Lock in

iPhone6s: Apple's Best Trap Yet
by: Geoffrey A. Fowler
Sep 23, 2015
Click here to view the full article on WSJ.com

TOPICS: Microeconomics

SUMMARY: The newest iPhone makes it even harder for users to ever switch to another phone-but Geoffrey A. Fowler wonders: Is that so wrong?

CLASSROOM APPLICATION: Students can examine issues of lock-in and switching costs among products, related especially to social networks. "Very few Apple apps and services are available for other kinds of phones. To switch would be like packing up and moving to a new city. That's easy enough if you're alone, but the iPhone is as much a social network as it is a phone. To bring along everyone you care about, and every gadget you own, is more effort than most people can take on."

QUESTIONS: 
1. (Introductory) What would be the effect on the prices of Apple products of the company building consumer switching costs? What would be the effect on future sales?

2. (Advanced) Why is it important to Apple to build network externalities associated with the company's products? That is, why is it important to make texting seamless among iPhone users?

3. (Advanced) Why is increasing the cost of switching from Apple products an important issue to Apple? Does Apple design its software and hardware to increase this cost?

Reviewed By: James Dearden, Lehigh University