People are finally rebelling against the evil, dreaded maker of machines, harbinger of doom, catalyst of the inevitable apocalypse: Apple Inc. Early adopters of Apple's new i-phone, the latest item in cutting-edge technology that combines a digital music player, full-service internet and cell phone, are enraged that the company cut prices of the device from $599 to $399 after only two months on the market. Apparently, they feel betrayed that Apple suckered the early go-getters for the extra $200, which new buyers of the i-phone won't have to pay.
There are numerous fascinating articles floating around the internet about the issue. Of note is Steve Levitt's blog, from which this is an excerpt:
What economists (and Apple too, I guess) ignore is that consumers hate it when companies follow practices that look like they are designed to maximize profits. You won’t find it in economic models, but consumers care about the reason a firm chooses the price it chooses. If a firm raises prices because something happens to make it more expensive to supply the good (e.g. oil prices rise, so the price of airline tickets goes up), consumers are accepting. If a firm raises prices because they cannot make enough of the product to satisfy demand (e.g. like they should have done with the Wii), consumers are likewise understanding. But when prices are raised and lowered strictly with the goal of extracting the most possible from consumers, people get upset. Apple’s price cut looks like one driven purely by a desire to maximize profit, which is why everyone is so mad.
You can read the rest of the article here. Levitt makes some interesting points regarding measures that Apple could have taken to ensure that consumers would have remained happy, while not enduring much of a cost. His point about consumers being upset with the reason that the company inflated its prices is pretty much evidenced by this article here.
Is it just me, or does anybody else think that those consumers who are enraged by the sudden drop in prices are a) neglecting a basic economic fact that prices for new goods tend to drop as production costs diminish and b) are morons who couldn't wait to have the latest in cool, collectible technology? I mean, seriously, if these people couldn't live without their mp3 players, internet, and cell phones all in one portable device for a year, then they deserve to pay the extra $200.
Again, maybe it's just me...
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2 comments:
The fact is that no matter the cost there is always a massive demand for the latest and greatest gadget that comes on the market. It has been proven without fail for almost every high-tech product that has come out on the market in the past decades. Of course the apt (or at least level headed) consumer would fight the urge and wait until after the first surge for not only the decrease in price but for the hopeful improvements in a given products version 2.0.
The consumer should not at all be upset by the price drop for the iPhone--they truly do neglect the economic facts that the device has by now recovered its research and development costs. I think what upsets the consumer is that the price drop and subsequent offer to rebate the original purchases from Apple reminds them of their stupidity. I shouldn't talk though as I bought a clunky and quite expensive Sony MD player as soon as it was released. Not only did the price of the device dramatically decrease after the first few months but MD technology was out of fashion and nearly obsolete all but a year on.
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