Microeconomics

 Article Link: http://appleinsider.com/articles/13/05/17/10m-samsung-flagship-phones-in-28-days-a-record-5m-iphone-5-in-3-days-disappointing

 

Can you survive under a circumstance that without tablets or gadgets? Honestly, I can't. Also, most of the people can’t bear it too as the world is getting more high-tech than ever and it become a must to having it in our life. According to Woollaston (2013) states, “65% of people asked said they couldn't live without their gadgets and 53% admitted they're addicted,” from more than 2,570 adults across the UK, aged between 18 and 30. Likewise, Malaysia has the same problem as that survey is a sample of the entire world. Hence, the demand of electronic gadgets is increasing and the market become more competitive as it is profitable. For instance, Apple and Sumsung are both the most competitive at smartphone industry. Even though many news and articles are likely to compare on their sales result, operation ways, product functions and so forth, it’s still confusing for people choosing either Samsung or Apple’s smartphone.

Yet, this kind of situation didn’t occur before Sumsung contributes successfully at smartphone industry and Apple was like lord it over a district in the market. For instance, there wasn’t any competitor that able to fight with Apple as iPhone 3 was the best innovation in the smartphone industry. Hence, the quantity demand of iPhone 3 is high as it is unique and no further substitute goods. In this case, it shows a positive economic profit in short run which is price greater than average total cost. As it is making profit, new firms will entry to this industry due to the low barriers on entry on this market. Furthermore, others competitors will tend to copy and follow so this is how demand of Sumsung rises consistently and Apple faces the increasing competition in smartphone industry.

Other than Sumsung, Nokia, HTC, Sony and so forth also will influence the demand of iPhone and pull down Apple’s supernormal profit in long-run. The market is inefficient as price isn’t equal to marginal cost and marginal revenue and also, they do have the power to markup their price.

 

However, according to Francisco Dao (2013) states, “Apple was remaking itself into a premium brand, complete with stylized cathedral-like stores in the image of Louis Vuitton and Prada.” 

          Therefore, iPhone consider as a luxury goods which people will buy it disregarding the price and maybe other firm’s smartphone are actually cheaper and better functional. It illustrates a marginal social benefit greater than marginal social cost which means consumers are satisfied and no complain with the markup price since they value product variety. In turn, somehow, this market is still efficient.

According to Sloman, Wride and Garratt (2012), monopolistic competition should keep on innovating and producing new products. For instance, if a firm didn’t keep innovating new products by researching social demand or consumer’s needs, other firms will do so and they will find themselves making loss in business. In order to keep on making an economic profit, Apple innovates and releases new versions’ iPhone after one and other such as 3GS, 4 and 4S. While launching new generation iPhone, Apple lowered the price of old generation iPhone. However, this is not going to lead an increase on quantity demand of old generation iPhone but diminish the quantity demand decrease rapidly and dramatically. Here’s a sample and iPhone 5 should mirror it as well.

Unfortunately, Apple underestimates their competitors have been improved effectively (Slate News, 2013) . For example, Sumsung provides better smartphone which is Galaxy SIV with lower price and more functions. For Galaxy SIV, it involves eye scroll function, 13 megapixels, 5 inches screen, etc. (Samsung Galaxy S4, 2013) Meanwhile, Apple produces iPhone 5 with 4G data (which available in certain country and area), 8 megapixels, 4.87 inches screen, etc. (Apple Inc, 2013). According to Strategy Analytics (Brown, 2013) reports, “nowadays people tend to buy the smartphone with larger screen, megapixels and gigabytes than their existing handset.” Apparently, innovation of iPhone didn't as effective as Sumsung does. Thus, consumers tend to buy Galaxy SIV rather than iPhone 5 as it’s more sufficient. It leads a fall on demand of iPhone 5 and shift leftward in demand curve.

Other than consumers’ preferences, the underlying foundation of demand of iPhone also involved the increasing of population. Furthermore, as a survey from Woollaston (2013) clarifies, “nowadays people are necessary to have a smartphone as smartphone isn’t only essential because it create our lifestyles simple and also because we can perform better with it.” It will indirectly increase on quantity demanded of smartphone and it will lead a rises on quantity demanded of iPhone.



However, in china, it rises up the Sumsung users more than Apple users as evidence indicated that “after Sumsung becoming the smartphone market leader in China last year, it has reportedly broken records by shipping 12.5 million handsets in the first quarter of 2013, more than doubling sales of Apple's iPhone 5” (Apple Insider, 2013). Likewise, Malaysia has the same situation too. 

            Besides demand, Bordley and Mcdonald (1993) state, “a positive price elasticity of demand is associated with luxury goods,” which means price elasticity of demand for iPhone is elastic. But somehow, the price elasticity of demand for iPhone could be either elastic or inelastic. It’s depends on who the consumers are and what is their point of view of the iPhone. For example, consumers with high income will not conscious and care about the price when buying iPhone since the price wouldn’t affect them much. Therefore, the price elasticity of demand for iPhone 5 is inelastic for them and the demand curve is steeper.

In addition, income elasticity of demand of iPhone 5 is inelastic too as some consumers will buy the iPhone 5 regardless their income whether they are able to afford it. For instance, teenagers and adults that like to pursue the latest handset would emphasis the brand rather than the price. Also, due to the good qualities production, efficient services provided or consumers’ personal preferences, Apple has contributed their loyal customers or normally we call as fans that keep on buying every new version of iPhone during the first release period no matter how. The following picture shows how the situation when iPhone 5 first release at Malaysia.

        
       In contrast, consumers with low income will emphasis on the price of iPhone and it will lead a shift on demand curve when the price and income is either increasing or decreasing. In order to save cost, price and income elasticity of demand of iPhone 5 is elastic for them as they will seek to a substitute product if the price of iPhone 5 slightly increases. Besides, they will increase their revenue as demand of iPhone will rise after slightly decreased on the price.   

 

Nevertheless, both iPhone 5 and Galaxy SIV are perfect substitute products in monopolistic competition due to the survey from International Data Corporation (IDC) (Llamas, Reith and Shirer, 2013). Thus, when price of iPhone 5 slightly rises, quantity demanded of Galaxy SIV will increase which show a positive cross elasticity and the percentage change in quantity demanded (CPEoD) will be greater than zero (Moffatt, 2013).
 

Beside substitute product, sim card is the complement good of smartphone as a mobile phone need a sim card to make a phone call or send a message. In this case, quantity demanded of complement good depends on the price of product. For instance, if price of iPhone 5 increase, quantity demanded of sim card will decrease correspondingly which show a cross elasticity of demand for two complements is negative (Moffatt, 2013). 
 

In my opinion, smartphone market is a kind of misery as it’s hard to anticipate which incredible firm that will comes out with a fabulous innovation and a brand-new technology in anytime. As Toscano (2013) contributes a report about Brandcom’s CEO, McGregor, “they’re driving a kind of new innovation which is 5G Wi-Fi that enable twice the range and three times as fast but the battery lasts a lot longer.”  Based on my investigation, this is how the firm plans to profit and survive from increased competition in the smartphone market. Meanwhile, consumers will expect the launches of this cool smartphone and maybe the demand will be greater than Apple and Sumsung.

 

Reference List:

Apple Inc. (2013) iPhone. Apple [Online]. Available from: http://www.apple.com/iphone/specs.html [Accessed 06 June 2013].

 

Apple Insider (2013) Samsung Breaks Smartphone Sales Record in China for Q1, Doubles Apple’s Iphone.  [Online]. Available from: http://appleinsider.com/articles/13/05/27/samsung-breaks-smartphone-sales-record-in-china-for-q1-doubles-apples-iphone [Accessed 31 May 2013].

 

 

Bordley, R.F. and Mcdonald, J.B. (1993) Estimating Aggregate Automotive Income Elasticities from the Population Income-Share Elasticity. Journal of Business and Economic Statistics. 11(2), pp. 209-214.

 

 

Brown, P. (2013) Smartphone Size Preference on the Rise. Strategy Analytics [online]. Available from: http://www.strategyanalytics.com/default.aspx?mod=pressreleaseviewer&a0=5357 [Accessed 24 May 2013].

 

Dao, F. (2013) Louis Vuitton and the Apple Store. PandoDaily [Online]. Available from: http://pandodaily.com/2013/03/05/louis-vuitton-and-the-apple-store/ [Accessed 20 May 2013].

Dilger, D.R. (2013) 10M Samsung Flagship Phones in 28 Days a 'Record,' 5M iPhone 5 in 3 Days 'Disappointing'. Apple Insider [Online] Available from: http://appleinsider.com/articles/13/05/17/10m-samsung-flagship-phones-in-28-days-a-record-5m-iphone-5-in-3-days-disappointing [Accessed 06 June 2013]

Llamas, R., Reith R. and Shirer, M. (2013) Android and iOS Combine for 91.1% of the Worldwide Smartphone OS Market in 4Q12 and 87.6% for the Year. International Data Corporation [Online]. Available from: http://www.idc.com/getdoc.jsp?containerId=prUS23946013 [Accessed 27 May 2013].

 

Moffatt, M. (2013) Cross-Price Elasticity of Demand [Online] Available from: http://economics.about.com/cs/micfrohelp/a/cross_price_d.htm [Accessed 27 May 2013].

 

 

Samsung Galaxy S4 (2013) Specifications [Online]. Available from: http://www.samsung.com/global/microsite/galaxys4/ [Accessed 06 June 2013].

 

 

Slate News (2013) Apple Slashes Orders After Weak iPhone 5 Demand. YouTube [video]. 14 January. Available from: http://www.youtube.com/watch?v=KW130sx5Dm4 [Accessed 26 May 2013].

 

Sloman J., Wride, A. and Garratt, D. (2012) Economics. 8^th ed. London: Pearson Education.

 

Toscano P. (2013) This Is the Future for Smartphones: Broadcom CEO. CNBC [Online]. Available from: http://www.cnbc.com/id/100668859 [Accessed 06 June 2013].

 

Woollaston, V. (2013) 94% of UK Adults Would Rather Live Without Sex than Their Mobile Phone. Mail Online [Online]. Available from: http://www.dailymail.co.uk/sciencetech/article-2327831/94-UK-adults-live-sex-mobile-phone.html [Accessed 24 May 2013].