Apple's iPhone Pricing Scheme Gets Explained

Asymco:

The iPhone portfolio is now larger than ever.

It reminds me of the iPod which, at one time was sold at every $50 increment point from $50 to $500. The logic behind this pattern is that “there is now an iPhone for every budget”. Of course, as with any purchase decision, each of these price points has trade-offs.

Apple analyst Horace Dediu put up a blog post this morning detailing the iPhone’s staggered pricing scheme. Dediu uses graphs to show how a staggered pricing scheme is a utility maximizing framework. He does not actually go on to state this, but it is implied in his writing.

Utility maximization answers the question: “I have a certain amount of dollars to buy a shiny new iPhone, which model should I pick?” Apple has chosen to keep it simple. iPhones are priced at $100 intervals. Consumers make a choice depending on how much money they are willing to spend. There are no surprises, the consumer is well-informed.

For more information on this economic theory, check out Wikipedia’s entry on Utility.