New iPods Demonstrate BLS BS

from the inflation,-deflation,-whatever dept

The obvious response to folks complaining about the iPhone price cut is that of course the price was going to be cut, because it's a tech item, and the cost of technology invariably marches lower. Yes, technology is a constant deflationary force, not just because prices of it keep dropping, but because the quality of any given item tends to rise over time. We've made this point in the past, that inflation statistics have a hard time dealing with tech items, because the measures only look at price and have a difficult time adjusting for quality improvements. As economist Russ Roberts notes, the new iPod Classic is not just $50 cheaper than the original, it holds 40 times as much data. In other words, doing a like-for-like comparison between the original iPod and the new one vastly understates the amount of progress that was made in such a short time. What's more, while it's easy to note the data storage comparisons, how do you quantify the addition of video playback or pictures? It's pretty difficult. So while inflation statistics serve a purpose, it's important to recognize that there's often a lot more at work than just price changes.

Reader Comments (rss)

(Flattened / Threaded)

  1. identicon
    RandomThoughts, Sep 10th, 2007 @ 7:01am

    Thats pretty weak.

    The issue with the price cut was for the iPhone. $200 in 2 months is pretty brutal.

    Of course the price was going to be cut, but in 2 months?

    Does apple want to discourage early adopters?

    reply to this | link to this | view in thread ]

  2. icon
    Instructor (profile), Sep 10th, 2007 @ 7:10am

    Price cut vs technology improvement

    The price of the iPhone was cut only 2 months after the intro, and no change was made in the iPhone at all. There is supposed to be a new model out Real Soon Now, and the fairly obvious deficiencies in the first model are the main reason I didn't rush out to buy one. The obvious contempt in which Apple holds its customers is the main reason I won't rush out to buy the next model, either.

    reply to this | link to this | view in thread ]

  3. identicon
    TheDock22, Sep 10th, 2007 @ 7:27am

    Re: Price cut vs technology improvement

    I agree that it wasn't that the technology was depreciating (which everyone realizes), but $200 in a couple months with no new features? Computers don't even diminish that fast!

    I just have to say I am extremely excited for the iPod touch. Since I can't have an iPhone in my state, I want the next best thing (and I don't have to have a monthly subscription!) =D

    reply to this | link to this | view in thread ]

  4. identicon
    Scott Freeman, Sep 10th, 2007 @ 7:34am

    Glad to hear it

    Maybe if I wait another month they will just give you one like the other free phones when you renew your contract. The iPhone is new but wayyyy over hyped. I decided to take the advice from old Public Enemy song said "Don't believe the hype"

    reply to this | link to this | view in thread ]

  5. identicon
    That Guy, Sep 10th, 2007 @ 7:44am

    I find it hard to believe..

    I find it hard to believ that in two months Apple found a way to improve their manufacturing and raw materials purchasing by over 30%.

    It's pretty clear that Apple was overcharging out of the gate to recoup some short term fianancial gains. To me it seems like they were trying to get a big boost for their stocks closing out third quarter. High sales numbers with big margins gets folks excited and drives up their stock.

    reply to this | link to this | view in thread ]

  6. identicon
    spencermatthewp, Sep 10th, 2007 @ 7:55am

    The iPhone and the early adopter

    I have found this a fascinating event. When it came out the iPhone was so cool that it made a lot of people who usually aren't early adopters run out and get one opening day. It's totally my own but I'd guess as many as 50% of the people who bought the thing had never been an early adopter before. It's these people that seem to be making most of the noise about the price drop.

    I've seen almost as many posts on blogs from people saying they have no problem with the price cut as I have people complaining about it. What this tells me is that many of the early adopters knew the price drop was coming. I think that the only surprise in it was how soon it came.

    I am still a little struck as to why there isn't a 16GB iPhone yet. I personally will wait until the thing is 30Gb before I get one (Even 16 is a little too small). It'll probably be about the same time my current cell phone contract runs up. And who knows by then it'll probably have more than one provider.

    Thats the other thing you can count on in technology. It doesn't take long for the minimum standard to get raised to what was inconceivable not that long ago.

    reply to this | link to this | view in thread ]

  7. identicon
    comboman, Sep 10th, 2007 @ 8:01am

    technology not the only deflationary force

    The iPhone is a very obvious example but most tech items (and even some non-tech items) have the same pricing curve. You pay extra to be the first on your block to have the next Big Thing (look at all the people who paid double the list price to get a new Xbox360 or Wii on eBay). Once everyone who was willing to pay $X for your product has bought one, the only way to grow your installed base is to either lower the price or update your product to offer more value (or both).

    reply to this | link to this | view in thread ]

  8. identicon
    dazcon5, Sep 10th, 2007 @ 8:19am


    Once again the masses have demonstrated the ease at which clever marketing can separate them from their money. When they announced the price drop, I was LMAO at the knob in the office who bragged about getting one. I would have paid the start price if it came unlocked, but sadly, locked into a single provider?? I think not...

    reply to this | link to this | view in thread ]

  9. identicon
    Ajax 4Hire, Sep 10th, 2007 @ 8:35am

    Tandy Computer for $8500 in 1989

    Here is a picture:

    $8500 for a 20MHz 80386;
    This ad is so an example of how far technology has progressed.
    Monitor and Mouse not included;
    No Harddrive mentioned, Floppy Disk system.
    My cellphone has more computing power and graphics capability than this computer.

    reply to this | link to this | view in thread ]

  10. identicon
    Deluxe05, Sep 10th, 2007 @ 8:38am


    "Does apple want to discourage early adopters?"

    No. It was a tax for the stupid.

    reply to this | link to this | view in thread ]

  11. identicon
    adam, Sep 10th, 2007 @ 8:57am

    It's a pricing strategy

    The price cut is part of a pricing strategy that is widely taught in all business schools. It works like this:

    1) Create a highly desirable product
    2) Price it so only fanatics would be crazy enough to buy it
    3) When that pool of buyers starts to dry up, drop the price to attract a much wider buyer pool.

    It's one of the many ways that big companies with great products maximize revenue. They stick it to the people that have an illogical immediate need for the product.

    Have yall learned your lesson yet? I friggin doubt it.

    reply to this | link to this | view in thread ]

  12. identicon
    Sanguine Dream, Sep 10th, 2007 @ 9:03am

    Re: sheeple

    I agree. I'm sure Apple had good intentions in mind when they made that exclusive deal (2 years right?) with AT&T but by doing that they alienated a lot of people. Sure there are lots of people that will cry until other carriers start supporting the iPhone but I think there are many more that will shrug it off and not think twice about the iPhone even when their carrier finally starts carrying it. By the time AT&T's exclusive period ends I'm sure there will be at least a few competitors with iPhone like features and appearance in their models.

    reply to this | link to this | view in thread ]

  13. identicon
    Casper, Sep 10th, 2007 @ 9:14am

    Not quite....

    The iPhones deflationary force was due to significantly lower sales then had been projected. Apple was able to cut the price by $200 because the product was already over priced significantly (as is with all Apple products) and they were not able to meet the quantity of sales they needed to return revenue through their profit sharing agreement with att.

    I think concept is good, the example of the iPhone is bad.

    reply to this | link to this | view in thread ]

  14. identicon
    Brian, Sep 10th, 2007 @ 9:19am

    Re: technology not the only deflationary force

    I have a couple of points I'd like to mention. First, I don't think the game systems on eBay are a good comparison because the prices get driven artificially high by the CONSUMERS not the manufacturer. Second, I'd like to give Apple the benefit of the doubt and chalk the move up ignorance of the mobile phone market. Someone, somewhere saw the MSRPs of other smartphones on the market and didn't consider that they surivive by providing subsidies. I think it was just a mistake really...albeit a really stupid one. Of course maybe I'm wrong and they are just money grubbing schlups.

    reply to this | link to this | view in thread ]

  15. identicon
    taxman, Sep 10th, 2007 @ 9:35am

    Re: Re:

    hahaha - *running to the bank*

    reply to this | link to this | view in thread ]

  16. identicon
    Boost, Sep 10th, 2007 @ 9:40am

    Re: I find it hard to believe..

    Yeah, but the market price of Apple stocks fell even as Jobs was making his announcment to cut the price of the I-phone.

    reply to this | link to this | view in thread ]

  17. identicon
    Boost, Sep 10th, 2007 @ 9:47am

    Re: Re: technology not the only deflationary force

    Taken econ recently? As you would know, if you had, the consumer drives the price in every market unless, of course, the market has been monopolized. In this case, the market has not been monopolized, there are other phones out there with most of the same features as the I-phone. I don't need to argue that the I-phone is a necessary expense. People buy them because they want them, not because they need them for survival or whatever. If people didn't like the price of the phone, they wouldn't buy it...and many didn't. Apple has figured out that if they lowered the price that they are willing to sell it at, then more people will buy it. Therefore, the consumer is the real price setter.

    reply to this | link to this | view in thread ]

  18. identicon
    PC, Sep 10th, 2007 @ 10:27am

    Re: Re: tax for the stupid

    and there in lies Apple's success - lot's of stupid people willing to part with ridiculous amounts of money to be "cool".

    reply to this | link to this | view in thread ]

  19. identicon
    Chronno S. Trigger, Sep 10th, 2007 @ 10:35am

    Re: It's a pricing strategy

    I agree with this idea. It sounds like something I would pull. And the risk that you would alienate other potential buyers, who would have purchased it initially if the price was low, is small.

    reply to this | link to this | view in thread ]

  20. identicon
    Steve, Sep 10th, 2007 @ 11:15am

    Stop complaining

    Every new technology comes with a high price tag. Everybody knows this. It is so annoying to hear people complain. You paid an extra 200 so you could be the first person on your block with this new toy. This happens with every type of electronic device. I bought one of the first plasma TVs for 6K. Within 6 months, it was under 2500. I'm not looking to sue Sony over this.. I had one of the first plasma's and it was cool. Not 3500 worth of cool but thats how we learn people. Learn... don't sue and yell and scream. You all sound like idiots.

    reply to this | link to this | view in thread ]

  21. identicon
    Anonymous Coward, Sep 10th, 2007 @ 11:41am

    Re: Stop complaining

    you spent $6000 on a TV?

    reply to this | link to this | view in thread ]

  22. identicon
    Sanguine Dream, Sep 10th, 2007 @ 12:39pm

    Re: Re: Stop complaining

    Back in the early days of plasma technology that price was not unheard of and just like this whole, "I wanna be the first to have the cool new stuff." mess there are people out there that will pay those outrageous prices.

    reply to this | link to this | view in thread ]

  23. identicon
    RandomThoughts, Sep 10th, 2007 @ 1:37pm

    Plasmas didn't drop in price by $2,000 in two months.

    reply to this | link to this | view in thread ]

  24. identicon
    John, Sep 10th, 2007 @ 4:59pm

    Re: Re: Re: technology not the only deflationary f

    Thank you.

    And, I haven't even taken econ recently.

    reply to this | link to this | view in thread ]

  25. identicon
    chuck, Sep 10th, 2007 @ 5:15pm

    stop whining

    Stop whining about the price drop. It's supply and demand. They supplied the over price phone and all the people who have to have the latest gadget to be "in" demanded to pay the rediculous price for a phone

    reply to this | link to this | view in thread ]

  26. identicon
    juliet, Dec 10th, 2007 @ 3:46pm

    i need this item

    hello seller
    i am juliet rose and i am urgent need your item for my son who secure an admission into university in abroad ,who birthday is coming up , i am kindly to pay sum $900Usd for the ipod because of the urgence of the item asap and for the payment to be done asap get back to me with this details
    Tel no:
    2) valid email adress .........
    i want it fast , cos he is on my neck and soi want the business to fast asap so you can contact me by my email address(

    reply to this | link to this | view in thread ]

  27. identicon
    Kofi Simmons, Jan 16th, 2008 @ 8:13am



    I just bought a protective case for my Ipod at target through on Black Friday. I'm glad my I'm Ipod is protected, but it looks stupid the way it currently is.

    Apple needs to regulate some of it's 3rd party providers for elegance and design.

    I guess I thought getting it on Black Friday would be a benefit.


    reply to this | link to this | view in thread ]

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