Related Sections: Apple Shift iPhone
SHIFT: iPhone 3GS, AT&T, price gouging, and 'The Endowment Effect'
iPhone mania once again sweeps across the land, but this time it's different. At first glance, it looks like the new iPhone 3GS will cost the same as last year's iPhone 3G. Not so fast. Last year's good deal has turned sour this year, and some early adopters say they've been smacked with a $200 "Apple tax." Many of those potential buyers — Apple's and AT&T's best customers — are angry.
Do we have a legitimate gripe? After all, we did sign a two-year contract just 11 months ago. Nevertheless, we're still angry. Deep down, the real reason for all this angst: It's called "the endowment effect."
Apple stretches the truth
The lure begins with enticing numbers: $199 for the 16GB model, $299 for the 32GB model, and a bargain-basement $99 for last year's 16GB iPhone 3G. Upon closer inspection, you see the truth through Apple's gauze-like veil of marketspeak: Those are the subsidized prices for brand-new buyers if they sign a two-year contract. But those who stood in line for the iPhone 3G last July would not get that subsidy. Some would even have to pay the full-boat price of $699 for a 32GB phone.
What's the big deal?
Those iPhone 3G buyers signed a two-year contract, and a year hasn't even passed yet. The problem is, they got a much better deal last year. Then, even if they bought the original iPhone a year earlier and still had a year left on a two-year contract, they would still be allowed to get a subsidized $199 or $299 price on the iPhone 3G. But that kind of largess is not going to be available from Apple and AT&T this year. And there's the rub. People are angry because they feel that something has been taken away from them.
Well-endowed
Stockbrokers and researchers will tell you about the endowment effect, otherwise known as divestiture aversion, where people are much more bothered by something lost than something gained. I feel it myself. I had nearly forgotten about certain aspects of my experience purchasing the first iPhone in June, 2007. After paying $600 and signing a two-year contract for the iPhone, I can remember that sinking feeling I had when the iPhone's price was reduced to $400. What I didn't remember nearly as well was the way Apple bowed to price pressure and handed out a $100 store credit to everyone (including me) who paid $600 for the iPhone. I remembered the loss but not the gain. That's the endowment effect at work.
Memory serves
Don't get me wrong — even if I barely remember getting that store credit, I vividly recall the $200 price drop, and that feeling of remorse I had festering within me — the little devil telling me that I paid $600 for a $400 phone. Likewise, I remember with superb clarity the deal I got last year on an iPhone 3G, paying the same subsidized $299 price for a 16GB phone that brand-new customers paid, even though my 2-year contract was a scant 12 months old. So now, I feel like something's been taken away from me. It seems like I'll be forking over a $200 "Apple tax." But that's the cell phone business, circa 2009. Apple and AT&T aren't my friends; they're doing business with me. Their job is to make profits. From me. And you.
And profit they will
Apple built the iPhone 3G last year for $174.33's worth of parts, and then with AT&T, charged customers $92.99 a month (including a myriad of taxes and fees) for its cheapest plan to use it. Over a two-year contract, that amounts to $2,547.50, including the $315.74 cost of a 16GB iPhone 3G. Of course, it costs a lot of money to develop such a sophisticated product, and to set up a nationwide 3G cellular network to support it. But it doesn't feel like $2,547.50's worth of value. Add to that AT&T's nickel-and-dime price gouging such as this year's $18 upgrade fee, and the $5-per-month for 200 text messages (which amounts to paying $1,310 per megabyte), and it starts feeling like robbery. But that's the cell phone business.
What's a gadget-obsessed freak to do?
I simply must have the latest iPhone, so I'll bend over and pay up, that's what. But I have a plan. I notice unlocked and jailbroken iPhone 3Gs are fetching between $400 and $500 on eBay, so I'm going to wait about a week, and unlock my old iPhone 3G using the upcoming fix from those industrious hackers at the "iPhone Dev Team" for the new iPhone OS 3.0. Then, I'll get the (for me) $399 16GB iPhone 3GS rather than the $499 32GB model, because I don't really want to carry around that much music or video with me, anyway. Total cost, according to Apple's website: $421.35,including tax. My bottom line: After the eBay auction's over, I might just come out ahead, that is, if I don't factor in the $2126.15 I'll be paying over the next two years for the cheapest iPhone plan. Somehow, I'm not feeling like that's an endowment, not at all. Is that a good deal? You tell me.
By ken at 6:26 PM ON 06/11/09
Just wondering if you could finance a brand new car for the cost of an Iphone?
They charge too much for the service which really is not better than anybody else's plan wise. The draw is the phone not the service or you get one of the competitors plans..all being equal
By anonymoustache at 6:48 PM ON 06/11/09
If you were to have a semi-regular smart phone, you would still be paying very close to the premium monthly that you pay for an iphone.
I just don't understand the hoopla over two-year costs. It's as though someone finally calculated a two-year agreement, and gosh it does come out to two grand.
By karpet at 6:50 PM ON 06/11/09
No, it is not a good deal. You are addicted to buying tech, not having it.
I had a much better rant about this whole thing but the website ate it.
By DWELLS at 7:06 PM ON 06/11/09
Stop whining because you don't get the special price. If you want the new phone, go buy it. You have to pay a premium price for any phone you buy when you do not renew or change providers. Are you that tech obsessed that you have to have the newest thing and that jealous if someone pays a lower price? Please stop whining, this is the second article I read to day about this. Its really sad. If you don't like paying more, get a different phone or live with that one for another year. I'm sure Apple will upgrade again next year.
By Anonymous at 7:18 PM ON 06/11/09
If you don't want to pay "your price" don't buy it.
By Anonymous at 7:23 PM ON 06/11/09
And another thing...you signed a contract why won't you live up to it. Profit is the goal of every corporation...if you want charity don't look in the wireless arena.
By thunderdome at 7:23 PM ON 06/11/09
Break a deal, spin the wheel!
Wouldn't it be nice if we could offer that up to the unhappy 3G owners?
"Sure you can break the contract you signed and we'll eat the subsidy loss. Just spin this here wheel."
By Audiostar at 7:36 PM ON 06/11/09
Does seem AT&T and Apple could come up with an upgrade deal since its not the consumers fault the phones have been upgraded.
Something like, you resign up for a new 3 year contract.
What to do with the old iPhones is another story... but even the old phones are so new, I could see a resale business for them.
Im sure someone will find a way around the problem.
By Dickspread at 8:01 PM ON 06/11/09
You are a tool for wanting the "latest" gadget.
By gphoney at 8:14 PM ON 06/11/09
Don't all providers and phone makers have a tax? If I bought a palm pre would things be any different?
By athynz at 8:15 PM ON 06/11/09
Dickspread you are a tool.
But at the same time the tool does have a point - I got the 3G 2 weeks after it came out... ordered it the launch day due to the store running out of stock - but honestly there is not enough with the 3GS to really wow me enough to shell out the dough for a new one... I'm waiting until the 4th generation and see what that one has to offer.
By Lunan at 8:24 PM ON 06/11/09
i would love an iphone, however i will NEVER switch to att, if verizon(my carrier) or sprint were to offer it i would get it (minimum 32gb, preferably 64 or higher). the data speed is too important and att 3g is TOO SLOW! sprint is the best with verizon on there heels.
overall the biggest problem with the iphone is that its locked to only 1 carrier
By AlfieJr at 9:47 PM ON 06/11/09
Spoiled Children Acting LIke It.
That's what really going on. they sign a contract that is in fact - as they very well know - a two year installment payment plan for something. but after one year the want (as it turns out actually being an 18 month installment plan instead) the last six months free instead so they can sign another two year installment contract for the next model. why? because they shouldn't have to honor their word or pay full cost. they are sooooooooo special, you understand.
in other words, heads i win, tails we negotiate - as long as you lose.
and the concession of letting them out of the commitment 6 months early? oh no, that's not enough! i am soooooooooooooooooooo special! and i want my MTV/pony/new iPhone!!
get over yourselves and grow up.
and then address issues in the real broad public interest - telco plan rates at excessive prices for example, proposals to meter bandwith use, and so on. it's not all just about you.
By Anonymous at 10:57 PM ON 06/11/09
Three things;
1. Early adopters pay for R&D, thank you I don't get to have the shiny new toys right away, but I appreciate you paying to have them developed.
2. 100 percent markup over parts is perfectly reasonable, especially when you aren't even counting labor as a cost. In fact it's kind of standard to double price at every exchange from production to consumer. The plan is a cellular plan, and that's your problem.
3. A cell phone is not just parts, it's designers, engineers and software developers. And in the case of the iphone, ongoing development of your system, as well as support infrastructure for all the apps that you can get, and hosting, and vetting for those same apps. You don't think that's free do you?
By Capt Hal Jordan at 11:44 PM ON 06/11/09
Honestly, I have never bought the Iphone nor plan to. One of my friends has one and is always bitching about it. The Iphone boasts "new" cut and paste features and video (mind you the was a bit ago) But these "new" features were on Windows mobile for years (and yes worked perfectly, I have an old ipaq with WM5 and these "new" features were common place) I'm not going to pay $300 to$600 for a Jesus phone that quite honestly I weighed measured and found lacking.
By Yellowflash at 11:53 PM ON 06/11/09
I have a better idea, just buy the insurance for your phone its 3 dollars a month, then break your iphone. bang you get a new one for 50 dollars. eat that ATT.
By drop at 1:12 AM ON 06/12/09
at&t will not let u get insurance on an iphone through them per an agreement with apple and if you just got an iphone they make you wait 6 months to buy another as per an apple agreement. and so on phones from att even if you could purchase insurance you have only 30 day to purchase it and it is 4 dollars a month. lol i just quit working for those asshats
By h0ruza at 2:57 AM ON 06/12/09
What we fail to see is the wood for the trees. The real issue isn't having subsidized prices taken away it’s that falsely high price for mobile phones still prevail.
There's no crazy hocus-pocus that Apple has to do other than play with off the shelf Lego bits till they look great and do something new enough to warrant an upgrade (Please bear in mind that Apple couldn’t be bothered to make it look different from last year’s iPhone 3G). Components are made to fit with everything else, reduced in size and production cost and are produced by some Japanese/Asian Manufacturer.
In the UK a sim free/off contract iPhone 3G will cost RRP: £649.99. This is the cost of truly owning an iPhone. For the same money I could truly own: Two laptops at £299.97 from PC World, Two PS3’s, A Full HD Flat screen TV, Two Sony AV receiver 7.1 with HDMI, Two month mortgage repayments or return flights halfway across the world.
Isn’t it about time we stopped having to pay so much for Lego bits? Rant over.
By mcborge at 7:13 AM ON 06/12/09
This is the price you pay for being gadget victims, plus buying new tech every time an upated version comes out isnt very echo friendly is it, new phone new charger new phone case etc.
By Beany at 8:17 AM ON 06/12/09
I really am tired of all this crap. What can we do you say? Well I do not use ATT phone service on my home phone. I do not use their internet. I do not subsribe to their U-verse TV service. And I will NOT buy an Apple computer. If you don't scratch my back I won't scratch yours. Screw them both
By dfwguy at 9:32 AM ON 06/12/09
Have you forgotten that early adopters of the 2G iphone paid $599 for the 8 GB model. They were not subsidized, so they were eligible for a subsidized price on the 3G iphone. The 3G version has been subsidized since day one.
Yes the price for text messages is outrageous, but we all know that in a deregulated market that competition will set the price. I personally haven't found that pricing model to be valid, but my right wing associates assure me the model works. Considering that my contract is completing and there are now the Android and Pre out there, AT&T might be a bit optimistic about my attitude towards an $18 "upgrade" fee.
By LOL at 10:07 AM ON 06/12/09
I thought Apple would have shown ATT the door by now. Too bad.
I am going to get a jailbroken phone with SIM unlock. I will stick with tmobile's slower network. Unlimited data with FREE tethering. I won't pay a nickel more than do now. Besides, I love TM customer service. I have long since completed my contract with them. Funny thing - they will even help me get iPhone working on their network! Gotta love it!
Once WiMax is available in my area, everything changes anyway.
By Instant_Armaggedon at 12:00 PM ON 06/12/09
If you must have the latest and greatest, break your current contract, pay AT&T the $175 early termination fee, and then sign up for a new contract with the 3GS. You still come out ahead.
By tlhintoq at 12:26 PM ON 06/12/09
Not any different than the TV cable company. A new customer gets 3 months of premium cable channels for a dollar, with a 1 year contract. Once you're a customer you'll never get those 'incentives' again
By BoxerFanatic at 3:56 PM ON 06/12/09
Subsidy is subsidy.
I paid full price for a 2G original iPhone more than 6 months after introduction. My 2 years isn't even done yet. And I did pay a lot of money for the 16GB model, with no subsidy.
The 3G 16GB model was barely half the price, with the subsidy built in, and part of every one of those 24 contracted monthly bills is paying that subsidy back. Nobody is done with that yet, as it hasn't been 2 years yet, unless you shelled out full price.
If you haven't paid back your subsidy, you haven't. That is the deal, before you can get another subsidy on another phone. AT&T didn't contract with you to just eat that loss, and pay for 1/4 of your phone when you upgrade after only a year.
Apple products cost. They also tend to set a standard. Other smart phones have been playing catch-up since the iPhone, and later software 2.0 and appStore was introduced.
Firmware 3.0 is coming, and will run on existing phones. If you can't wait for newer hardware next year, then you pay for the phone, AT&T isn't going to give you money, they are selling you service.
You aren't being denied the ability to upgrade, but you aren't getting free money on your existing subsidy, either. Get over it, pickup your own self and go.
By kizer at 4:45 PM ON 06/12/09
Thats what you get for falling into the Death Trap called Apple. Has anybody not learned that everything Apple touches turns into $$$$$$$$$$$$$$ I mean their PC's are twice the price as everybody else and they are now lowering their prices after what a 10year + run of charging everybody out the yin yang.
Don't even get me started on AT&T. Its obvious that Apple is going to drop them like a brick and move on.
I have a smart phone with another carrier that does nearly everything the iphone does and more and I have unlimited everything and pay $80 a month. Last time I checked isn't AT&T around 150? Do the math boys and girls.
For gods sake look outside the iPhone box, trust me there are other things out there.
By Mihos at 5:09 PM ON 06/12/09
I ditched the iPhone for a Pre.. I'm not coming back.
By jgibo1 at 7:29 PM ON 06/12/09
I remember back in the day when I had a cell and it was a rarity. If you came in before your two years were up and looked at the newer phones you didn't really car and didn't mind waiting till your contract was up.
Now that there are smart phones with more features people go crazy and feel they are being ripped off. It is like they forgot that it has always been this way. Don't blame AT&T or Apple. The blame should fall on the consumers for accepting subsidizing on phones and other products.
I know a lot of other countries don't subsidize and people are still willing to pay full price. I think that is the way it should be and maybe we would have fewer people with them driving recklessly while texting:)
By Jon at 9:58 PM ON 06/12/09
You mentioned the endowment effect, you forgot the entitlement effect.
As in I want it, ergo, I deserve it.
I have two words for these people: Grow Up.
By RODGERSP at 11:20 AM ON 06/13/09
I don't get all the hipe over the iphone i have had the 8gb first iphone and the 8gb 3g. To me the phones are not worth having. the batery life of the phones is very bad. I have user unloocked nokia phones for 2 years now the n95-8gb the nokia 5800 and the newist one a n96 they are hands down a beter phone than the iphones in every way.
i would like to see more storys on thes unlooked phones. the best part is you dont have to wate for a upgrade on your att acount you can be like me and be free from a contract.
By AppSteve at 1:33 PM ON 06/15/09
There isn't even a full working 3G network...most people aren't even getting the most out of their 3G phones, and they won't until 2011 when AT&T finally completes the 3G network. So why, when for most people across the country get the same connectivity as a 2G phone with their 3G phone, would anyone want to go out and splurge for a 3GS?
Why don't you mention any of that in your article Mr. White???
By phones at 11:21 AM ON 06/19/09
All i have heard and read last year and this year, is comments about I wont get a Iphone because I wont switch to AT&T... OK ,,thats fine! But people on chat boards and comment boards like this one dont complain that AT&T has the slowest or worst service coverage...That is so not true...that is the worst comment anyone can make..the truth is people are made because they want the iphone and dont want to go through the hassel of switching providers... just say the truth...If Apple would of picked Verizon or Sprint.. Everything that is happening in cost and service would be the same...come on Apple is in control here , not AT&T,, i think apple picked AT&T because truthfully they are the best. They have handled the network for this one of a kind smartphone pretty well. But the dumb comments on who is the best provider or the cost of the phone has got to stop...If you want a iphone and can afford it,,get it..!!! simple as that...if not there is other phones out there..But this back and forth on im not getting a iphone because of AT&T or the cost upgrade has to stop! bottom line is who ever the provider is,,pretty much there all the same service and thats the truth.. But this complaining and bickering about providers and cost is just rediculous.
By Hassan at 8:03 AM ON 06/21/09
We have Apple iphone 3gs 32gb for $350usd...
1)Flash player support
2)Quick back option without going to home screen while switching between apps.
3)File browsing and storing
4)Option to attach images, file etc from email app itself.
5)Multiple signature options
6)Manual rotate gesture option
7)Notes app should be more powerful word process (fonts, text size etc)
8)All Grouping of contacts for test message e.g. friend and family groups.
9)App for grouping key social networking sites(for posting universal photos, text to all social networking sites together.
10) Auto spell check in safari browser (like mozilla) when adding text in twitter, facebook leaving comments at blog etc.
11)Build in Flash in camera for night photo shot
12) Front facing camera for video Chat
13) Use cover flow for using multitasking third party apps (limit to 5 apps, not to drain the battery life)
14)Thin quick time player app to run video downloaded from web.
15)Group notification alert or not attended tasks(missed MMS, SMS, PHONE, Chat message, meeting, event etc)on single screen.
Email: tlainc@hotmail.com
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