Is the iPhone bending the rules of economics?

By: Kelly Manbeck

Is the iPhone bending the rules of economics?

What’s the one accessory that everyone has, that’s probably no more than three feet from you at this moment, the product that bears the weight of the consumers entire social life and entertainment? It’s the smartphone. Although this piece of technology has not been around for longer than a few years, apps and texting have become part of everyday lives that really cannot be changed. Everyone has said at least once that they hate their phone when it doesn’t work, so why do people keep spending hundreds of dollars to keep something you hate in your pocket when off brand flip phones are available? IPhones appear to be nothing more than a money making success, and don’t seem to conform to any of the laws of economics that put limits on how much profit a product can make. This seems to be because all the limits that apply to products are limits because consumers are rational and know how to spend their money in a way that would maximise their utility, but Apple users don’t seem to be rational at all. But this is not necessarily sustainable, as the iPhone will soon no longer be a fad and fall into the constricting rules of economics.

Law of diminishing marginal utility states that as more units of an item are purchased, the less satisfaction the consumer gets from each one. However, the iPhone seems to be a little immune from this law. The first new iPhone a person buys would give them a large amount of utility, the second one they buy a year or so later would give them a little less, and that would continue each year until consumers essentially got tired of the new iPhones. Even though there have been now six generations of the iPhone, people still line up for blocks down the street in front of apple stores to be one of the first people to get their hands on a new phone that had all the same features as their last one did. If the law of diminishing marginal utility was expressed with the iPhone market, people would be seen flocking to the apple stores to buy the first iPhone released because it would give many people a high level of utility, or happiness. Then when the second generation came out, fewer people would line up, and the number would continue to decrease more and more successive units would grant people less and less marginal utility. This raises a question that concerns how the law of diminishing marginal utility works, and that is whether or not time plays a factor. You do stare at your phone for hours a day, every day for a couple of years. Could getting that new IPhone be a considered a change of scenery? Or does it really just break economic laws? Or does Apple just hype up it’s customers to think that the next phone will have all the features their current phone is missing and not realize they are buying more and more of basically the same product? What if a new iphone came out every week. Would people keep coming to buy new iPhones every week, would the hype be the same with all the leaked images and spoilers and rumors that surround the next big thing at apple? If the consumers were rational they would probably realize that money could be better spent elsewhere, in another way that would maximize their utility.

The law of demand says that as the price increases, quantity demanded decreases. But IPhone prices are still rising as well as the amount of people who buy them, the apparent opposite of the law of demand. The price of the iPhone 5, the last generation to come out, was between $99 and $650. This is almost 100 dollars less than the IPhone 6 prices, which are between $199 and $850. When the IPhone first came out in June of 2007, you could get the phone and contract for no more than $500. But during the age of the first iphone, only 5% of America was an IPhone user. As price slowly increased all the way up until the IPhone six, almost 20% of Americans are iPhone users. But what happens when the price keeps going up? As the price gets higher and higher, less percentage of America can afford iPhones. What about when the price reaches a thousand dollars, for example. Does around thirty percent of America have a thousand extra dollars for a phone? The model shown here is not sustainable in the long run, even though it’s been almost a decade that this trend has been followed.

If a company is really popular, that would be shown in a rightward shift in the demand curve. The demand curve is regulated by the five determinants of demand. Each determinant of demand will make people want to buy more or less of an item. Will demand for IPhones fall when the quality of the newest model is allegedly worse? When consumer tastes change, the demand curve shifts to the left, meaning demand will decrease. Consumer tastes is one of the determinates of demand. Something that would change the consumer tastes is realizing that iPhones bend in people’s pockets, which breaks them. A video of a person bending their new phone went viral within a week of the iPhone 6’s release date, and all the media crowded around the conspiracy. (the video of the phone being bent: https://www.youtube.com/watch?v=znK652H6yQM) There’s been a lot of gossip about just how hard it is to bend the phones and how fragile they really are, but any talk about the quality raises suspicion about the product. Will this blow over as people realize that nobody puts that much pressure on their phones anyway in order to bend them? Or will this decrease in demand knock the iPhone back to the regular demand curve, making less people buy as consumer tastes change.

But somehow, all the complaints that come up havent had any effect on the quantity demanded. When the iphone 4s was released, people complained that the feature of siri was unnecessary and annoying. when the 5 came out, people whined that they were too big. the internet filled with jokes and complaints about phone that would soon be a foot long. but this didn't stop consumers from filling their pockets with the phones too long or phones that would bend. Apple consumers break all the rules that apply to markets with rational consumers.

As I complain about basically brainwashed Apple users, I can’t disagree. I am typing this on my Mac computer, listening to my iPod, texting on my iPhone. There’s something about this company that makes it, for the moment, the only option and doesn’t comply with any rules of economics that require consumers to act rationally. Why? Maybe Apple users just aren’t rational.

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