There are reports that the latest cost-reduced Apple iPhone 5c isn’t selling as well as had been hoped:
The “c” in the iPhone 5c might now stand for cut.
After some drastic price cuts at Walmart and other U.S. retailers, the Wall Street Journal reports that Apple’s is cutting the production or orders for its lower-end phone with its suppliers.
Apple has told its Taiwanese assemblers that it will be cutting this quarter’s orders on the lower-end handset, according to the Journal’s Lorraine Luk. One of the assemblers, Pegatron, was told to cut orders by 20 percent and the other, named Hon Hai, was told to cut by a third, Luk reports. Additionally, Apple has told a component supplier that it would cut parts production by 50 percent.
Apple declined to comment on the reports when reached by ABC News. The company hasn’t released sales numbers of its newest iPhone 5s and 5c phones yet, but did announce that it had sold a combined total of nine million of the newest phones just in the launch weekend.
However, the $199 5s, which has a better camera, faster processor and the new fingerprint sensor, has clearly been more popular than the $100 5c, which comes in a selection of colors but has last year’s specifications. But analysts say that might not be a bad thing for the company if customers are opting for the 5s instead.
That’s made me wonder what kind of economic goods Apple’s products actually are. A “positional good” is a product or service at least part of whose value is derived from its ranking in desireability relative to substitutes. A “Veblen good” is a product or service whose demand rises with its price. Goods can be both positional goods and Veblen goods.
Do iPhones provide more bang for the buck? Or is there a status component in iPhones that makes them a positional good? Or if you cut the price of an iPhone would demand actually fall?
Apple is Mercedes or Infiniti. It is both cool and good.
Judging from some of the ads, its a pubic good.
So Apple reduces production/employment rather than reducing its price. Why, that sounds like administrative pricing rather than the flexprice model Austrian types insist transmit critical information throughout the economy. But that can’t be because planned prices create distortions, so the same Austrian types claim.
There’s only a $100 difference between the phones which isn’t a lot spread over a two-year contract. If Apple had a “free” iphone, I think that would be a totally different game.
They sell because they are cool, but also because you can get help with them. If your teenage goes off to college and you need to fix something you can always take it to the Apple Store.
Steve
I don’t think there is too much to draw from this. The product was a draw. The price reduction wasn’t sufficient to garner much interest. A portion of each new iPhone’s sales are people who can’t wait to upgrade, but the specs don’t warrant an upgrade.
As for the lack of price reduction that Ben mentions, that too doesn’t say much. Apple is an upper-mark brand and they have an interest not to be flexible with their pricing that other companies don’t have. Contrast with HTC and what happened to the First. Apple would destroy units before doing that, because it’s a different kind of company.
Funny thing about the internet: so often someone has already done the work for me.
Fabiani et al. (2006) provide empirical evidence of the extent of administered prices in Eurozone nations from a number of surveys and studies.
The data are below:
Nation | Total Percentage of Markup Prices
Belgium | 46%
Spain | 52%
Italy | 42%
Netherlands | 56%
Portugal | 65%
Euro Area | 54% (average for whole Euro Area)
(Fabiani et al. 2006: 18, Table 4).
It is very striking indeed that for the Eurozone as a whole the average is 54% – a majority of prices.
It is also very telling that the number of prices affected by government regulation or controls is far lower than the percentage of prices directly administered and made relatively inflexible by private sector businesses themselves.
This can be seen here in the category Fabiani et al. call “other†price-setting rules:
Nation | Total Percentage of “Other†Prices*
Belgium | 18%
Spain | 21%
Italy | 26%
Netherlands | 21%
Portugal | 23%
Euro Area | 18% (average for whole Euro Area)
* N.B. This category also seems to refer to other types of price setting apart from government regulation.
(Fabiani et al. 2006: 18, Table 4).
Furthermore, Fabiani et al. have a second category of prices called “competitors’ prices,†which describe prices influenced by pricing of competitors. This does refer to many types of flexprices, but may possibly conceal some administered prices too, so that the first percentages given above may be underestimates.
Unfortunately, total percentages for Germany and France are not given, but data for goods (as opposed to services) markets are:
Nation | Percentage of Markup Prices for Goods
Germany | 73%
France | 40%
(Fabiani et al. 2006: 18, Table 4).
It is striking how high the percentage of administered prices is for goods markets in Germany: it stands at 73%.
BIBLIOGRAPHY
Fabiani, S., M. Druant, I. Hernando, C. Kwapil, B. Landau, C. Loupias, F. Martins, T. Mathä, R. Sabbatini, H. Stahl and A. Stokman. 2006. “What Firms’ Surveys tell us about Price-Setting Behavior in the Euro Area,†International Journal of Central Banking 2.3: 3–47.
http://socialdemocracy21stcentury.blogspot.fr/2013/10/administered-prices-in-eurozone-some.html
Any free-marketeers want to take bets on the prevalence of administered prices in the U.S.?
FYI Johannson is me. Didn’t check how I was logged in during my previous comment.
Brilliant marketing. Of what is essentially a high end status product, they put out a only somewhat less expensive option with a distinctive color, so everyone knows you compromised. Gold or cheap plastic—your choice.
Ben
I’d like to understand what you mean by “administered” pricing vs competitor pricing. Setting aside that the biggest monopolists I know of are government favored/subsidized/regulated businesses and Warren Buffet’s businesses, “administered” pricing is something I am not familiar with, and I’ve seen thousands of businesses in my day, and owned dozens. The vast majority are competitive. Just ticking through my head the current portfolio I know of not one that is not brutally price competitive, even though a guiding principle in our investment selection is “franchise value,” which is just a fancy way of saying a strong value proposition.
If the interpretation is that some 55-ish% of goods and services prices are administered in Europe that speaks to monopoly gone wild, and government intervention.