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Market Structure of Apple

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Tue, 06 Jun 2017

Apple (I phone) is one of the multinational leading company introducing tremendous technology gadgets day by day. In all over the world, this UK based company has introduced its products. Recently, Apple has a pronouncement of development of “super tablet” computer. Market researches show that customers’ demands are high for this new technology item. Over the past seven years, Apple has seen great success due to its imaginative and fresh way to do the business. Through continuous innovation, Apple has developed a series of exceptional products with imaginative design and style. In modern technology innovations, Apple Inc. has made reasonable steps in the expansion of information technology world. This expansion also forced its few competitors to boom and survive in the market with due competition

In my points of view, Apple Inc. can be considered stand in difference market structures such as oligopoly and monopolistic competition. Apple Inc. maintains oligopoly market structure in the competition of smart phone brands announcements,but Apple Inc. is known as monopolistic competition in the branded computers. Monopolistic competition in which many sellers are producing highly differentiated products. Monopolistic competition is also known as monopsonistic competition. Monopsonistic competition describes the demand-side seems to be parallel and peer to the monopolistic competition on the supply side.

Some economist states that monopolistic competition is more realistic than perfect competition because products produced by the competitors are heterogeneous (non – homogenous). Imperfect competition does not operate under strict and stringent procedures of perfect competition. In this market scenario of imperfect competition, the entity enjoys the comfort of increasing the price in order to earn maximum profits. Apple Inc. sells the un–identical technology in the market. This enables them to survive in the market effectively and efficiently.

Compare to oligopoly, monopolistic competition has more competitors, thus the apple’s “super tablet” computer is considered as a monopolistic competition. Many other branded computer companies like Samsung, HTC and Dell are strong competitors that share a mobile and tablet computers market internationally. The sales revenue generated by such competitive companies is close enough to Apple inc. that keeps themselves stay competitive. As the name ensure, competitive industry of imperfect nature

Characteristics:

Monopolistic competitive market represents the following attributes:

  • There are many producers and many consumers in this approach. Thus, low concentration ratio. For example, the percentage of total sales of industry made by few significant sellers in the industry market.
  • Consumers perceive that there is non-price differences among the competitors’ products i.e. there isproduct differentiation. There is a high non price competition.
  • Producers have control over price- they are not “price takers” but the “price makers. This competitive edge provides the entity an opportunity to influence their economic periods.
  • There are fewbarriers to entry and exit. Unlike monopoly, there are no any restrictions to enter in the competitive environment. This means that the short run supernormal profit will bring other producers into the industry sector, and so normal profits only are made in the long run.
  • Apple Inc. executes and carries independent action. There is in mutual interdependence concept in the competitive companies.
  • All entities’ objective is to boost up their profits for a number of periods. And the customer tries to maximize welfare by their purchase form such companies.
  • One assumption in this type of market structure is that all the factors of production are mobile. If they are not consumed effectively and efficiently, they could move to any other place where they want to be to fulfill their aims.

Priority reason among Competitors:

Monopolistic competition (Imperfect competition) is the terminology for competitive markets that do not match the requirements of perfect competition. They are competitive, but they are imperfect. Many of the markets in real life can be considered as imperfect competition. Market structures with no competition (monopoly) are excluded. Each participant knows the strengths and weakness of its other competitors as well. Many markets operate among the few competitors. In such markets, a participant may gain advantage by offering a quality product that is just a little better than other competitors–not the best product but the little better product. Such competition usually leads to an efficient use of scarce resources. . High profits encourage the new competitors to enter in the market and those who faces losses, leave the market.

Imperfection and inefficiency

Sometimes, monopolistic competition cannot efficiently use their allocated sources. They become inefficient because they mostly depend on market control if any other competitor takes the higher rank by wonderful product introduction. Monopolistic competitive entities have modest level of market control whereas oligopolistic companies have strong degree of market control.

Analysis of Apple Inc. with other Competitive Companies

Apple has an “i” for revolutionary technology.Since its release, the company’s I‑Phone hasmade a revolutionarychange in the market of cell phones and mobile, tablet computing. One of its popular products, iPadtablet computerhasbecome another twirl change in thetechnology market. In past few years, it was stated that Samsung is a strong competitor to Apple Inc. and engaged in a rivalry relationship. Many economist crews said, Samsung will knock down the Apple Inc. and get the top position as a leading company in the modern era of technology.

Samsung is known as a company whose key strategy is to use economies of scale to gain a competitive advantage. Here is the comparison of both companies regarding their economies of scale that shows that a minor difference in the identical products introduced by Apple Inc. and Samsung may award the great profit to other:

Dichotomy in the makeup of Products

Apple gets its 15% market share with just three models of phones or tablets. While Samsung takes 30% of the market, it must produce 150 models of smart phones to do so. We can analyze that Apple averages 50 MU per handset model while Samsung averages just 2 MU per model. That’s a 25x difference!

More volume of products awards a cost advantages in electronics hardware to the competitive leader. Software development and maintenance becomes complex when it has to fix on a broad range of hardware items. It is amazing to compare that Samsung can depreciate the cost of 150 models of phones across 300 MU as profitably as Apple can amortize the cost of just 3 phones across 150 MU.

Short run Approach for Competitive Entities

In monopolistic competition, both Apple Inc. and Samsung can behave like monopoliesin the short run, including using market power to generate profit. In the short-run approach, both Apple Inc. and Samsung can normally gain some abnormal profit. But over the long run approach, other competitive companies shall enter in the market due to the low entry barriers. New entries will try to get the competitive edge on the existing companies and try to grab the significant market share in terms of profit. It is assumed that Short run is a time period in which at least one factor of production is fixed.

To earn maximum profits over Samsung, Apple Inc. should produce quantity Qs at price Ps. The firm produce the products where marginal cost (MC) and marginal revenue (MR) curves will meet, because MC is the cost of producing an one more (additional item) of the good and MR is the revenue of selling one more good and their intersecting point shall be most efficient production in favor of Apple Inc. This means that the shaded area between Ps, ACs (average production cost of one item at this defined quantity) and the AR curve (average revenue curve) is the abnormal profit that the Apple Inc will enjoy. AR is equivalent to the demand curve and is the average revenue the Apple Inc. will earn on sold of one item. Production on this point shall award maximum profits for the Apple Inc.

Thus, equilibrium is created in the short run. For maximum profit, Samsung or Apple Inc. both firms have to produce quantity of goods at point Qs where marginal revenue curve coincides with the marginal cost curve. If the company face losses in the short run, such company will quit from competition race and the remaining firms will meet the higher demands on the will of entities on price.

Whereas in the long run approach, it is impossible to earn abnormal profits because of the features and assumption of Monopolistic competition. There are a few large firms, but many small firms that will compete for profit and thus company shall be bound to deflate its prices to achieve targets. Another factor, other competitors of Apple Inc. and Samsung due to low entry barriers in the market structure will enter into the market and further add competition for market share. Finally, the goods are similar enough to ensure that competition will always remain high. The one, who makes slighter difference as said early, will earn maximum profits and achieve not only its primary objectives but the secondary also.

Part (b)

The price of items to be sold plays a key and vital role in establishing an efficient and effective allocation of resources in a market system. Price acts as a sign for surplus and deficit which assist the company respond to changing market conditions and field forces. Apple Inc. should consider the price of super tablets in order to achieve optimum benefits and positive result relevant to their economic concerns. Pricing also plays vital role as a competitive edge to help a business to extract market opportunities.

Theory of price describes that the market price will show intercourse between two opposing concepts. At one side are demand considerations depending on marginal utility; while on the other side are supply considerations that depend on marginal cost. An equilibrium price is supposed to be equal to marginal utility (counted in income units) from the consumer’s perspective and marginal cost from the seller’s side. Every economist accepts this viewpoint, and it defines the gist of economics mainstream, recently this concept has been challenged seriously.

Importance of Price in Apple Inc. Economy

In the given scenario, management of Apple Inc. has conducted a recent research for the new “super tablet” computer. Consumers demand seems to be high for this electronic item as per research results and the supply of super tablet is reduced, this will boost up the price.

Price stability of product in a long run approach may have also positive outcomes on the profits of Apple Inc. Price stability means to avoid the increase and decrease of that electronic item to be sold. Following points encourages avoids the negative results of economies of scale:

  • Price stability shall chip in to achieve high levels of economic activity ;
  • Increase the limpidity of the price mechanism of super tablet. People can find changes in relative prices (i.e. prices between different products and articles), without being untidy by changes in the overall price dimensions of competitors similar electronic items;
  • Encourage buyer to make high demands and to use his scarce resources more effectively and efficiently by comparisons with strong competitors;
  • Discourages useless exertion to draw barrier against the negative impact of inflation or deflation;
  • Avoids contortions of inflation or deflation, which can have worse impact on economic behavior of social security systems and taxation requirements;
  • Preventing an imperious division of wealth and income as a result of unexpected deflation or inflation.

Thus, price of super tablet charged by Apple Inc. is the most important business decisions management has to make for the achievement of budgeted profits.For example, unlike the other units of the marketing mix (product, place & promotion), pricing decisions affect the revenue or sales figure than the cost factor. Pricing also requires being congruent with the other elements of the marketing mix, since it shapes to the perception of a product by consumers. In short, setting a price of super tablet that may too high or too low will limit the growth of a business. At worst, it may result serious paradox for sales and cash flow of Apple Inc.

Market force Analysis in Long run approach

Market forces can be explained as way that the behavior of Apple Inc (seller) and buyers affects the price and wages levels, without any government intervention. Marketing mix (product, place and promotion) seems to be more important than price, and thus requires more attention of Apple Inc., but determining the price of “super tablet” is actually one of the most important decisions of management. This robust concept introduces the competitive forces in the market and ensures that innovation in the inventions of Apple Inc. in the form of “super tablet” is at the frontline of any industry policy.

In long run, demand and supply forces represents the whole influence on buyers and sellers on quantity and price of the super tablets offered in the market. In general,excessive demand may result increase in price and quantity, and excess supply causes it to fall. In particular, market researchers should examine changing patterns in customer demands which may show that a longer term change in economy is occurring. Changes that continue over a long term approach may be included as a portion of the business cycle of an economic period. When economic forces are restricted, supply and demand decides the prices of goods and Prices. As a result, force businesses what to produce; if people want more of a particular item, the price of the good rises.

Some of the advantages and disadvantages of market forces are entailed below:

Advantages:

  • Apple Inc. may produces a wide range of super tablets to meet the buyers’s wants
  • The market force responds instantly to consumer’s wants
  • Market system promotes the use of new and improved techniques and machines to produce improved version of super tablets

Disadvantages:

  • factors of production will be used if profit is earned at level required
  • the free market can fail to provide certain items due to inherent market limitations
  • the free market may promote the use of harmful goods that may result in litigation and claims
  • the production’s social effects and needs may be filtered
  • the market structure allocates more products to those buyers who are financially strong

When prices are not allowed to increase in comparison with market level, suppliers may not provide demanded “super tablet” computers as buyer want. In simple words, shortages of super tablet computers will be found in the market. These shortages become serious sometimes. Nevertheless, if prices set are low than market level, more consumers shall be able to buy the electronic item. When Apple Inc. management does not allow reducing their price from market level, suppliers may supply more electronic items than consumers needs.

Market gives necessary information for both seller and buyers to make important decisions for the daily market deals. This is a universal rule that we need things from others and others need things from us. Somehow, both the buyer and seller find their own equilibrium point.

Consequences if Apple Inc. fails to introduce Innovation

Objectives are the strategic goals of an entity. Conversion of goals into measurable targets is possible through a cataract process that flows from Company’s objectives, to planned business unit objectives, to operate plans for execution of a successful business. To survive in today’s competitive business era, organizations have to understand the factors that cause the entities to achieve their objectives efficiently and effectively.

A goal-management solution ensures that employee goals and objectives should corroborate with the vision, mission and strategic goals of the entire entity. Goal-management provides company with a technique to effectively and efficiently communicate entity’s goals and corporate objectives to each individual employed in the entire organization. Information Technology affects corporate challenges and creates opportunities and issues that management of an organization need to address in many aspects of their business to execute it in effective and efficient manner.

Instant changes in information technology have created a market, and a society, where information plays vital role for strong competition among competitors. For Apple Inc. its patent may be its software technology patents that are used as intangible assets. For most businesses, its information database is the most valuable and priceless commodities it owns.

It is mandatory for an organization to introduce change in its environment according to the market situation. In the same scenario, if Apple Inc. fails to meet changes of innovation and marketing, it may not only have worst impact on the economy of Apple Inc. but the going concern also affects. If Apple Inc. fails to achieve the innovation requirements in its products then it will have nothing to work towards. Following issues may arise if Apple Inc fails to meet marketing requirements and innovation in technology items:

  • Entity shall not be able to survive in market due to strong competitors
  • Low profits due to reduced revenues
  • Once a customer is diverted to other entity, it is difficult to bring him again
  • Chances of economic growth will become low

Here is the practical example of Nokia. What happened to Nokia, Reason is: Apple and Android ruined it. But the reasons for that failure are a bit more mysterious. Historically, after all, Nokia had been a surprisingly adaptive company; but shifting to new era create problem for its survival.

Some of the reasons are given below by the suitable research about their failure:

  • “They lost contact with their customers.” True, — and interesting to notice that this is the same Nokia company that in the early 2000s was applause to its customer responses.
  • “They failed to introduce the necessary technology requirements.” This might be the significant issue.
  • “They didn’t recognize that competition basis was shifting from the hardware to the ecosystem.” Not really true — the “ecosystem” battle was initiated in the early 2000s, with Nokia joining forces with Motorola, and Ericsson to create Symbian as a technological platform that kept the Microsoft at bay.

Bibliography

  1. PEP, CPB guru 2011, The importance of pricing power:
  2. Morningstar 2011, Pricing strong for Philip Morris in Q3, but volumes also encouraging
  3. W.W. | HOUSTON 2013, Market forces and appeals to fairness, New York times.
  4. Biz Arena,In Focus 2011, Role of Markets and Governments in managing the growth in Emerging/Developing Economies.

  5. Paul J. Bolster, S. G. Badrinath 1996, The role of market forces in EPA enforcement activity, Journal of Regulatory Economics, Volume 10,Issue 2,pp 165-181.

  6. Kondratenko, Anatoly, 2013 Probability Economics: Market Force in The Price Space.

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