Wednesday, July 20, 2011

Annoyances with the Apple Pricing Model

Apple MacBook Air MC505LL/A 11.6-Inch LaptopThe new Macbook Air's today reminded me that something always bothered me about the simple transparent pricing schemes Apple uses. I finally figured out why. I suppose the pricing schemes make it more obvious (at least to me) that they are using monopolistic price discrimination, as opposed to what is typical is the highly competitive consumer electronics market which tends to price at cost. This is especially evident in the iPad prices where an extra 48 GB of memory which costs $80 more if you look at SD card prices, leads to a $200 higher price (and apple design always makes it so that consumers cannot upgrade the memory themselves).

Monopolistic pricing basically transfers surplus from consumers to profits for the firm.

I actually don't mind when this is done in other industries like airlines (where I normally defend their pricing) because there I know it increases social welfare, and airlines just use this technique to cover their fixed costs, as they are just barely profitable.

To Apple's credit, I buy their products anyway, which means they create enough surplus through great design that I still choose them over the competitively priced alternatives. (though I still maintain they are not especially reliable products as my macbook pro just broken down after only 11 months, and I have had several iphones die, one melted).

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