Thursday, June 25, 2009

Apple iPhone Price Elasticity

The market intelligence firm iSuppli has estimated the cost of the new iPhone 3G S to be $178.96 -- $172.46 of components and manufacturing expense of $6.50. I am not sure how accurate these are, but let's take them to be an estimate of Apple's marginal cost of production. They are probably pretty close.

From price theory, we know that optimal pricing implies the following markup relationship:

(price - MC)/price = 1/elasticity

or in words, the markup of price over marginal cost should be inversely related to elasticity.

Estimates of price are in the vicinity of $600: this is not what consumers pay, but what ATT likely pays for the phone. Using the $600 price and the above formula implies an elasticity of demand of 1.43. Probably not a bad estimate.

There are some interesting questions to think about in regard to what price one should actually use and how the impact of ATT's service revenues affect things. But I think that the above formula has to be based on the price Apple actually receives, and that would be the $600 figure.

A Dangerous Profession?

News reports this morning are of 70 university professors in Iran being arrested, whereabouts unknown, after meeting with former prime minister and opposition leader Mousavi.

Events in Iran could be some of the more significant in the Middle East since the Iraq War, maybe even more so.

It is striking to see these kind of crackdowns in 2009. Imagine what would be the case in any Western country if text messaging and cell phones were cut off, the internet restricted, and professors were arrested for meeting someone.

Can the current leaders of Iran pull this off? Can a government in this day and age be so intolerant, restrictive and oppressive and get away with it? The bulk of evidence leans toward "no" but China/Tiananmen Square shows it can happen.

My guess is that the current regime will get through the current crisis but that the genie is indeed out of the bottle and things will not be the same. How significant will be the changes and how long they will take are the questions.

Saturday, June 20, 2009

The Market for Human Organs

So Steve Jobs, CEO of Apple, had a liver transplant -- see story here.

Interestingly, he had it in Tennessee, not the state that first comes to mind when speaking of the forefront of medicine.

But if your criteria is length of time to wait on the liver transplant list, Tennessee comes up with the shortest wait.

Interesting. Someone with enough money can relocate to a different area, get on the local list, and get a needed transplant before someone with less wealth.

Is that wrong? Should Steve Jobs be on the same timetable as everyone else?

Why do we accept wealth as enabling people to get an advantage in so many things, even many that are life-preserving (a new Mercedes is certainly safer than a used Chevy), but when it comes to things like organ transplants we balk?

Would it be OK if Mr. Jobs could offer cash to a live donor to spare half of their liver (all that is generally needed for a "live" liver transplant)? Is that OK if that person would never have considered donating part of their liver if not for the money? Is it not obvious that offering cash for livers would dramatically increase the supply? Aren't we really interested in saving lives, after all?