Apple Licensing May Contribute to Inflation

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annual_inflation_chart.jpgIf it seems prices of the latest iPod and iPhone accessories are rising, you may have Apple’s licensing department to thank, according to a story in Popular Mechanics. Though the company is typically reticent to discuss the details of arrangements such as the one that allows some electronics manufacturers to place a “Made for iPod” designation on their products, managers and decision makers for both retailers and manufacturers indicate Apple’s licensing fees and specially made chips that allow gadgets to work with Apple gear can add 10% or more to the price consumers pay for an item.

Last year, Apple introduced a proprietary authentication chip that works like a silicon key to unlock streaming video functionality on iPhones and iPods and generally authorizes the devices to work with approved accessories. The “auth chip” meant third-party companies wanting to produce iPod-compatible gadgets first had to deal with Apple–the only company selling the chip. Previous-generation iPods could output video over a generic $2 iPod video cable, but new phones and iPods require officially licensed Apple cables–and these can cost up to $50, according to the report.

Apple’s contention is that its authentication technology and licensing protocols, which can entail auditors from Cupertino poring over a company’s books and records to ensure that Apple gets paid for every device sold, helps maintain high quality for products associated with the Apple brand. Some manufacturers complain, on the other hand, they must reduce the quality of their wares in order to pay Apple its share and still keep prices at levels that stimulate consumer demand.

2 responses to “Apple Licensing May Contribute to Inflation”

  1. imajoebob says:

    From a purely economic point of view, this doesn’t add to inflation. Since Apple is applying these conditions to new equipment, there is no price increase, just a more expensive alternative.

    Besides, I doubt many price indices (it’s not “indexes” like those twits on TV say) (sorry, a pet peeve) have iPods or Belkin widgets in their comparative market baskets. They usually stick to non-discretionary items like food, gas, and washer/dryers.

    If anything, in a time of economic contraction, Apple may be hurting themselves, since they sell a lot of these add-ons in their stores.