Replacement costs more than a new one?

My daughter has had a 3G for about a year. Some months ago she dropped it and the screen smashed—looks like a broken windshield. Does it make sense to anyone that a replacement will cost her (me) $199 when they're selling new ones for $99? I don't get it.

AT&T's subsidized price has been lowered for the 3G 8GB, which will be the only 3G version available since the 3GS was released. Only new subscribers or existing subscribers who qualify for AT&T's upgrade or fully subsidized price with a new phone can purchase the 3G 8GB at AT&T's fully subsidized or discounted price, which was lowered after the 3GS was released, and requires a new two year contract for the subsidy that AT&T pays Apple on the buyer's behalf.
When your daughter's 3G was purchased, it was purchased at AT&T's fully subsidized or discounted price. Most subscribers don't qualify for AT&T's fully subsidized or discounted price with a new phone until month 18 or so with their existing 24 month contract for a subsidy received for an existing phone.
If Apple did not offer a discounted "repair" price which pays for an exchange for out of warranty or not covered under warranty damage, the full retail non-subsidized price for a new iPhone would be much higher - at least $200 more depending on if she has an 8GB or a 16GB.

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