Question: When Apple made it difficult for third-party developers, it produced both hardware and software and profited both from the sale of the computers and from

When Apple made it difficult for third-party developers, it produced both hardware and software and profited both from the sale of the computers and from the sale of software for those computers. Since the hardware and software are complements, Apple priced each below its stand-alone profit-maximizing price. With the iPhone, Apple encouraged third party developers. As the software apps produced by these developers are complements to the iPhone, they make the iPhone more valuable, allowing Apple to raise its price. The relative value of the two strategies depends on how complementary software is to the hardware and the relative ability of third-party developers relative to Apple.

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