Should Apple Burn Its Economics Textbooks?

Perfect analysis on the iPhone price cut from Steven Levitt:

By starting high, you get as much money as you can from those who really want the product, then expand the market at the lower price point.

Hmm … that sounds exactly like what Apple just did with the iPhone. They brought it out at $599, sold one million iPhones, and then dropped the price to $399 after two months, in the hopes of selling nine million more this year.

So why did this strategy blow up in Apple’s face, leading them to offer a $100 coupon to the early adopters, many of whom remain irate despite the rebate?

What economists (and Apple too, I guess) ignore is that consumers hate it when companies follow practices that look like they are designed to maximize profits.

★ Monday, 10 September 2007