The Business Ethics Blog

Please…spare me! Here’s the story:

IPhone Owners Crying Foul Over Price Cut (NY Times)

In June, they were calling it the God Phone. On Thursday, it was the Chump Phone.

People who had rushed to buy the Apple iPhone over the last two months suddenly and embarrassingly found that they had overpaid by $200 for the year’s most coveted gadget.

Apple, based in Cupertino, Calif., has made few missteps over the last decade, but it angered many of its most loyal customers by dropping the price of its iPhone to $400 from $600 only two months after it first went on sale. They let the company know on blogs, through e-mail messages and with phone calls.

Apple has now apologized, and offered disgruntled customers a $100 in-store credit.

OK, so…oops! A big price change so early in the game was probably a bad move, PR-wise, on Apple’s part. The early adopters of the iPhone include a lot of Apple fanatics whose continued loyalty is pretty crucial to the company’s success. But were early-adopters really “abused,” as some people are claiming? They’re mostly not using the vocabulary of “ethics,” but clearly the suggestion is that there’s something unethical about charging $600 for an item that you could have sold for $400. The assumption seems to be that the original price-tag was some kind of lie, like it didn’t really represent the iPhone’s “true” worth.

Now, I’m not an economist, but the labour theory of value is pretty much dead, from what I understand. So is the theory that price is determined by the cost of manufacture more generally. What determines price for most consumer goods is demand. That is, it’s determined by what people will voluntarily pay for a product. And as it turns out, a whole lot of people were willing to pay $600 for an iPhone. Think of this analogy. If I pay $160 for a pair of designer jeans, and then find out that those jeans went on sale for $80 the next week, have I been ripped off? Well certainly I might be regretful. But have I been wronged? No. Everyone knows that retail mark-ups on most consumer goods are significant, and prices ebb and flow. If you happen to buy when prices are high, c’est la vie.

Besides, the people complaining about being wronged by Apple are all early-adopters, right? And isn’t the term “early-adopter” supposed to be pretty much synonymous with “risk-taker?” Early adopters are precisely the people for whom caveat emptor makes a whole lot of sense.

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Relevant Links:
Open letter from Steve Jobs, appologizing to iPhone customers
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Anecdotal Update:
Here are relevant quotes from 2 iPhone-owning friends of mine, in response to my question about whether they felt abused.
One said: “We paid $200 more, and we’re getting a $100 credit. Fortunately, I’ve got more than 100 bucks worth of value out of the thing already!”
and the other said: “Abused? Nope, not at all…life as an early adopter geek has its costs.”
Nicely put!