The regular price of an iPhone is $199 if you take a 2-year contract with AT&T, if you're willing to pay a lot more you can get one without a contract. An article in
InfoWorld mentions that:
"Freedom will come with a price — $599 for an 8GB device and $699 for a 16GB — but this will mark the first time consumers in the United States are able to buy an iPhone without being tied down to a two-year contract. The phone probably would still be locked for use only on AT&T's network, said Jupiter Research analyst Michael Gartenberg. But buyers could choose a pay-as-you-go plan for voice service."
So I buy a phone outright for $599 or $699, or I buy a phone for $199/$299 with a 2 year contract and a $36 activation fee. I can then cancel the contract immediately for $175, and end up owning an iPhone for $410 or $510.