Thorstein Veblen, an American economist and sociologist
theorized that certain products could defy the economic laws of gravity by
stoking more demand with super high prices.
His book, “Theory of the Leisure Class,” made him famous and more than a
century later his ideas are embodied in products like Bugatti cars and Patek
Philippe watches.
Now-a-days, Apple and Samsung are testing whether the social
commentator’s theory on what has come to be known as the “Veblen good” can work
for one of the most common consumer products—a cell phone. Typically, raising the price of a good lowers
demand for it, however, Veblen’s theory is that some consumers want a product
even more when the price rises because the expense will broadcast status,
wealth, and taste.
Earlier this year, Samsung Electronics Co. unveiled the $950
Note 8. Apple Inc. is testing the limits
even further by releasing the new iPhone X last week with a price of
$1,000. Both companies are fighting for
customers with expensive price tags, rather than attracting consumers with
cheaper prices. Steven Haines, chief
executive of Sequent Learning Networks, which advises companies on product
management said, “They can create a super-premium model and perception of
super-premium that pushes those buyer types into the stratosphere...this is a
classic product management.”
Horace Dediu, an industry analyst at Asymco and a former
Nokia Corporation business development executive, said the iPhone X isn’t a
pure example of Veblen’s theory because demand will be driven by the device’s
functionality, not simply price.
This is an extremely interesting article, last semester I read a lot about Veblen goods so seeing the iPhone as veblen is foreign to me, at first. Like you said some companies are trying to make an extremely common good, the cell phone, into a veblen good. It will be extremely interesting to see whether the demand follows the high price point. Horace Dediu makes a good point in saying that it is up to the devices functionality rather than the name itself. Other things that can affect the demand are the changes to facial recognition, this could be a poor sense of security for the device.
ReplyDeleteI am sure that a handful of consumer will buy these new electronic devices at the high prices. What I am most interested in is, if the demand will decrease (because of the high prices) and how low the price would drop. Apple has been known for keeping their prices pretty stable in the short run but dropping them to reasonable rates years later. I am not sure if either of these companies will drop their prices too low, however, it could become an intriguing competition if they do decide to drop prices.
ReplyDeleteThis is interesting because in base economics classes you are taught that a higher price means there is less demand for a good which is clearly not the case here. Understandably though because you will always have your die hard Samsung users and apple users, who will not care about price. The prices will eventually drop later in the year because the technology will be seen as older. I wonder what the next price of an Iphone or Samsung will be, i hope its not too high to where the common consumer will not be able to afford purchasing the product.
ReplyDeleteI agree with Derrick, we are really seeing how attached users are to their phones and how much they are willing to still pay and these companies are really testing the limits. I read today that apples new watches are having connectivity problems. There face identification also didn't work correctly during the unveil. I am interested to see if these flaws will have any affect on consumers demand.
ReplyDeleteThe price also supports the increased competition between Apple and Samsung. Samsung has increased one of the major parts of the iPhone, which they also use themselves, to about $120-$130 during production, causing the increase in unit price in order for Apple to meet their margins. Chances are, though, that if this increase in part price did not occur, then phones would still be a reasonable amount.
ReplyDeleteAlthough the prices of IPhone increases I feel like ‘loyal’ customers will be willing to pay for the upgrade. Many Apple customers are brand loyal and would not switch to Samsung. However, not every customer can afford the upgrade and $1000 for a phone can be way too much for many people. I agree with Nick and interested to see if the price would drop due to decrease in demand.
ReplyDeleteI believe people will still continue to purchase the IPhone even if the price is increasingly higher. Adults and kids are always interested to get the "newest and latest" item out on the market.
ReplyDeleteSome might be tempted to buy older versions of the IPhone rather than the new IPhone X. When the new phone comes out the older versions will decrease in price.
It will be interesting to see what the demand is like for the iPhone X. As stated above, law of demand shows that an increase in price will lower the quantity demanded. Also, Apple is releasing a new iPhone 8 that will be available long before the iPhone X. I am sure that both the raise in price and the release of the iPhone 8 with have a negative affect on the demand for an iPhone X. However, Apple and the iPhone have such a following and strong brand loyalty, that some Apple loyalists will pay any amount for the new iPhone. It will be interesting to compare the amount sold and demanded of the iPhone 8 and the iPhone X, as they are both new, have similar capabilities and features, but have slightly different price points.
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