Bizarre cellphone pricing baffles economists

Cellphone companies offer strange pricing that baffles economists, while U.S. consumers spend more and more each month on mobile phones.

Apple and AT&T's $199 iPhones are on sales upswing and U.S. consumers won't have it any other way. $399 iPhones with a $20 a month fee ended up costing $4o less, however sales were slacking. Cellphone companies' strange price plans are confusing as well. Barry Nalebuff, an economics professor at the Yale School of Management says, "You pay $60 to make your first phone call. Your next 1,000 minutes are free. Then the minute after that costs 35 cents."

Confusing? Entirely.

Here are a few more confusing pricing schemes:

• Phone companies charge 20 cents per text message...double what they were in past years. They cost the phone company less than a penny to deliver.
• Sprint offered free calling to any mobile number, and customers then switch to more expensive plans.
• Web is provided for a flat rate on iPhones and BlackBerries.
  

So why are U.S. consumers buying? It's all about instant gratification. A New York Times article reports, "Consumers often put immediate gratification and the avoidance of unpleasant surprises above their long-term interests."

This behavior is difficult for economists to predict. In other countries, consumers buy a phone and then purchase minutes. When they run out of minutes, they buy more. No contracts, no ridiculous charges, and no economists searching for a model that can't be found.

U.S. consumers' need for instant gratification pressures cellphone companies to subsidize phones in order to increase sales. The iPhone that is $199 meanwhile costs AT&T $550. The increased monthly charge is in order to cover the subsidy.

Philip Marshall, an anayst for the Yankee Group says, "Service providers don't have a good measure for their costs. They don't have the ability to say if they are going to make money" on any particular plan. So basically, phone companies want to get the most money they can possibly get out of you and hope that they have made enough money to cover their costs.

New iPhone app does the driving for you

Remember the remote-controlled BMW in the James Bond flick "Tomorrow Never Dies" in 1997? The ultimate 007 gadget may become a reality thanks to a crew of researchers at Germany's Freie Universitat of Berlin.

The team of artificial intelligence scientists unveiled an iPhone app called the iDriver that allows users to remotely control their car by operating the steering, brakes and accelerator while navigating the vehicle from an iPhone screen.

A street view is transmitted from a tiny dashboard video camera to the remote-control device where the driver directs the vehicle via signals sent from the car's transmission.

Scientists showcased the computer-driven test car, nicknamed the "Spirit of Berlin," at the city's Tempelhof airport.

An era of automatic cars navigating the streets? Not so fast.

While the crew of German researchers have successfully tackled the technical aspects of driving a car from a mobile-phone application, a spokesperson from Freie University said not to expect a release of iDriver this year.

Click here for the lowdown.

Apple yanks 'I Am Rich' iPhone app

The iPhone has quickly become a status symbol in today’s society and even though the price has dropped considerably in the past year, they're hardly a product for the average consumer.

Perhaps to poke a little fun at the spending habits of iPhone owners, the Los Angeles Times reports that Armin Heinrich, a German software developer, developed an application called “I Am Rich.”

The application costs $1,000 for iPhone owners to download to their devices. Unlike other handy apps such the scientific calculator, the level, or any number of flashlights which can be purchased for about $.99, the “I Am Rich” application has no function.

It merely displays a picture of a ruby on the screen, and, if you show your friends, proves that in fact you are rich. The New York Times reports that eight people have purchased the app, but that several have demanded a refund.

Heinrich, the software developer, has no problem with that.

“It’s OK to return the money. I did not want to harm anybody with my app,” he tells the New York Times.

He simply thought it would be funny to create one that was so expensive because some people complain when they have to pay for any kind of app. The shoppers who asked Apple for their money back probably didn’t see things in the same light as Armin Heinrich.

“I regard it as art. I did not expect many people to buy it and did not expect all the fuss about it,” he says.

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