RIT Professor Predicts Economic ‘Flat Line’ in Response to Apple iPhone 5 release

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Javier Espinosa

It’s like Christmas in September for tech-minded consumers. The launch of Apple’s newest product, the iPhone 5, has technology gurus giddy with excitement and many economists have even predicted a surge in the nation’s economy once the product hits the market.

However, Javier Espinosa, assistant professor of economics in Rochester Institute of Technology’s College of Liberal Arts, is doubtful that any economic boom will directly result from the release of the iPhone5 in the Rochester area, or for that matter, in most areas around the United States.

“The sales of new iPhones will likely occur mostly through vendors like Verizon and AT&T,” Espinosa explains. “The cost of the device is lower when consumers accept a two-year contract. While the local economy benefits from those Verizon and AT&T employees who are earning and spending income, their employers are large firms that are not local. In addition, the sale of the new iPhones will not likely increase the rate of cell-tower construction because most of the new iPhone purchasers are just replacing old phones. I imagine that some analysts might suggest that the allocation of these devices into the hands of Rochesterians will improve business due to some time saving and interconnectivity advantages, and I can see some lower transaction costs. But the question is, how much lower are these costs after the iPhone 5 is released compared to the levels set by the previous iPhone device?

“One note I’d like to make is how the release of the iPhone 5 will increase the supply of the iPhone 4S and earlier models as people make the switch to the new device,” Espinosa adds. “Simple market analysis would suggest that the release of the iPhone 5 will have an affect on the market for used iPhones. The new product should increase supply of old iPhone devices and possibly decrease the demand for older iPhone models because some buyers may choose to just purchase the newest model. Holding all else equal, this would lead to a drop in the price in the used iPhone/iDevice market.”

Where might we see evidence of this?

Espinosa points to the popular “buy-sell” website, craigslist.org.

“Search ‘iPhone’ in the ‘For Sale/Electronics’ section of your local craigslist.org and look at the number of listings and prices for iPhones over the past week. After the new iPhone 5 debuts, check the number of listings for older iPhone models again. Prices should be lower. If they are not, the new question is, ‘What else is going on here?’”

Espinosa’s areas of expertise include empirical research in the field of health and labor economics. His courses include Microeconomics, Economics of Health Care and Mathematical Methods: Economics. He recently published “Heightened mortality after the death of a spouse: Marriage selection or marriage protection?” in the Journal of Health Economics.