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September 7, 2007
Sit back and enjoy your consumer surplus
Tyler Cowen has been pushed too far. Why? Listening to people complain about Apple cutting the price of the iPhone.
One customer, Kevin Tofel, was quoted in the NY Times as saying:
“I just felt so used as a consumer,” he said. “They hyped up the iPhone for six months and built up our expectations, and then they grabbed our extra $200 and ran.”
This was too much for Tyler.
It is you people, you who resent Coase (1972), you people who induce wage and price stickiness and widen the Okun gap. You people, who don't know what it means to sit back and enjoy your consumer surplus. You beasts! (emphasis in original)
Ok, so who among us did not expect that this would happen? In fact, when the iPhone came out, one blogger wrote:
There is one certainty however. In a few months, there will be a better model that will be released at about the same price and this one will be sold at a discount. For tech products like this, there is most certainly a dynamic form of price discrimination partly due to the nature of quality improvement and innovation over time and partly due to calculated profit maximizing behavior. The effect is to segment the market into the patient and the impatient.
Man, that sounds familiar.
The only thing I didn't get right about it was how fast it would happen. Two months is sooner than I would have expected, but not terribly so.
So let this be a lesson to you. Big hype around a high tech innovation just cries out for this sort of dynamic price discrimination. The market will be segmented into the patient and the impatient. If you are impatient, you will pay more than those who are patient. There is a price for being the first on the block with a new toy. You gave away some of your consumer surplus, but you've probably got some left. So enjoy being first as long as it lasts. The patient masses will soon join you in enjoying what Tyler calls those "icons of modernity". Should I feel sorry for someone who buys a $2000 computer and complains that a few months later a better one sells for $1800?
"You people...who widen the Okun gap." That's just beautiful.
UPDATE: Wired has a story that should soothe Tyler
"If they told me at the outset the iPhone would be $200 cheaper the next day, I would have thought about it for a second - and still bought it," said Andrew Brin, a 47-year-old addiction therapist in Los Angeles. "It was $600 and that was the price I was willing to pay for it."
Posted by William Polley at September 7, 2007 3:48 PM
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Comments
Two months was simply too short, six months would have been accepted without a peep. But coordinating with the new iPod was too important.
Forget the iPhone, the new iPod is going to revolutinize mobile web browsing. You have almost full functional web browsing anywhere WiFi is available: no contract, no minutes .Combine that with Album Flow which is not just beautiful but offers incomparable access speed to your entire music collection. The cmbination of free internet (Facebook/Myspace anyone) and YouTube viewer and truly revolutionary iPod makes this the must have product for the college set. It is well worth pissing off some iPhone users. Heck over the last 23 years I have paid a lot bigger premium for a lot less advance.
But I'll bet big money Apple wishes they could have rolled out the original iPhone in April.
Posted by: Bruce Webb at September 7, 2007 7:00 PM
Six months would have seemed more...normal. But let's face it, the touchscreen iPod needs to get out and get some traction before Christmas. The $600 iPhone doesn't make much sense when there's a $400 touchscreen iPod with WiFi. That's the bottom line, and it was worth it. Your bet is, of course, a no-brainer.
Posted by: William Polley at September 7, 2007 10:55 PM
I hit the sweet spot. I bought the now discontinued 4 GB iPhone on the Saturday morning after the Friday release at $499, have had all the pleasure of being the early adopter with the really cool toy, use it as a webbrowser several hours a day, and wasn't about to complain (I paid about the same amount for a 400k floppy drive in 1985). And now they throw in a $100 store credit. Since I don't need the extra storage I end up with all the same functionality at the equivalent of $399 anyway.
I figured out that the new iPod would be an iPhone without the phone, which would have been enough, but I am still trying to get my mind around the implications of it also being WiFi capable particularly as cities roll out plans for city-wide WiFi.
I bought an expensive laptop with built in cell phone precisely for mobile internet access. I am not going to pretend that the iPhone gives me all the same functionality, then again it fits in my front pocket. My original 7PM comment came from my iPhone, this one is being typed while I look at my 32" monitor, from the outside in it is hard to see the difference.
A device that provides free wireless internet (with ever increasing coverage) combined with the new suites of free online storage and productivity tools (think Google pack) has almost unlimited possibilities. Throw in a portable folding Bluetooth keyboard (and why not) and laptop makers will start looking at each other in alarm, and Microsoft might start sweating. Or imagine a touch screen iPod the size of a trade paperback. All of a sudden you have an internet solution that bypasses both the Telecoms and the system software licenses. Wouldn't that blow some huge holes in some business plans.
Posted by: Bruce Webb at September 8, 2007 10:36 AM
"Or imagine a touch screen iPod the size of a trade paperback."
Sounds like one of the gadgets they had on Star Trek.
If voice recognition technology keeps advancing, there will be no need for the keyboard. Just a glass control panel like on the helm of the Enterprise. That may be a few years off though.
Posted by: William Polley at September 8, 2007 10:56 AM
I lived in a rural area with no cable service when DirecTC came out. I gladly paid about $800 (I guessing here) for a dish and one receiver. It wasn't too soon thereafter that the prices started falling.
But I never complained. I enjoyed my consumer surplus immensely.
Posted by: Phil at September 8, 2007 5:54 PM