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It probably doesn't make sense to spend the time, money, and staff to develop/market a small phone for most of the manufacturers because the people that want a small phone will still buy a bigger phone if there isn't the option for a small one. They can spend less money and make the same number of sales.
Right I don’t doubt that the decision makes financial sense because I know several companies, most notably Apple, gave it a really sincere effort with enormous resources.
But it does show that even this last supposed benefit of hyper capitalism—consumer choice—is a bit of a lie. All TVs spy on you, it’s almost impossible to buy a small car in the US, even expensive clothes are made in the same cheap fast fashion factories, and on and on.
Yeah, the small car thing is a perfect parallel. The market doesn't necessarily fit preferences perfectly: instead, companies optimise for whatever MOST folks will buy that nets them the most money.
They make more money selling a large phone with a bigger sticker price and a bigger profit margin, so they make big phones. And the most phone-hungry people, power users, who buy a new phone every year or so, tend to buy big phones. So they cater to that group.
Think of it this way: when I bought my iPhone SE 2016 7 years ago, I cast maybe $100 of profit "vote" in the marketplace.
Every time someone buys a $1700 folding phone, they cast something between $500 and $1000 of profit "vote" in the marketplace. And they do that every year, not once every 7.
Of course, I'd be willing to spend a lot more on a really decent small phone. But nobody in the market has really experimented with that model yet. And it is admittedly harder to fit components into a smaller phone body (though not as hard as Apple would have you believe -- after all, the 14 and 15 literally takes up more space with a useless empty plastic SIM card spacer than the headphone jack used to take.
99% of the folks that want a particular phone will buy another one instead. Can't discount the bullheaded consumer (like me).