Apple and the Law of Demand

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Apple Inc. (NASDAQ:AAPL), iPhone 8 and the Law of Demand by Steve Slavin  author of The Great American Economy – full bio below.

Nearly every good or service is sold in accordance with the law of demand: the lower the price, the more customers will buy. At a price of, say $800, Apple could sell a lot more iPhones than if it charged $1,200.

There have been reports that production problems will delay the sale of the iPhone 8 until October or November. There have also been rumors that even when it does hit the market, there will be severe shortages.

So, here’s a pricing strategy that Apple could follow. In early September the company announces that because of production delays, only a very limited quantity of iPhone 8’s will be available for at least the next three months. But beginning September 21st, those willing to pay $1,200 for the iPhone 8 64 GB phone can preorder their phones online on a first-come, first-served basis.

There are plenty of diehard iPhone fans who need to be the first to have the latest model, and the tenth anniversary edition will give then an even greater incentive. Some are willing to wait on line for days, or to pay people to wait in line for them. Now, not only can they be first by paying an extra $400, but everyone else will have to wait weeks – or even months – to get their phones.

Suppose that as the Christmas shopping season approaches, Apple ramps up phone production. It could lower its price and begin taking preorders for $1,000. Again, the phones would be available on a first-come, first-served basis.

Maybe by March or April of 2018, Apple’s inventory will finally be sufficient to meet customer demand even at a price of $800 for an iPhone 8. Now, all the folks who could not afford to pay hundreds of dollars more – or simply refused to pay so much – would finally buy the phone.

As a long-time investor in Apple Inc., I would not want the company to take my word that it could make a much larger profit by following this pricing plan. Maybe they’re already planning to survey tens of thousands of potential customers to determine how much they would be willing to pay to get their iPhone 8s well before Christmas. Apple might not be able to repeal the law of demand, but the company can definitely profit from it.

Steve Slavin, Ph.D., is Associate Professor of Economics at Union County College, Cranford, New Jersey.  Dr. Steve Slavin has written sixteen math and economics books, including a widely used introductory economics textbook now in its eleventh edition (McGraw Hill) and The Great American Economy (Prometheus Books) due out in August 2017.

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