I’m not quite sure how unequal the world used to be, but I’m fairly certain the world is more equal (in terms of financial means) than the world was, say, in the 1600s.
There are many things that enormous wealth allows you to buy that’s out of reach for middle-class American consumers, like yachts, personal assistants, private jets, multiple homes, etc. You can frame these things in terms of the problems they solve e.g. private jets solve the problem of travelling long distances, multiple homes solves the “problem” of wanting to go on vacation more often. Note that the problems persist across wealth brackets, it’s just that the ultra-wealthy have different methods of solving those problems. While the ultra-wealthy might solve the problem of “vacation travel” using a private jet, those without extreme wealth might travel using commercial airlines. The ultra wealthy introduce novelty into their lives by purchasing multiple homes, while everyone else goes on vacation and stay in a hotel or similar.
If you cluster goods and services based on the problem they solve, most seem to be available at wide range of prices, with the higher end being around 2 or maybe 3 orders-of-magnitude greater than the lower end. For example:
Food: Higher end would look like full-time personal chef and regular fine-dining, lower end would look like grocery store pre-packaged meals and cheap fast-food.
Short-distance travel: Higher end would look like a full-time chauffeur in a custom Bentley, lower end would be public transport or an old car.
Long-distance travel: Higher end would frequent private jet flights, lower end would be infrequent commercial airline travel
Time-telling: ~$10 Casio through to a ~$100k Rolex
Education: free public school vs ~$50k/year elite schools + private tuition
Politics: In a democracy, voting is free. But if you have $100k+, you can lobby for areas of your choosing or sponsor political candidates.
Healthcare: regulation makes this less clear than other cases, but you and I certainly can’t afford to fund medtech startups looking to cure aging.
I have low confidence that the difference between the lower- and the higher-end of goods/services to solve a problem is precisely 100x to 1000x, but I’m very certain that it’s orders of magnitude greater and not 1.01x to 2x greater.
However, you do get some products/services which do not exhibit this behaviour: Even the wealthiest man in the world will use the same iPhone, play the same video games, read the same books[1], and watch the same movies[1] as a middle-class American. What gives? What is the underlying factor that means some goods and services have 1000x range in value, and others have basically no difference? Put plainly: Why are there no incentives to build a $100k iPhone[2]? I have some hypotheses about the constraints:
Innovation-constrained: the modern iPhone is just at the limit of what’s technically feasible, and Apple wouldn’t know what to do with the money if you gave it to them. You could pay every Apple engineer and designer 100x their current salary, and they wouldn’t be able to innovate more than they currently are because they’re already at the limit of human innovation.
Economics-constrained: producing large numbers of $1000 iPhones is just much more profitable than fewer numbers of $100k iPhones, so there’s no incentive to make a more expensive iPhone.
Option 1 seems a little fishy to me. I’m not sure, but I doubt there’s nothing Apple could do to put more high-end features in a $5k iPhone. $100k does start to push the limits, but $1k seems low considering the frequent critique of iPhones. And there’s a very wide range of non-technical features (different colours, different sizes, various customisations) that are present in other high-end luxury goods (cars, watches, jewellery, etc) but aren’t present in iPhones.
Option 2 also doesn’t quite sit right with me. It seems okay on its own, but I don’t see why iPhones would have this dynamic but not watches, furniture, cars, etc.
One third option that I think is closer to the truth:
Things improve too frequently, so nobody’s willing to drop $100k on a hyper-specialised luxury iPhone that’ll be out-of-date in a year. If there’s a technical innovation in batteries or screens or cameras, then next year’s consumer iPhone will have the brilliant innovation but your luxury iPhone won’t.
Consumer technology regularly experiences game-changing innovations, much more so than cars/furniture/housing/etc. So under option 3 we’d expect to see that goods or services with a very small financial range (like iPhones) to be things that are undergoing rapid innovation and change (including but not limited to tech products).
This hypothesis seems to hold up: laptops, smartphones, internet services (like YouTube, Netflix, Gmail, etc), Starlink, all have a very small financial range, some of them you can’t buy a more expensive variant even if you wanted to.
Our hypothesis also predicts that goods/services which experience little innovation should have a wider range of prices. One example of this would be gas-powered cars, which have been stagnant for several decades[3]. There have been improvements in comfort, efficiency, and safety, but I’d argue that these improvements stem more from increased demand for these features rather than previous inability to innovate in these features. Most recent innovation in cars have come from changing preferences, rather than static preferences which undergo more thorough innovation.
I suspect there’s something deeper here which might be empirically useful. If hypothesis 3 is true, then we could use the range of prices for a given product/service as a measure of the innovation in that field: A narrower range of prices means that there’s much more innovation. And this could be impactful, as it gives a way to measure how much the economic market expects a field to be innovating. It would be foolhardy to try sell a $100k iPhone if you suspect a competing product might be released that has significantly better features but with a lower price tag.
The large price associated with luxury goods effectively serves as a bounty for someone to come along and innovate.
We can also make some empirical predictions from this. Smartphones during the 2000s and 2010s underwent a lot of innovation, but they have become stale in recent years: every black slab of glass is nearly identical. I suspect the luxury smartphone businesses take a while to boot up, and it’s possible that new battery technology could cause a resurgence in smartphone innovation. So I’d predict, in the next ~10 years or so, we’ll either see a luxury smartphone business start up[4] and stays in business, or we’ll see significant innovation in smartphones (something like 10x better batteries or other components).
Thanks to Jasmine Li, Jo Jiao, Desiree J, Jay Chooi, and the MATS 9 blogging and writing channel for reviewing drafts of this essay.
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I’ll note that books and movies might be a slight outlier here: centi-millionaires absolutely can pay or sponsor creative professionals to produce work that they specifically wish to exist. This might be explicit (contracting a director to make a specific film), but more likely this is implicit (funding a film studio, sponsoring an artwork, organising meet-and-greets with powerful donors).
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You might debate the precise duration of the stagnation, but the past 20 years of gas-powered car innovation is certainly less impressive than the last 20 years of mobile phone innovation.
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one that produces a smartphone ~10x more expensive than the most popular iPhone
There do in fact exist $100k iPhones marketed for the ultra-wealthy, see Vertu’s lineup. Their most expensive phone is $504k, and seems expensive mainly because they bejewel it with rubies, emeralds, and diamonds.
The stats for the phone are not mentioned, however they have GIA documents certifying their use of real diamonds.
Next is basically the same deal but with alligator skin.
Then we get more interesting. Their third most expensive phone is $110k which markets itself as the “World’s first AI agent phone for entrepreneurs”. Here are the specs
Eh, I don’t think this really disproves the OP (who mentions bejeweled iPhones as well). This isn’t really a “$100k phone”, it’s a normal $1k phone with $99k of jewelry tastelessly bolted on. You’re not getting a 50,000 mAh battery, a gaming GPU, and Wi-Fi 12 plus 6G support in a 300 gram package here. Which, indeed: why not?
The third most expensive phone, the $110k one, is not bejeweled and in fact seems like it is mostly so expensive because of its specs?
Edit: Oh actually looking up what the specs mean, maybe it’s so expensive just because of marketing.
Those aren’t iPhones, though, and I think the distinction is relevant in the context of the OP.
Here is a >$100k iphone I found by Caviar, it is $196k, and its primary value proposition seems to be the fact it has a Rolex glued to its back
Caviar is a company whose business model seems to be to bejewel iPhones and sell them to Russian oligarchs.
A side note: “Your strength as a rationalist is in your power to be more confused by fiction than reality”. I had also believed there weren’t any $100k iPhones, and was not convinced your explanation, and hypothesized the typical reason for such things: economies of scale. But then I sat down, had Claude look up the fixed costs associated with phone production, which turned out to be like $1B, which you could amortize over eg 100k of the richest individuals ($1e9/1e5 phones=$10,000/phone)! So then I figured such a company really ought to exist, I asked Claude if there existed any such phone company, and Claude mentioned Vertu!
Huh, this is interesting. I think there’s something missing in my original idea, because I feel like iPhone : Vertu :!: toyota : Bentley. The fact that the Vertu phone appears like a regular phone just bejeweled might be the difference, but I’m less sure now.
It’s possible that my prediction at the end of the essay (that there’d be luxury smartphones soon OR there’d be innovation) might just be arriving early. I’m unsure.
There are three cost sources: materials, design, and manufacturing. I claim that because phones are small and expensive to design it’s just not worth it.
Materials: Phones have very high $/kg already. At $5,000/kg, you could launch them to space and only double the cost. So unless there’s a better battery design made of pure gold, phones can already afford basically whatever materials are optimal. Even a $4 million hypercar costs less per kg than an iPhone Pro.
IP/design/software is zero marginal cost. It doesn’t make sense for companies to spend $10 billion designing an OS for its premium users only. Better to segment on hardware.
Manufacturing: Assembly just isn’t that expensive. As for components, it’s impossible to make a phone with chips more than one process node ahead than average. So you get $500 phones that are one node behind, and $1500 phones that are at the frontier and 20% faster, and that’s the limit.
I don’t really think progress being fast is quite sufficient to explain things. If every tripling in price could get you a 20% better phone, many people would pay for an 81x more expensive, 107% better phone just like they do for private jets. If it became obsolete in a year, the billionaire would have their phone guy replace it every six months. I think it’s because a phone, or gmail, starlink, etc. has super high fixed costs, and the smaller market for luxury goods generally means the design will be worse. For food or furniture better quality ingredients/materials can more than make up for it, but consumer electronics can only get slightly better components because most already designed things are within the cost/kg budget of a $1k phone.
Everything more expensive per kg than phones has an interesting way of funding their design costs without scale:
Military tech like fighter jets, radar systems: Cost mainly from r&d. The military demands highest performance and is a large market, spending 2-5% of GDP on fairly small volume
Pharmaceuticals: Cost mainly from r&d. Either large scale or literally lifesaving for rich people
Luxury watches: Practical benefits of a luxury watch are nil but people buy them anyway for status and wonder, essentially paying watchmakers to arrange titanium and rubies into ever more elaborate shapes that happen to tell time.
So my prediction would be that the luxury smartphone business only starts up when lots of rich people have different problems from the average consumer that need a custom device (security maybe?) or subscribe to a status game that results in the phone equivalent of luxury watches.
This would imply that luxury watches and luxury fashion don’t exist, which they do. (I see you mention the watches later in the comment, but not the fashion, although your explanation for luxury watches roughly applies to fashion as well).
I’ll agree here. I don’t think my theory fully explains certain things. Books, movies, and other creative works are things that don’t quite fit into this framework nicely. I suspect that these things are limited by creative innovation, but I’m not very certain about that belief.
The super-high-fixed-costs hypothesis would imply that we don’t have luxury watches, cars, jets. I suspect it is a factor in what causes a luxury good to come onto market, but I don’t think it can be the only factor.
I appreciate the concrete prediction, although I wouldn’t be surprised if these conditions are already met in some way. The ultra-wealthy definitely already need more security, privacy, etc than your average joe. And I believe that many of the ultra-wealthy already subscribe to status games.
Reminds me of the Andy Warhol quote about Coca-Cola.
price ratio from fine dining+private chef to prepack+fast food is ~1.5oom. Same for the price difference between annual new iPhone (~$1000/yr) and pentannual used Android (~$30/yr).
Most of these product categories you list seem to either be around this amount of variance, or luxury goods where the pricetag is the thing you pay for.
The biggest exceptions I see would be private jets, exclusive actually VIP concert stuff, lobbying, etc. And it seems that those types of goods which are inherently scarce, rather than industrializable like iPhones, have such ridiculous prices because lots of extremely wealthy wallets are chasing a small supply. (Private jets might be the exception? I suspect the same dynamic works there but I can’t fully work out the details in my head)
I disagree, I’d be very surprised if a full-time expensive private chef + ingredients + alcohol is only 30x more expensive than fast food.
alcohol is possibly cheating, because it’s not really food and an expensive luxury category of its own? (but even there, really, most of the wine all the way at the highest end is like $1000 for bottles you’d consume semi-regularly, and about $10 at the cheap end).
naively, fast food is about $30 a day (fast food is actually kinda expensive, i guess the cheapest things you can do, bulk beans and rice sorts of things, are about one OOM cheaper). i think $1000 a day is actually more than enough to afford an entire person to do skilled work all of the time, although you could push it upwards a bit more if they were truly elite at the thing that they do, but probably not one OOM more.
(accounting tends to get tricky up there because I imagine a big part of the value proposition for your worker past a certain point is a sort of security, access to other commodities/conveniences, connections, etc.)
but to the original point, i do really struggle to imagine how an iphone is meant to provide you more value. i think a lot of what an iphone is supposed to do for you in terms of productivity is better achieved by other means, and it’s hard to improve for entertainment at its form factor. as for signaling value, here are two websites that sell phone cases in the $10k range, as a sort of jewelry.
https://caviar.global/ https://leronza.com/24k-gold-luxury-samsung-galaxy-z-fold7/
i guess you could switch between these regularly, as with jewelry, to effectively recover another OOM.
This is an odd one out: both of them will tell you the time about equally well (as indeed will any phone). The purpose of a Rolex is fashion and/or status signalling.
The transport one includes “a custom Bentley” which is probably also mostly status signalling compared to a Range Rover or Tesla.
Most of the others seem to be material upgrades (e.g. a private chef lets you have tasty food every day, exactly to your tastes).
A $100k iPhone would struggle to set itself apart from a merely “good” iPhone in terms of material quality. (The standard way to scale up computers is usually by adding more computer, which quickly becomes too big to fit in one’s pocket.) I suspect the most relevant comparison would be the Rolex: it would do the same job a bit better, but mostly be for status signalling. Currently, nobody wants to status signal with their iPhone, so they choose not to.
I agree that the 100k Rolex (and most luxury goods) are all about status signalling. Even for the private chef, you certainly get higher-end private chefs which give the material upgrade as well as the status signalling.
This assumes current technology and no innovation
i think compute and networking speeds are honestly enough that most people struggle to take advantage of more of those things (streaming video is about the most data-intensive thing a lot of people do, and what’s above that is mostly actual computational tasks), so it would take (significant) additional innovations in figuring out how to convert these things into better experiences in order for this to be tenable. it seems a lot of the time that the line is usually drawn somewhere around gaming enthusiasts (e.g there is a cohort of people who will buy a more powerful smartphone so it can render graphics better so they can game on their phones more enjoyably, same for the display). this could be because economic incentives towards innovations in compute still favor commoditizable things, since compute is more generally useful (for the amount of work you could employ to make phones better for a small contingent of people who would buy them, you could just make some similarly advanced/complex system better for some industrial/trad-tech purpose and make way more money)
Tbf, there is some market for status signaling with customized iPhones in the $50-100k range, though it does look far more unconventional than Rolex
I would note that the Samsung Galaxy Z Fold7 is ~2.5k (1TB edition). A S25 Edge + S25 Ultra + Z Flip + Z Fold + 17 Pro + 17 Pro Max + Air + iPad Mini (cellular), all at highest specs, without losing your phone or buying Applecare, is $11,966/yr. Obviously, few people actually buy all of these, but I have met tons of people who have 3 or more of the above.
As a counter point, the cars in a billionaire’s garage aren’t just many different Toyotas with custom rims.
True. I’ve heard statistics that billionaires drive F-150s the most. Mass-market cars will have better software, reliability, etc. than sport brands, and I imagine that phones work the same. Of course, that still doesn’t address the fact that sport brands exist at all, which isn’t the case for phones. I do think, however, that I would have trouble thinking of a >5% improvement over owning the latest Pro/Pro Max/Air/Fold/Flip/Ultra/Mini phone with backups/regular replacement. My best guess is status via an artistic design?
I think you can get high-quality 100k smartphone which will be relevant for a long time, if you make it customized specificially for you. The problem is that customization is a labor from the side of the buyer and many people lack taste to perform such labor.
So the relevancy part (my bold) is probably more true today, but the top-of-the-line smartphones from the 2000s and early 2010s very clearly have not been relevant for a long time. I think smartphone innovation is slowing down, so it’s possible that today’s smartphone would be relevant for a longer time than those from previous years. But I think this is because of slowing innovation.
Asking for a $100k iPhone is like asking for a million-dollar Toyota Prius instead of a million-dollar car.
You can spend $100k on a smartphone if you really want, but it’s not going to be an iPhone because Apple doesn’t license out its OS for other manufacturers to use.
I disagree, there is no company that only builds >10k smart phones (from scratch, as opposed to taking someone else’s phones and adding expensive materials). Sure there are companies that will gold-plate your iPhone, but they’re not taking on the risk that innovations in smartphones would cause their luxury product to become worthless (since they can always gold-plate whatever the most recent innovation is).
i think there is a false premise assumed here. a lot of products are not luxury products because of superior quality that can be innovated past. it’s primarily raw signaling value, sort of fiated by the brand.
Did you check the link I gave?
The $100k threshold of the costs of a Super-Phone would imply that the cheapest phone should cost between $100 and $1k. However, the cost of the most primitive known phones is between $10 and $100, potentially implying that the most luxurious phones should cost $10k instead of $100k. Additionally, we had Jon Haidt’s allies recommend basic phones to kids (and to adults?) due to potential problems caused by smart phones.
I don’t think that the ratio from most expensive to least expensive is a constant as you are using it, I’d be very surprised if this ratio is the same for various different goods and services.