Competition in Smartphone Markets - Essay Example

?Competition in Smartphone Markets A Smartphone is a gadget providing more functions than a basic phone provides. The gadget is like a mini-computer because of its embedded operating systems just like a computer. Furthermore, the device has wireless connectivity, (WI-FI), in-built cameras with high resolution and web browsers that can show web pages like web pages viewed on computer web browsers. Additionally, smart phones have a central processing unit (CPU) like the one used in a computer. Smart phones in the market have different characteristics from colour, weight, screen size, camera quality, operating system and CPU speed. Apart from the basic characteristics of phones as mentioned above, smartphones come with different operating systems. The most featured operating systems in the market used by smart phones are Android, Windows mobile, Blackberry, Linux and IOS. Furthermore, the companies that manufacture the above mentioned phones have differences bases on the type of operating system and brand names used. For example, smart phones manufactured by Samsung use the Android operating system, HTC and Nokia use Windows operating system while Apple manufactured phones are embedded with the IOS operating system. From the above features of smartphones, it is clear that smartphones falls into monopolistic competition (Taylor 2013). According to Arnold (2011), the products sold by the different competitors usually have close substitutes. Close substitute products have greater unity of close elasticity. Another characteristic showing that the smartphones mentioned above fall into the monopolistic competition category is the use of brand name by each company to name the product. This feature makes the product be the only one in the market identified by the name. According to the author, monopolistic competition is favoured by the strict laws governing the brand names of the products. This means that other firms cannot manufacture and sell the products of other firms. This feature of brand name is a value to monopolistic competitors because they can decide on the price of the product, the number of units they can manufacture and the units of the branded product they can provide to its customers. This fact can be evidenced by the mentioned Smartphones. For example, Samsung manufactures and sell its products, no other company can make Samsung products. This gives the company a chance to be in the monopolistic competition market. Development of monopolistic competitors in markets is driven by the profits that other firms are making in the market. Firms can make high profits normally called super normal profits based on the brands of their products that make the customers to be loyal to them. The following model shows monopolistic firms making super normal profits (Arnold, 2010). Super normal profits made by monopolistic competitors are indicated by the rectangle PXYZ. The super normal profits arise because the firm is making products of quantity OQ where the profit is at a maximum. This is indicated by the intersection of MC and MR where MR=MC. The price of the products is shown by OP and this is dictated by the demand curve AR. The intersection of MR and MC gives an equilibrium price XQ. The equilibrium price is greater than the average cost indicated by YQ. The supernormal profits are indicated by XY that is the difference between XQ and YQ. To get the total super normal profits, XY is multiplied by PX and the result is the area of the shaded region. Clear analysis of the above graph shows that the price charged (P) is above the average cost (Arnold 2011). The above representation when integrated on one of the smartphones firms will attract other firms to the market. This is because it is free to enter into the market and the firms are motivated by the profits which a firm in the market is making because the graph is sloping downward. The entrance of other firms to the market makes changes in the economic model. In this analysis Apple, the Smartphone maker of the iPhone, is used as a monopolistic competitor in the market. The profit which is made by the company is shown on the graph. The profit is just for a short-run. In the long-run, other competitors enter the market. Samsung is used in this analysis as a new competitor in the market because they market differentiated products. The iPhone maker still makes profits because it is favored by network externalities. Samsung and iPhone are two major competitors in the mobile industry. The iPhone has been able to stay in market due to network externalities. Network externalities relate to the benefits achieved by the users joining already large networks because they see the usage of the product by more people. For example, the iPhone has been able to retain a certain share of the market in the United States because of network externalities (Hall & Lieberman 2013). The existence of iPhone in the market is because customers still value the product. The product has been able to provide certain features like longer battery life, best photo quality and wider screens as compared to other competitors. Additionally, more people Unite States are using the product since they find it easy to make use of the features provided by the iPhone. They are able to share photos with friends using the same type of phone. They can also solve technical problems with the help of close friends or vendors (Shih et al 2010). However, there is a close rival which has been evolving lately. Samsung has grown to be the biggest seller of smart phones in the market. Despite the network externalities which have been protecting the iPhone, Samsung has been able to penetrate the market and take over a considerable percentage of the market share. The growth of Samsung smart phones is because it manufactures a wide variety of smart phones with different prices for different levels of markets. For example, depending on the income level, one can acquire different types of Samsung smart phone. Individuals with lower can acquire the Samsung Galaxy Y or Galaxy ace. Samsung SII, Samsung Note to Samsung S4 can follow depending on the level of income. Therefore, the profits of the iPhone diminish, as can be explained clearly on the graph below. The above graph shows the profits made by monopolistic firms in the long-run after entrance of other firms to the market. Q represents the long-run quantity and MR is the marginal revenue. The slope of the MR is twice the slope of the demand curve D. The average total cost represented by ATC is a tangent to the demand curve at point O. Since the price (P) is equal to ATC, the firm makes zero economic profits. The reason is that the demand curve shifts to the left but the process moves slowly till economic profits are zero (Arnold 2011). This happens to the iPhone on the entrance of the competitor, Samsung, to the market. The competition will shift the operating system platform. The two companies use different operating system platform; iPhones smartphones run on the IOS operating system while Samsung smartphones use the Android operating system. Earlier on this paper it is revealed that smartphones have small differences in relation to features of phones like camera capability, speed of the processor, internal and RAM memory capacity and screen display. This difference makes a small change in customer taste. Therefore shifts move to OS platforms. In this analysis, the iPhone 5s and Samsung S4 are used to explain the difference made by the companies to stay on top of the competition. The smartphone iPhone 5s runs on iOS 7 which provides special features like multi-tasking. This feature allows the user to run two applications at the same time. Furthermore, the company provides an application store for downloading software. A user can purchase or get for free different applications from the app store. Furthermore, the smartphone provides other features like finger print readers. This feature enables the user to unlock the phone or obtain music by touching the screen since the screen has a sensor that can read a finger. Such features enable iPhone smartphones to stay in the market and make reasonable profits (Shih et al 2010). However, Samsung also offers similar capabilities like multitasking; though there are differences in terms of keyboards; both smart phones offer word prediction when typing on the keyboard. The difference is data requirement by Apple smartphones to get word prediction; the Samsung S4 uses offline word prediction (Davies 2012). Furthermore, Samsung S4, which operates on Android OS, has more special features like motion sensitivity. One can read text by waving the hand on screen to move to the next paragraph. The competition between the two rivals based on the Operating System platform allows them to stay on top in the market because network externalities play a key role. Customer goes for Apple smart phone because of special features the phone has same applies to Samsung smart phone (Shih et al 2010). Conclusion The study of Smartphones in the market shows that competition at the beginning was based on the make and physical features of phone like the camera and screen size. But because of entrance of competitors offering the same products with small difference, firms have lost share in the market and made unreasonable profits but to small extent because of network externalities. Network externalities has favored smartphone makers like Apple. Consumers purchase the product because others have the same product. Firms have shifted the competition to operating system platform by studying the users and investing on innovation. The study has also shown that firms determine the cost of their products number of customers obtaining their products. References Arnold, A, R, 2010, Economics, Cengage Learning, USA. Davies, C, 2012, Android 4.1 Jelly Bean adds Offline Voice Typing, viewed 05 December 2013, < http://www.slashgear.com/android-4-1-jelly-bean-adds-offline-voice-typing-27235871/>. Hall, E, R & Lieberman, M, 2013, Economics, 6ed, Cengage Learning, USA. Shih, G, Lakhani, P. & Nagy, P, 2010, "Is Android or iPhone the Platform for Innovation in Imaging Informatics", Journal of Digital Imaging, vol. 23, no. 1, pp. 2-7. Taylor, B, 2013, The Top 10 Smartphones on the Market, viewed 05 December 2013, . Read More