Since the launch of its first phone called iPhone, Apple has dominated the mobile market. It has been a trend setter and has attracted a large number of loyal customers who buy every product they launch. Some new companies such as Huawei is rising to the occasion and has started to give a competition to other small firms. In this essay it will be argued whether a trillion-dollar company, Apple will remain the dominating force and maintain its monopoly on mobile market or the consumers will switch to alternative products. In this essay comparison will be done between monopoly market and monopolistic market and their impacts. The impact on consumers and firms will be discussed. Characteristics of monopoly and monopolistic market will be explained.
Monopoly Market Structure
Characteristics of Monopoly Market
A monopoly is where a single firm controls the entire output of the industry this is called a pure monopoly. A monopoly can occur when a firm has a dominant position in terms of its market share. In the UK, for example, a legal monopoly is when a firm has more than 25% of the total market. A monopoly is protected from competition by the barriers to entry. The monopolist decides the price of the product since it has the market power. This makes the monopolist a price maker. Monopolists can sometimes use price discrimination, where they charge different prices on the same product for different consumers. This depends on market conditions. A profit-maximizing monopolist would choose the output where MC=MR. This output will be somewhere over the price range where demand is price elastic and will be sold at the price consumers will pay. If the total revenue is higher than the production costs, it will make abnormal profit. In monopoly, there is no distinction between the short run and the long run because of the barriers that prevent the entry of competitors.
Monopoly and Apple
Apple launched its first iPhone in 2007, it was the first phone which had Internet access, a music player and a touchscreen with an easy user interference. This made the phone an instant success. No other mobile phone manufacturer was selling a touch screen mobile phone and this gave the iPhone an edge and soon become one of the best-selling smartphones. This disrupted the mobile phone industry and the company which was ruling the mobile phone market, Nokia could not compete with it and declared bankruptcy. In the UK smartphone market, Apple is leading the way with a market share of 34% (Adams, 2019), this makes Apple a monopoly. When first iPhone was released, it was priced at £381 (Rackham, 2019) now the latest model is priced at £1,449 which is significantly more than the first model. However, Apple has still managed to sell it in large numbers thanks to its loyal customer base and its brand image, it has still managed to keep the monopoly status. For 10 years no other company has been able to take its monopoly status.
Monopolistic Competition Market Structure
Characteristics of Monopolistic Competition Market
Monopolistic competition is a market structure where there are many firms, differentiated products and few barriers to entry. There is a large number of buyers and sellers. Firms have some influence on the market price and are therefore price makers. Each firm has a slight degree of monopoly power in that it controls its own brand through quality and physical differences. In the short run, the profit maximizing firm will be seen to make abnormal profits. In time these will be competed away by the entry of new firms, which will shift the firm’s original demand curve to the left. This process will continue until all firms in the industry are making normal profit.
Monopolistic Competition and Huawei
In recent years a new company, Huawei has emerged as a competitor to Apple’s iPhone. In the last 24 months the market share of Huawei has tripled to 7% (Adams, 2019). The reason is Huawei is focusing to increase its volume growth at the low end. The strategy of selling millions of cheap phones has worked well for Huawei, this helped to experience strong growth in Europe (Pham, 2018). Huawei is adding more top-end features in its phones such as three cameras and as a result Huawei brand recognition is increasing in UK market (Choudhury, 2018). This is helping it to increase its sale revenue and become a profitable company in a very competitive market where there are a large number of companies selling phones, Huawei has distinguished its phones from the competitors with high end features and selling at a low price at which others cannot compete. This strategy has made other companies such as RIM go out of business.
Impacts of Market Structure
Impacts of Monopoly
Monopolies are companies just to make super normal profits. Since there are barriers to entry, monopolies charge high prices for their products. This makes their products unaffordable for many consumers and this reduces consumer surplus and this has negative impacts on the consumers. It restricts the choices for consumers by blocking other companies to enter the market. By paying high prices consumers lose purchasing power which means they have less money left to spend on other necessity goods. There are also external costs of monopolies, since it restricts the output, it generates less employment in the economy. This makes a less efficient economy and less productively efficient as well which results in market failure. Similarly, Apple charges a premium on its phones because it’s a monopoly and it has made its products as a status symbol.
Impacts of Monopolistic Competition
Monopolistic competition charge less for their products because there is a large number of companies competing for the market share. The monopolistic demand curve is more elastic since the products are not homogenous, there in differentiation among the products which creates diversity and more options for consumers to buy from. This make the market contestable and as a result it is more efficient than a monopoly and ore innovative in terms of new production process or new products. Similarly, Huawei keeps innovating and was the first brand to add three cameras in its phone which differentiated its products from other competitors and also helped in increasing sales. This increased Huawei’s market share in the UK market.
Assessment of Impacts
From the consumers point of view, monopolistic competition is better than monopoly. In monopolistic competition, because of a large number of companies competing for a small market share, it makes products price competitive and this benefits the consumers as they have more consumer surplus. This increases the purchasing power of consumers which is also beneficial for the economy as it will increase the employment. However, monopoly is best for the firms, due to barriers to entry monopoly firms charge high prices for their product and this reduces consumer surplus and the purchasing power.
Conclusion
In conclusion, a perfect market where demand equals supply is unrealistic. Nevertheless, monopolistic competition is close to perfect competition, firms compete with each other to get market share and increase their revenue which is beneficial for the consumers as this decreases the price and less prices means it increases consumers’ purchasing power. However, monopoly is beneficial for the firms, they can charge high prices for their products and due to barriers to entry it’s difficult to compete with them unless the government intervene and break the monopoly power. Monopoly firms’ objective is to make super normal profits where else monopolistic firms objective is survival.
References
Rackham, A . (2019) “How Apple's iPhone Has Changed Through the Years”. Retrieved December 1, 2019, from https://www.bbc.co.uk/news/newsbeat-47056309
Choudhury, S. (2018) “China’s Huawei Pulls Ahead of Apple to Become Number-Two Smartphone Seller in the World”. Retrieved December 3, 2019, from https://www.cnbc.com/2018/08/01/huawei-beats-apple-to-become-number-two-smartphone-seller.html
Pham, S. (2018) “Huawei Beats Apple in Smartphone Sales for the First Time”. Retrieved December 3, 2019, from https://money.cnn.com/2018/08/01/technology/huawei-apple-iphone-samsung/index.html
Adams, D. (2019) “Plateauing at the Peak”.
Bamford, C., & Grant, S. (2015). Economics. Cambridge: Cambridge University Press.