The Case of Apple’s iPhone 8 Thousand Dollar Price

The Case of Apple’s iPhone 8 Thousand Dollar Price
hurk / Pixabay

Apple’s iPhone 8 thousand-dollar price barrier how can they pull it off? Part 1 below – stay tuned for part II

Let us begin with a pop quiz:

  1. When will the one-thousand-dollar price barrier for smartphones be breached?
  2. Which company will lead the way?

It appears very likely that the first thousand-dollar phone will go on sale this fall. And it will be sold by Apple.

A counter argument could be based on the sticker shock imposed by this price. How many people would shell out a thousand bucks for a phone, especially when there are so many comparable phones on the market selling for hundreds of dollars less?

This Top Value Hedge Fund Is Killing It This Year So Far

Stone House Capital PartnersStone House Capital Partners returned 4.1% for September, bringing its year-to-date return to 72% net. The S&P 500 is up 14.3% for the first nine months of the year. Q3 2021 hedge fund letters, conferences and more Stone House follows a value-based, long-long term and concentrated investment approach focusing on companies rather than the market Read More

On the other hand, smartphones do a whole lot more than the early cell phones. Tens of millions of Americans apparently spend most of their time doing stuff on their phones. So a thousand bucks does not seem like such an unreasonable price.

Let’s look at the price history of another familiar product. I am old enough to remember when college textbooks cost between five and ten dollars. When my introductory economics text came out in 1988, it cost students $40, then considered a bargain price. Now in its eleventh edition, my book sells for well over $200. And most of the other introductory economics books cost more than $300.

So if college students pay $300 for a textbook, would they be willing to pay $1,000 for a phone? What do you think?

Speaking of sticker shock, who ever predicted we would one day be paying more than ten dollars for a pack of cigarettes, a mixed drink, or a movie ticket? Or three hundred bucks for a pair of sneakers?

A few years ago, when the most expensive smartphones were selling for less than five hundred dollars, a one-thousand-dollar phone was almost inconceivable. But we’ve had time to get used to the idea.

When the price of a good rises steadily, and approaches a significant barrier – whether $10 or $100 or even $1,000, that barrier becomes less daunting. So the sticker shock of paying $1,000 for an iPhone will not be that great.

Now let’s look at the thousand-dollar price barrier from Apple’s perspective. The cost of building the iPhone 8 will be significantly more than those of the iPhone 7 and 7 Plus. And then too, Apple has consistently earned a very high profit margin on virtually every phone it has sold. So do you really believe that a thousand-dollar price barrier will deter Apple from meeting its profit target?

Can you guess who will be rooting for Apple to breach this barrier? Samsung, Huawei, LG, and other high-priced smartphone manufacturers. Then they too can raise their prices – and soon reach the thousand-dollar mark.

Perhaps the most convincing argument for the one-thousand-dollar iPhone is quite simple: The company will charge this price because it can.

(Full disclosure: The author owns shares of Apple stock.)

Steve Slavin has a PhD in economics from NYU, and wrote sixteen math and economics books, including a widely used introductory economics text now in its eleventh edition (McGraw-Hill). The Great American Economy  (Prometheus Books) will be published in August. He is a Professor Emeritus at Union County College, and previously taught at Brooklyn College, New York Institute of Technology, and St. Francis College.

Stay tuned for part 2.

Updated on

No posts to display