I have a hard enough time spending $200 on a phone and over $100 each month on our cell phone bill. That’s well over $1,200 each year on cell phones! Now, think about $25,000…that just seems absurd. But it’s not that far off if your living in China and you want an iPhone.
Recently, I read about Apple selling the iPhone in China. The iPhone would sell for 5,999 yuan or approximately $1,000 USD. Seems a little high even for us Americans. So where does the $25,000 come into play? When you take into consideration that the average annual income in China is just 12,076 yuan and the iPhone costs almost half of the average family’s income, you get the equivalent of an American spending $25,000 on an iPhone. Sounds hard to believe, but that’s the simple math of it!
Is Apple foolish to sell the iPhone in China?
With over 1.3 billion people in China, the market seems like a never-ending stream of potential business. But when it comes to luxury goods, like an iPhone, I don’t know how much of a hit it will actually be. Granted, you don’t need to capture much of a 1.3 billion person audience to make a giant profit, which might be why Apple has decided to tap into the Chinese market.
Is it ethical to charge so much?
Here’s the million-dollar question: is it OK for Apple to charge $200 in the US for an iPhone but $1,000 ($25,000 adjusted for income) in China. Technically, they can charge whatever price they want and as long as there is demand, Apple wouldn’t need to lower the price. That’s the simplicity of supply and demand.
While charging half a year’s wage for something that is actually made in Asia seems a little off to me, an iPhone is still a luxury good. Does Apple have a social responsibility to charge a fair price across the board, or is it acceptable to discriminate with pricing? I would lean towards the latter.
If we were talking about bread costing $30 a loaf in China, then I would be concerned because bread is a necessity. An iPhone, however, is not a necessity (contrary to popular belief) and people don’t need one to survive.
Price Discrimination in Action
Whether you agree or not with Apple, they are doing something called price discrimination. It’s a term that economists use to describe a situation where a seller charges different prices to different groups of people. The idea is that some will be willing to pay a premium price while others will not. The seller makes large profits on those willing to pay a premium and minimal profits on those who aren’t willing to pay full price. You’ll see this happen every day at car dealerships, which is why it’s so important to know how to negotiate.
So, while the idea of charging $25,000 for an iPhone may seem outrageous, to me spending $25,000 on an iPhone is even more absurd. It all comes down to choice, so while I wouldn’t spend half of my family’s income on an iPhone, who am I to say someone in China shouldn’t spend what they want on a luxury item?
What do you think?
Tim is a personal finance writer at Faith and Finance a Christian financial help blog that provides financial insights for individuals, businesses, and churches. Outside of finance, Tim enjoys spending time with his wife, playing the saxophone, reading economics books, and a good game of RISK or Catan. Find him on Twitter and Facebook and subscribe to the Faith and Finance RSS feed.