the first iPhone (2007) cost $499 and the second iPhone, iPhone 3g (2008), cost $199. while the 3g support and App Store helped, I think the much lower price led to volume increase from 1.39M to 11.63M YoY.
They actually cost the same the behind the scenes the difference was the subsidy was available by the time the 3G came out when it wasn’t available at lunch.