Scenario 1: Pricing the iPhone 5 for Apple

Apple follows a policy of fixed prices in order to not disappoint consumers that have already bought the product. Apple held an event to formally introduce the iPhone5 on September 12, 2012. Apple began taking reorders on September 14, 2012, and over two million were received within 24 hours. Three models of the iPhone 5 were introduced: the 16GB for $649, the 32GB for $749, and the 64GB for $849.

1. Some consumers complained that the 16GB iPhone was the hardest to get. From a pricing point of view, does it make sense that the 16GB model should be the hardest to get?
2. The marginal cost of producing a 16GB model is $207, the marginal cost of producing a 32GB model is $217, and the marginal cost of producing a 64GB model is $238. To price these iPhones, Apple follows the formula P(1 -1/E) = MC. Given current prices, compute the price elasticity of demand for each of these three models. Which model presents the highest markup and associated lowest elasticity?
3. Many analysts claim that Apple uses the 64GB model as a pricing decoy. What is a pricing decoy? Do you agree with the aforementioned statement? If you were a heavy user, which one would you buy?

Scenario 2: Pricing Gas in Spain

A few years ago, Jose Manuel Soria, Spain's Minister of Industry, Energy, and Tourism, announced that his department was ready to protect consumers from abusive pricing policies by gas companies. Mr. Soria added:

"It cannot be the case that when international oil prices go up, then gas companies pass on these price hikes to the consumer right away; but when international oil prices go down, consumers do not profit as quickly from the declining prices.... This is embarrassing to our nation..."

To a first approximation, these pricing patterns are observed in many other free-market countries.

1. It seems that Mr. Soria is just calling attention to what everyone knows. But is Mr. Soria operating under sound economic principles? In other words, do these pricing policies make sense under basic finance/economic (free-market) postulates without a need to assume monopoly power?
2. How can we explain asymmetric consumers' pricing policies in commodity markets?
3. How can we tell if gas companies are making abusive profits? Hint: These markets are called "rockets and feathers." In our case, there is asymmetric pricing because consumers are inelastic (need to consume gas every day) and producers are elastic (they would wait if they think that the price will go up).