What’s the Magic Price?

My fourteen-year-old grandson tells me that he got the iPhone app GraphCalc for free a few months ago. When he looked recently, he noticed that Apple is now charging $0.99 for this very popular app. Clearly, Apple realized that the demand curve was further out along the supply curve than they had believed, and they priced accordingly. I wonder if this is standard policy with them, as I haven’t noticed this behavior before. My guess is that they do this fairly often, but don’t go higher than $0.99 on most simple user-supplied apps: Like me, many users are willing to pay $0.99 for an app, but are turned off by any price above that.

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  1. Abe says:

    Apple doesn’t set the price of the app, the developer does.

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  2. Raamin says:

    Actually, Apple doesn’t set prices for these apps, the developers do. And the minimum price is actually $0.99.

    The minimum price means that developers are probably losing out on potential sales, making this a less than perfect example of a “magic price” (simply because it may be something like $0.60, but we’ll never know), but your point stands.

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  3. trader n says:

    The developer decides the price of iphone apps, not Apple. Usually a developer will introduce an app for free (sort of like free samples of a new product) and them charge for it sometime later.

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  4. dsmccoy says:

    Free versus paid would be the choice of the developer, not Apple.

    “GraphCalc” (found in the App store under “Graphing Calculator”) is not an Apple product.
    Developers often put out an App for free to get some users and some ratings, and if the ratings look good, will switch to charging if the response is good.

    I am kind of amazed at the low quality of this blog.
    Your speculation in this case was completely uninformed.

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  5. KocsenCMS says:

    If its true that Apple raises the price its because they have noticed a pretty solid demand where charging .99$ would get them a lot of people who are still willing to pay that much. This goes back to issues where the cost of producing and distributing another “app” is virtually 0.00$!

    On the other hand, if the developer puts the price and the minimum is .99$ and almost all apps in the app store are .99$. than that means that willingness to pay for those apps are minimal. Also, i believe that due to the fact that there are so many other ways of getting those apps for free, a underground market throws the app store economy out of balance causing these weird pricing.

    Finally my prediction is that your grandson got the application from a 3rd party for free when in the app store it has always been .99$ but there was a misconception. Just as technology can make it easy to buy something and get it instantly for .99$ it can also contribute to illegally getting it for free.

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  6. Iljitsch van Beijnum says:

    These sales are largely driven by Apple’s top 20 etc lists. So the developers give the apps away for free for a while to get on the best “selling” list and then start charging.

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  7. Joe says:

    A lot of apps seem to be released free at first, then switch over to being for pay.

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  8. EconProf says:

    Rather than miscalcuating initial demand, the zero initial price is likely to be to prime the pump, especially in all software download markets where user base is an critical piece of information among potential adopters. Initial users can also serve as no-cost Beta testers and focum groups for ease of use, bugs, etc. before brand name damaged.

    In addition, don’t overlook the networking economies involved. iPhones have enjoyed a tremendous adoption and usage increase. With it’s unique OS, iPhones serve as a platform for apps whose market value depends on the size of that growing network.as much as the usefulness of the apps themselves (very few customers buy an iPhone because of the availability of a single app!). In the extreme case of startup rivals to iPhone hardware that use other Operating Systems, the phone manufacturer and/or the wireless carrier may find it necessary to heavily subsidize the development costs of apps (the way carriers currently subsidize the price to new adopters of free phones that otherwise are priced at $200 – $400).

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