iPhone and Micro-economic Paradox

It isn’t too Micro and isn’t too Soft. It is a robust machine, a proclaimed vanguard of smart phone business today. It is not for mediocre minds that run their crazy figures on rock-hard keypads. It is for those who relish technological sophistication. It is a grand brand of the mobile industry. It is ‘The Iphone’.

Let us digress from the iPhone rhetoric for some time and analyze a case study. Today the cost of iPhone 3G is $99. Suppose every month Apple sells 100 units of iPhone devices. Now should Apple increase the cost of iPhone 3G to $199, what happens to the sale figures? Your guess is as good as mine. But let us come out of quintessential demand-supply economic theory taught to all of us in kindergarten (not exactly though). If it is for us to think, we would condemn it as utter insanity. But let us hold our nerves and look at the actual sales figures. Flummoxed!! Sales figure rose to 120 per month!!!

Well that is the paradox. If Apple could do it, it would mean 1 Infinite loop, Cupertino gets flooded with dollars. Apple in some ways is on its way to create history in mobile business. Picture this:-

Apple shipped 13.7 million iPhones in the 2008 calendar year. If that’s not enough, have this:

New reports forecast that Apple will sell 50 million phones in 2011, and more than 80 million in 2012, as worldwide expansion and popularity of the iPhone continues to grow.

And if you are not fine with that, there are already ninety thousand denizen apps on Apple App Store, crossing 2 billion downloads. If Apple’s joy ride continues unhindered, people would soon add iPhone to their attire.

Such a fascination can disturb the market dynamics to such bizarre levels which could wipe peer business entities out of the market. People would desiderate to own the invaluably precious, sacrosanct, and figuratively Godly mobile device. This we call “Status symbol” products in micro-economics parlance. Status symbol products defy general supply-demand theory. Their demand increases with increase in product price. The only premise that fails the hypothesis is that sample space of consumers of such products is limited. But if Apple can play the game with technological wisdom and play their bets smartly, they can actually manipulate economies of scale to their favor. The strategy is not for me to suggest (and I am not competent to do so as well).