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Probably because they couldn't convince people that it was magical.

Why did the iPhone run at such a low resolution while Windows Mobile and Android phones were coming out with 3x more pixels? Yet when they increase the DPI game slightly, brand it as a Retina Display, you think they're innovative?

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It was a just bit more than a "slight" increase. I think Apple had been planning on being able to double it all along - hence the initially lower dpi. But of course they'll never say for sure.

I meant they accomplished a slight increase in DPI across the genre (not relative to the iPhone 3GS) -- a large number of phones that came out months earlier are within spitting distance of the iPhone 4's DPI, but it just was never a big deal.

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