4 ms·

In economics the closer you get your price to be MR=MC the better off your profit. If they did as you said more than likely they would be leaving money on the

In economics the closer you get your price to be MR=MC the better off your profit. If they did as you said more than likely they would be leaving money on the table. This is usually a fairly common intro economics problem as it can seem unintuitive to lower the price to make more profit. Now iPhones do have somewhat of a 'monopoly' effect. But only to a point. In a monopoly you want MC=MD. https://openstax.org/books/principles-economics-3e/pages/9-2-how-a-profit-maximizing-monopoly-chooses-output-and-price#CNX_Econ_C09_007 https://openstax.org/books/principles-economics-3e/pages/9-2... Apple falls in the middle of those two axioms. If Apple could pull of an iPhone for 1 cent there would be a flood of entrants into the market doing the same thing as making the things would be cheap and easy. At first some would pay the premium (pay for the name) but after awhile that premium would erode and it would seem odd to pay when you can get the same thing for wildly less money.

mrDmrTmrJ 3y ago
Respectively, plenty of companies can build a smartphone for far, FAR less than the sale price of an iPhone. E.g. a $50-$130 Samsung Galaxy A03. It's Apples install base, app ecosystem, and social moat (iMessage) allows continued high gross margins on their hardware and locks competition away from their profit center. The sale price has very little to do with the marginal cost of production and a ton to do with a naturally occuring software monopoly.
- fshbbdssbbgdd 3y ago
  That Samsung uses the 12nm node, so you could say it falls somewhere between iPhone 7 (16nm) and iPhone (10nm). Those are worth about $100 used. A lot of the cost of manufacturing cost of cellphone parts comes from upfront capital expense, which is paid off by new models. This allows a strategy of selling cheaper, lower-end models using that old equipment. Apple also pursues this strategy, but they don’t push it nearly as far as Samsung. The cheapest iPhone, the SE 3 at $430, has a 5 nm chip in it, which they only released two years ago. Apple just isn’t willing to release a parts-bin device, because they have a high quality bar. This is part of a moneymaking strategy, but my point is you can’t compare the A03 price to any current iPhone model. Apple’s hardware margin is 35%, that is a reasonable estimate of the premium Apple is charging over a totally generic phone.
  - sumtechguy 3y ago
    Very nicely said. They fall somewhere between MR=MC and MR=MD because of the type of product the are. I am surprised it is as low as 35%. But I will accept that. A company as big as Apple should know where its 'sweet spot' is for pricing. Too high and people walk, too low and you are leaving money on the table. It took me awhile to wrap my head around the concept. But the math does check out. Most intro econ classes teach it with 'the pizza parlor' and simple demand/supply curves. What the slope of those curves are depends on your competition and your market status (aka reputation). Apple has squarely tried to make themselves look like a premium product. All the way from its advertising to the box the thing comes in to the store you buy it in. That puts them more on the monopoly side as monopolies will do that to increase MR=MD. The are not totally a monopoly. They may be that in some peoples influence. But mine for example my parents literally would not be able to tell the difference between a generic sub 50 dollar phone and a 1500 one. They do not use any of the extra features and it would be meaningless to them. For some people it is about the status of that logo on the back. For others it is the tech stack and integration. For others it is just something to text and phone with.

mrDmrTmrJ 3y ago

Respectively, plenty of companies can build a smartphone for far, FAR less than the sale price of an iPhone. E.g. a $50-$130 Samsung Galaxy A03. It's Apples install base, app ecosystem, and social moat (iMessage) allows continued high gross margins on their hardware and locks competition away from their profit center. The sale price has very little to do with the marginal cost of production and a ton to do with a naturally occuring software monopoly.

fshbbdssbbgdd 3y ago
That Samsung uses the 12nm node, so you could say it falls somewhere between iPhone 7 (16nm) and iPhone (10nm). Those are worth about $100 used. A lot of the cost of manufacturing cost of cellphone parts comes from upfront capital expense, which is paid off by new models. This allows a strategy of selling cheaper, lower-end models using that old equipment. Apple also pursues this strategy, but they don’t push it nearly as far as Samsung. The cheapest iPhone, the SE 3 at $430, has a 5 nm chip in it, which they only released two years ago. Apple just isn’t willing to release a parts-bin device, because they have a high quality bar. This is part of a moneymaking strategy, but my point is you can’t compare the A03 price to any current iPhone model. Apple’s hardware margin is 35%, that is a reasonable estimate of the premium Apple is charging over a totally generic phone.
- sumtechguy 3y ago
  Very nicely said. They fall somewhere between MR=MC and MR=MD because of the type of product the are. I am surprised it is as low as 35%. But I will accept that. A company as big as Apple should know where its 'sweet spot' is for pricing. Too high and people walk, too low and you are leaving money on the table. It took me awhile to wrap my head around the concept. But the math does check out. Most intro econ classes teach it with 'the pizza parlor' and simple demand/supply curves. What the slope of those curves are depends on your competition and your market status (aka reputation). Apple has squarely tried to make themselves look like a premium product. All the way from its advertising to the box the thing comes in to the store you buy it in. That puts them more on the monopoly side as monopolies will do that to increase MR=MD. The are not totally a monopoly. They may be that in some peoples influence. But mine for example my parents literally would not be able to tell the difference between a generic sub 50 dollar phone and a 1500 one. They do not use any of the extra features and it would be meaningless to them. For some people it is about the status of that logo on the back. For others it is the tech stack and integration. For others it is just something to text and phone with.