A 1000$ iPhone over 5 years is 17$/month, is it worth 17x as much as a free tier LLM?

For most people yes. Also many people are spending for less than 1000$ for their phones.

People pay for the perceived value. If apple started by giving away iPhones they would balk at paying that much for them too. It's also very well know that free to anything is much harder than increasing the price

It's not only that they're stupid, it's the fact that maybe they don't really need it. Do they really need an iPhone? in a sense, yes, since the alternative still means spending a good amount of money and in no way they can do without a phone.

The LLM usually provides negative value tho. Unlike the iPhone which can theoretically play mobile games.

The iphone is worth infinitely more because every time I ask it for some information it returns for me the fact I asked for, no hallucinations.