The Veblen effect: The market of Smartphones

Why do so many people buy the newest smartphone on the market? Are companies just shoving newer products with no real difference from the previous model? Reasons vary from person to person why they choose to “upgrade” and companies take advantage of this by using their good as a Veblen product. This has an impact on the law of supply and demand curve because when there is an increase in price there should be a decrease in demand since people do not want to pay more for a product.

Unless the product is a Veblen good which means that regardless of the increase in price the demand curve will also increase. Veblen, from the American economist Thorstein Veblen, is the idea of conspicuous consumption which means spending money on a good or service to show off one’s economic wealth. Based on research we can see that wanting luxurious items comes from our nature biologically, to express our status publicly.

We can certainly see this with current smartphones passing an understandable threshold and surpassing the $1,000 mark and people do not hesitate to buy.

With this we can see that the market of smartphones is inelastic since there is no impact on the market when the price increases, people will continue to purchase these products. It seems that Apple has almost monopolized the smartphone market. Having only one other type of phone to compete with the iPhone, which is the Android. Even though there is competition, Apple is still able to increase their prices every time a new product gets released without any drawbacks.

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It seems that the goods Apple releases compared to other companies are better in quality and in higher demand. This may be because there is only one company selling iPhones while there are many companies selling Androids.

This show that Apple has a monopoly on iPhones because it is a patent product that only Apple can sell, and consumers correlate Apple Why Smartphones are overpriced, and we are the problem 3 products to expensive and lavish lifestyle. Even some Android smartphones have similar patterns to iPhones such as the Galaxy and their way to compete with iPhones’ is their own type of processor and the physical size of the phone. In the whole retrospect of smartphones, we have seen smartphones slowly increase in price in recent years without seeing any backlash and the reason for this is because of us. The reason smartphones are inelastic is because we choose the standard of what a person should have as a phone and has almost come into a necessity if you want to stay in touch with your friends and family. With the recent generation we can clearly see that the majority have smartphones while older generation, such as our parents, have older phones that have basic functionality.

The substitute for smartphones is basically using a phone from early 2000s mainly because many companies have stopped producing them, such as the Nokia. There is a very small market of people willing to pay for a phone that is not a smartphone, so those people must use some sort of a trading market such as eBay or Craigslist to find these products. This way generally becomes too much of a hassle and there are many smartphones on the market that are not difficult to pilot, generally Androids. There are also phone companies who know that the prices are too high, so they adjust prices by making a plan that lets their consumers upgrade whenever a new smartphone comes out, even if they have not fully paid off their previous version. This gives the consumer an incentive to buy the newest product because they can drop their “old” device and stop paying for it, to receive the newest model and pay for that one instead.

This leads to a cycle of payments that do not seem to end even though consumers have the newest product they must start their payments again and smartphone companies are going to keep releasing newer product making consumers restart their payment again and again. There are Why Smartphones are overpriced, and we are the problem 4 many reasons why people are more in line of buying a smartphone and that is mainly because of easy accessibility. For some people buying the newest smartphone is beneficial to them because they do come out with a better processor and camera. For those people this is an opportunity cost because it helps them be more productive having a faster device, such as business people, social media stars and students. Smartphones are very light and easy to access compared to walking around with a laptop.

The functionality of a smartphone can prove beneficial for people on the go while still finishing small task that can be done on a laptop such as finish a business proposal, post on a social media application with higher quality pictures, or even find helpful resources to study in the palm of your hand. Smartphones have evolved in recent years and we have come to adapt these models and tuning it to our way of life. Of course, smartphone companies do not just throw anything in the market because people will just buy, they do add new enhances and upgrades to their newer model to give consumers a reason to upgrade and keep buying. We can see this with the Theory of Planned Behavior where consumers want to express their ideal self-image by buying and showing off their material good.

Researchers have found that “product enhancement and control of consumers’ upgrading behavior” makes consumers want to upgrade to the newest version even if it comes with a higher cost. Smartphone companies known that their product is desired by many, so they must compete with other companies by displaying how much better their smartphone is than others. Companies usually do a conference where they display all the new key features of their product which excites consumers to wait and buy it when it comes out. We can see this with Apple releasing a new iPhone, people attend or watch the conference and Why Smartphones are overpriced, and we are the problem 5 get excited for the release. When Apple released the iPhone X there was not much of a tremendous change with the previous version and even on social media people where calling them out on it, but people still waiting for hours outside of every store that sold the new iPhone because it’s an iPhone.

Even with the price of over one-thousand dollars people still purchased it and were not disappointed because they purchased it for the reason to show off their social wealth. Even though the prices of smartphones are absurd, they do benefit the economy by creating many jobs under the smartphone industry. This is when specializations come into play because it will be inefficient for one person to do everything correctly so the best choice for a company to make is to have multiple workers with specific skills that will the product efficient. It creates jobs for people who can specialize in specific categories that the company needs. Some smartphone companies, such as Apple, almost monopolize the industry which gives them a better incentive to put most of their profit to research and development which will further improve the product and create more because of it.

According to the University of Scranton, smartphones have impacted the economy by improving communication and collaboration using smartphones to interact around the world using apps which cut the cost of unnecessary expenses. Creating an “App Economy” with low barrier entries  which allows a more flexible way to create an idea on a smartphone and become an entrepreneur without having to deal manufacturing capacity and labor pools. Lastly, smartphones have helped create a way to better utilize excess capacity which we can see in today’s society with Uber and Lyft helping people earn money by giving people rides whenever they have the time to do so which gives the user a more flexible schedule to work around with.

These smartphones open the market for producers Why Smartphones are overpriced, and we are the problem 6 to prosper but also the consumer by using the smartphone as an investment rather than a luxury item. To conclude, society has always been this way for thousands of years. We always want to display our wealth and social status to somewhat gloat that we can afford these products. Such as kings buying unnecessary amount of food and entertainment that it becomes a great part of wasted resources, just like our society buying the newest smartphone even though there is nothing wrong with their current one. We always want the best product to have because we value our devices more than just a phone. For many it is what makes them happy by posting what they are doing every hour on social media or using a face to face application to be able to visually see the person they are talking to.

This also opens the market for social media companies that can provide smartphone users these necessities for free in an excludable non-rival path and the way these companies make their money is with advertisements on their apps. When a company prospers in their product it creates a job market which helps the economy by lowering unemployment and rewarding the people who pursued their education for a higher position in that company. We all have our small necessities and it seems that people do not mind paying the premium price for these smartphones for those small benefits that decides to purchase the product while providing an invisible hand that benefits the market.