The Economics Behind the iPhone SE

The new iPhone SE is the most affordable iPhone yet, but is it a bargain at $399?

According to a teardown by market research firm IHS, the 16 GB model of the iPhone SE, which comes equipped with some of the same hardware used in the top-of-the-line iPhone 6S, costs Apple around $160 to build. The iPhone 6S Plus, the most expensive option available, costs $236 – an extra $76 which is equivalent to a 48 percent cost premium.

The retail price of the 6S Plus however, is $350 higher than the price of the entry-level iPhone SE. That means the customer pays an 88 percent premium for a product that is just 48 percent more expensive to build.

From Apple’s point of view, this type of price discrimination does make sense. Those interested in an entry-level iPhone are likely to be more price-sensitive than the target demographic of its top-of-the-line models. Hence the higher profit margin on the more expensive product.