Game Theory Applied to iPhone 5 Redesign
Apple’s decision to make the iPhone 5’s connector port, the Lightening port, different than all their other previous Apple products ties a lot into Apple’s benefits as it makes their users happy now that the phone is skinnier and lighter, however making the users purchase all new accessories just for the new iPhone 5 may scare away some users. Thus this decision made by Apple ties into game theory in that their decision to change the body, not only affects Apple’s sales, but also their partner’s sales, or the companies that make accessories for the iPhone’s sales. Especially since Apple attempts to keep all their partners in the dark in terms of the redesigns; partners have to rely heavily on leaks and rumors as to whether there will be a major redesign with the new iPhone or not.
The decision for Apple to redesign the Lightening port on the new iPhone could have been thought of as a two person game involving Apple and Apple’s partners. Apple has the decision to redesign the body and port of the iPhone, or to not change it, and Apple’s partners have the decision to plan a redesign of their products/ make new accessories or wait for the iPhone to be introduced into the market first and then accommodate. In this game set, these decisions are supposed to be somewhat simultaneous. Obviously, Apple’s partners will eventually accommodate with whatever choice Apple decides to make in the end (ie. make new accessories if Apple does redesign the phone), but for this view, we are looking at the very beginning, before Apple has revealed their phone, thus Apple’s partners have to decide if they want to set up a factory with the intent to redesign their products or not.
Thus there are four different outcomes: both make redesigns; Apples redesigns the phone, and Apple’s partners decide not to initially make new accessories; Apple doesn’t change the design of the phone, and Apple’s partners plan for a redesign of new accessories; and Apple doesn’t change the design, and neither does its partners.
For the case where both make redesigns, both Apple and their partners are happy. In fact Apple’s partners will be very happy (like they are now), because they will have their products out and ready around the same time as the iPhone 5 comes out, and people will need to buy new accessories for their phone since the design has changed so much. Since the new iPhone is sleeker and lighter, people are more interested in buying them, thus both Apple and its partners are doing well.
For the case where Apple redesigns the phone and its partners decide not to come up with a redesign right away, both Apple and its partners are not as happy, or unhappy with the outcome. People would be happy to buy the new phone, but since there are not any accessories immediately available that work with the new phone, such as cases, speakers, and adapters, some people are more likely to wait until there are more options out in the market. And when Apple’s partners finally make and start selling their new products, they have to compete a lot more with Apple’s other partners who also are making accessories to sell in the market.
The case where Apple does not redesign the iPhone, and its partners plan for a redesign, results in an outcome where Apple is content, but its partners are not happy. This is a similar case as when the iPhone 4S came out. Apple sold a good amount due to the update in the software, however did not make as much because some users did not see enough of a benefit to change their phone from a iPhone 4 to the iPhone 4S. Apple’s partners were probably really unhappy as they invested in a lot of money setting up a factory to make the new accessories, only to find that the old versions of their accessories were just as good for the new phone. This ended up costing Apple’s partners a lot of money.
In the final case where Apple does not redesign the iPhone, and its partners do not plan for a redesign, the outcome would be that Apple is content, and Apple’s partners are content. Similar to the case where Apple does not do the redesign and its partners plan for the redesign, Apple will still sell a good amount of iPhones, just not a lot more. Apple’s partners however are happy because they did not have to invest as much time and money redesigning new accessories for the iPhone and they will sell more of the accessories that they already have as new users purchase the phone. They however would lose some sales too since other users with Apple products don’t have to purchase new accessories for their phone, and can just use their old ones.
Summary of the possible outcomes for redesigning the iPhone
Of the four outcomes, there are two outcomes that are Nash equilibriums: both Apple and its partners redesign their products, and neither Apple nor its partners redesign the products. Even if the information was leaked out as to whether one is planning on redesigning or not, neither can make the situation any better by themselves by switching their ideas, if they are in either of these two states. Apple does appear to have a slight dominant strategy of not redesigning the iPhone for this game setup, since there is no case when Apple will end up completely unhappy, however Apple does want to go for the redesign as much as possible since its other smart phone competitors are constantly updating their phones. Thus Apple’s dominant strategy, really is not much of a dominant strategy, and there is a higher probability of redesigning the iPhone than not, meaning there are also mixed Nash equilibria present. Because of this, Apple’s partners are constantly trying to figure out Apple’s plans for the new products and Apple benefits from letting some leaks come out such as whether there will be a redesign or not.
-el92
Apple had its special event out 9 days before the selling. In this case partners knew there was a new design and chose to redesign their accessories within 9 days to quickly update and make profit. Apple did this on purpose. Also Apple will know how many new iPhones they should make based on how many people pre-ordered the new iPhone. That’s why they need this 9-day period. It’s actually not exactly like the game theory we learned since they are not making decisions at the same time in this case. But your idea is in the right direction.