Sharp announced today that it's going to manufacture the world's sharpest display, a 5.5" IGZO screen with a 4K/UHD 3840 x 2160 resolution. The display has a pixel density of 806 PPI and will arrive in devices in 2016. [Samsung is another company that promised to smartphones with 4K displays (Korean).]
Not long ago, even the prospect of having a Full HD resolution on an ~5" display seemed quite unbelievable. Now, some are disappointed that new flagship smartphones such as the HTC One M9 come with "only" a 1080p screen (something that HTC fixed in the HTC One M9+, although it won't be available for sale in the Western markets).
Although devices that are 1440p or even 4K will look even more stunning, there are indeed diminishing returns benefits-wise as the cost, the power consumption, or the GPU resources required to handle such high resolutions are significantly higher than the previous generations.
That's not to say that a 4K display today will necessarily cost more than a 1440p display did last year, but it does cost significantly more than a 1440p display being sold this year. Although the price ratios for components may remain relatively the same for the new technologies inside a new smartphone, if the benefits are increasingly smaller, then there's an opportunity cost, as well.
For instance, the extra cost to get a 4K display over a 1440p display this year could be used instead towards improving the device's camera. (OEMs could use a sharper lens, a larger sensor, improved OIS, and so on.) This sort of balance should always be taken into consideration.
Sometimes the competition among OEMs to "one-up" each other causes some monotony in the market. Consumers like to have "better" components every year, but that becomes quite predictable after a while, and consumers can become less interested in upgrading their phones.
What they like even more is having exciting new components, such as when Apple added Touch ID or when Samsung began offering curved displays on its phones.
That doesn't mean higher resolution displays in smartphones are not useful. However, they could be even more useful for other applications; for example, 4K displays are ideal for VR. In order to have a VR experience that makes you completely forget you have a screen in front of your eyes, you'll need at least a 4K resolution screen.
Higher-resolution displays will also help lower the cost of lower resolution panels.There's another angle to the trend of higher-res displays to consider, though: If 4K displays become popular in high-end flagship devices, then 1440p and 1080p panels will be an even more common occurrence at the mid-range, while HD 720p displays should soon become the norm at the low-end -- even for devices that are less than $100 unsubsidized. And that's not a bad thing.