence of the rest of the market to make something compelling.
- 07t15 6y ago
  Not quite relevant, but Nike owns Converse
- PaulDavisThe1st 6y ago
  This is incredibly simplistic, and to say "this obviously comes from a misunderstaning of economics" seems ironic, to say the least. You're completely ignoring price signalling for a start, which provide information to consumers about price elasticity. You're ignoring asymmetries between producers and consumers, which hide information from consumers about price elasticity (and thus affect what people are "willing to pay"). You're ignoring things like decoy effects, in which manufacturers deliberately offer extra items at different price points because of the known impact on consumer psychology. Basically, you write as if consumers are driven by a rational and fully informed decision making process, when we know with absolute certainty that this is not the case, and that manufacturers/sellers have considerable ability to shift "what people are willing to pay for it". Also, vastly more people buy those Android phones than iPhones, which makes it less clear if the market has failed to "make something compelling" to compete with iOS, or if there is a subset of the population willing to pay a premium for specific perceived benefits, real or otherwise, in the case of iOS devices.
  - scarface74 6y ago
    If only Android was owned by a company with a popular website where they could inform consumers about the benefits of alternatives and if it has capital to produce a premium phone. Do you really think consumers don’t know they are paying Apple a premium?
- cromwellian 6y ago
  "There are literally hundreds of Android phones, yet people are willing to pay more for iPhones." Because there are hundreds of manufacturers of Android ones, and only one for Apple. Microeconomics states that in a competitive market, price will tend to the marginal cost, and this is exactly what happened in Android. It is not "what people are willing to pay", it's that Android phones have competitive pressures that are downward on price. At the high end, people pay as much for Huawei Mate P30s as they do for iPhones, because there are few phones at that tier. Your rebuttal actually proves my point exactly. If Apple licensed iOS, and let clone makers sell iPhone clones, the price would plummet, even if all of the features were the same -- same OS, same HW performance, etc. Apple's creation of their own little walled garden, complete with path dependency, and slick marketing, has created a premium that would not exist if independent manufacturers could sell clones. This is why PCs were cheaper than Macs, when clearly PCs had WAY WAY better HW than Macs, way better CPUs, GPUs, et al, for much lower price points, yet people paid more for Macs. Even back in the pre-OSX days, the PowerPC days, the Motorola days, people paid more for less, again, because of the way Apple locks in a chuck of their market with incompatible path-dependency. I mean, I had an Amiga in the 80s, it had 4-channel stereo sound, 4096 colors, multitasking, awesome games, on a great C= monitor, and the comparable machine at the time was this tiny 128k 9" B&W display machine, which was hideously slow because it didn't even have enough RAM, and cost well over 200% more. Amiga had vertically integrated all-custom chips like Apple brags about today. It was the premium machine, so ask yourself why some people paid 200% more. It could do substantially less, graphically, and in terms of software available for it. And before you say "desktop publishing", in college I used TeX to do all of my work, and the output quality was superior with less effort. For the home PC user, it was way way overpriced for underpowered hardware and a paultry software selection. This is what Apple was competing against in the 80s: https://www.youtube.com/watch?v=q7rKj0DU8Xs https://www.youtube.com/watch?v=q7rKj0DU8Xs I'm an iPhone user, I've owned every iPhone since standing in line in 2007 to get one of the first. I use a Macbook as my primary laptop. So I'm not anti-Apple, but frankly all of the things I use iPhone or Macbooks for have NOTHING to do with their locked down App Store, refusal to allow me to install third party browser engines, or specify default apps, or side-load apps. I want Apple to stop locking down freedom and when they sell me a computer or phone, let me OWN IT an do what I want with it. If Apple's ARM OSX Macs turn into a locked down system like their ARM iPad/iPhone, then this Macbook Pro and Mac Pro I own will be the last Apple devices I own, and it's hello Hackintosh or Linux desktop.
mr_toad 6y ago
> The price of a product in a competitive market tends to its marginal cost Long run marginal cost. Which will be higher than the cost per unit. You can’t sustain a market when you can’t cover fixed costs. Just look at what happened to Detroit.
- cromwellian 6y ago
  I already showed they cover fixed costs with a mere 5% of revenue and 12% of gross profit (note their reported gross profits actually already removed the fixed costs)

scarface74 6y ago

This obviously comes from a misunderstanding of economics. The price of a good is what people are willing to pay for it. Why are people willing to pay more for Nike’s than Converse? There are literally hundreds of Android phones, yet people are willing to pay more for iPhones. People have been paying a premium for Apple’s goods for forty years. Instead of complaining about the evilness of Apple, maybe the problem is the incompetence of the rest of the market to make something compelling.

07t15 6y ago
Not quite relevant, but Nike owns Converse
PaulDavisThe1st 6y ago
This is incredibly simplistic, and to say "this obviously comes from a misunderstaning of economics" seems ironic, to say the least. You're completely ignoring price signalling for a start, which provide information to consumers about price elasticity. You're ignoring asymmetries between producers and consumers, which hide information from consumers about price elasticity (and thus affect what people are "willing to pay"). You're ignoring things like decoy effects, in which manufacturers deliberately offer extra items at different price points because of the known impact on consumer psychology. Basically, you write as if consumers are driven by a rational and fully informed decision making process, when we know with absolute certainty that this is not the case, and that manufacturers/sellers have considerable ability to shift "what people are willing to pay for it". Also, vastly more people buy those Android phones than iPhones, which makes it less clear if the market has failed to "make something compelling" to compete with iOS, or if there is a subset of the population willing to pay a premium for specific perceived benefits, real or otherwise, in the case of iOS devices.
- scarface74 6y ago
  If only Android was owned by a company with a popular website where they could inform consumers about the benefits of alternatives and if it has capital to produce a premium phone. Do you really think consumers don’t know they are paying Apple a premium?
cromwellian 6y ago
"There are literally hundreds of Android phones, yet people are willing to pay more for iPhones." Because there are hundreds of manufacturers of Android ones, and only one for Apple. Microeconomics states that in a competitive market, price will tend to the marginal cost, and this is exactly what happened in Android. It is not "what people are willing to pay", it's that Android phones have competitive pressures that are downward on price. At the high end, people pay as much for Huawei Mate P30s as they do for iPhones, because there are few phones at that tier. Your rebuttal actually proves my point exactly. If Apple licensed iOS, and let clone makers sell iPhone clones, the price would plummet, even if all of the features were the same -- same OS, same HW performance, etc. Apple's creation of their own little walled garden, complete with path dependency, and slick marketing, has created a premium that would not exist if independent manufacturers could sell clones. This is why PCs were cheaper than Macs, when clearly PCs had WAY WAY better HW than Macs, way better CPUs, GPUs, et al, for much lower price points, yet people paid more for Macs. Even back in the pre-OSX days, the PowerPC days, the Motorola days, people paid more for less, again, because of the way Apple locks in a chuck of their market with incompatible path-dependency. I mean, I had an Amiga in the 80s, it had 4-channel stereo sound, 4096 colors, multitasking, awesome games, on a great C= monitor, and the comparable machine at the time was this tiny 128k 9" B&W display machine, which was hideously slow because it didn't even have enough RAM, and cost well over 200% more. Amiga had vertically integrated all-custom chips like Apple brags about today. It was the premium machine, so ask yourself why some people paid 200% more. It could do substantially less, graphically, and in terms of software available for it. And before you say "desktop publishing", in college I used TeX to do all of my work, and the output quality was superior with less effort. For the home PC user, it was way way overpriced for underpowered hardware and a paultry software selection. This is what Apple was competing against in the 80s: https://www.youtube.com/watch?v=q7rKj0DU8Xs https://www.youtube.com/watch?v=q7rKj0DU8Xs I'm an iPhone user, I've owned every iPhone since standing in line in 2007 to get one of the first. I use a Macbook as my primary laptop. So I'm not anti-Apple, but frankly all of the things I use iPhone or Macbooks for have NOTHING to do with their locked down App Store, refusal to allow me to install third party browser engines, or specify default apps, or side-load apps. I want Apple to stop locking down freedom and when they sell me a computer or phone, let me OWN IT an do what I want with it. If Apple's ARM OSX Macs turn into a locked down system like their ARM iPad/iPhone, then this Macbook Pro and Mac Pro I own will be the last Apple devices I own, and it's hello Hackintosh or Linux desktop.

mr_toad 6y ago

> The price of a product in a competitive market tends to its marginal cost Long run marginal cost. Which will be higher than the cost per unit. You can’t sustain a market when you can’t cover fixed costs. Just look at what happened to Detroit.

cromwellian 6y ago
I already showed they cover fixed costs with a mere 5% of revenue and 12% of gross profit (note their reported gross profits actually already removed the fixed costs)