Purchasing an iPhone from my cell phone provider costs $799 for the 32gb 3Gs. The original 2G was $599 for the 8gb model. Since much of the hardware seems similar generation to generation, you would think the capital costs for producing the iPhone have largely been absorbed. The cost to produce an iPhone should be significantly less now then it was two years ago. So why is the iPhone not going down in price (as many electronics are)? Is it: a) persistently high component costs b) R&D costs (seems unlikely as upgrades year-to-year are mildly evolutionary, not revolutionary) c) Apple is in a monopoly situation and feels no need to lower prices, or d) something else entirely?