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.

iPhone 8 Apple
hurk / Pixabay

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?

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.