The iPhone is exceptionally cheap compared to what a device with similar capability would have costed 5 or 10 years ago.

So, pricing is always relative to the existing technological level and competing offerings. Within a given technological age, Apple chose to always go after the upper third - quarter - or even tenth of the market. It's a strategy that brought them great fortunes, they don't compete on price, not even on capability per unit of price, they sell premium gadgets for those with high disposable income.