In microeconomics, the signifier of markets could be distinguished by different facts that a figure of providers, consumers, being of barriers to entry in the markets and in conclusion different services and goods being traded in those markets. In the existent universe, most of markets could non easy be explained by either perfect competition or monopoly. These markets in world are non absolutely competitory but competitory ; because they do non merely take a given market monetary values as houses in perfect competition, but besides some houses in these markets have a market power to make up one’s mind their monetary values as a monopoly house do. ( Parkin et al, 2008 ) MP3 participant market could be a good illustration which can be applied to this theory of monopolistic competitory market. It could be argued that MP3 participant market at the present clip, seems to be more oligopolistic that a little figure of houses have a big market portion harmonizing to Apple ‘s MP3 participant market portion. This essay will discourse what characteristics of MP3 participant market could hold to be described as monopolistic competition, how new entries of houses and merchandises to MP3 market would impact market portions and monetary values of incumbent houses and in conclusion what strategies as a springboard to keep and spread out net incomes of current MP3 maker houses can be used.
There are several cardinal factors of monopolistic competition that MP3 market differs from other market constructions such as monopoly and oligopoly. First of wholly, each house produces differentiated merchandises. Harmonizing to note2 on Blackboard, for illustration, a book and a MP3 participant are different merchandises ; they have wholly different intent. On the other manus, Apple and Samsung make different MP3 participants but which are designed for listening music. Those MP3 devices have different characteristics but have same or similar intent. It could intend that differentiated merchandises are close replacements each other but non a perfect replacement for the merchandises of viing houses by different design, quality and visual aspect. Therefore, the demand curve of their merchandise would be non really steep but a reasonably downward inclining demand curve. Besides, transverse monetary value snap of demand between two differentiated goods could be positive as it measures the sensitiveness of the demand for a merchandise Ten to alterations in the monetary value of another merchandise Y. For case, if one MP3 participant manufacturer decides to increase their market monetary value, the demand for other MP3 participants would increase as they are close replacements each other. However, it could ne’er make to zero or near zero, this is because they are non absolutely substitutes each other. Second factor is that, there are no entry barriers which determine houses to fall in and go forth the MP3 market freely. Since MP3 participants came out in 1998 with merely 32MB capacity, many MP3 makers have come to and exited the MP3 participant industry. Although, Apple has been covered over 60 % of universe MP3 device market portion from 2006, new entries such as Zune of Microsoft have joined into this industry with their ain different and alone merchandises. It could be issued that these entries have affected portion and monetary value of MP3 concern. ( http: //www.happle.org/etudes/happle-anglais_ipod.pdf, [ Accessed on 11th December ] )
In footings of the monopolistically competitory theory, houses in the market could do an economic net income in the short tally.
As can be seen from the graph from note 2 on Blackboard above, houses in monopolistic competition control their end product and decide monetary value in order to maximize their economic net income which can be calculated from the difference between monetary value of their goods and mean entire cost. This economic net income in the industry will promote new houses to come in the market without any limitations of the entry. These new entries will impact the market portion and monetary value of the officeholders. Therefore, the market will alter to be more competitory as the demand and the fringy gross for bing houses will switch to the left. Therefore, economic net income will cut down in the long tally finally. It can be illustrated from the figure 2 below
Therefore, it could be expected that as new houses and other generic goods will come in to the industry to take economic net incomes that current MP3 bring forthing companies already have. Sing theory above, it would switch Apple ‘s demand curve leftward and cut down their market portion as Figure 2 shows. However, Apple has still been basking the higher economic net income by bear downing high monetary values to their clients. Besides, its market portions are even more increased compared to 2004. On the other manus, other houses such as Microsoft, Samsung and other generic merchandises have less than 4 % of the MP3 participant market portion in the US in 2007. The saloon chart below demonstrates alterations in Apple ‘s MP3 participant market portion between 2004 and 2007 in the US.
( hypertext transfer protocol: //tech.fortune.cnn.com/2008/01/29/beyond-the-incredible-shrinking-ipod-market/ , [ Accessed on 11th December ] )
There are a twosome of grounds for these facts that Apple can continuously bear down high monetary values in their goods with keeping their market portions. One of the grounds could be its trade name name value. Unlike other generic merchandises which imitate expensive trade names viing on monetary value, many big companies create and spend money in order to bring forth a trade name image. It could supply information about the quality of a merchandise and an inducement to consumers. Peoples will utilize the trade name names as information which may incur committedness to pay for their merchandises. Furthermore, trade name name could take trade name client trueness. The trade name trueness could be defined as a individual who continues to buying and back uping the trade name. This changeless consumer may be willing to pay higher monetary value for a certain merchandise or service instead than purchasing a inexpensive generic merchandise because of a perceptual experience that branded MP3 participants are better than others. It could be said that Apple ‘s trade name trueness may be adequate to forestall their market portion from rivals. ( Parkin et al, 2008 ) Furthermore, a monopolistically competitory company may hold a house ‘s market power with snap of its goods. They could put their monetary value of goods without losing its clients and monetary value war with rivals. Firms in monopolistic competition sell differentiated merchandises, therefore challengers do non prosecute in their determination devising procedure. It might assist Apple to retain their high monetary value of iPod comparisons to other merchandises that have had a small impact on Apple ‘s monetary value.
However, Apple will non be certain that the economic net income from the MP3 participant market will be invariably given. As discussed above, there are no barriers to entry in monopolistic competition, hence it is expected that new houses and cheaper generic merchandises will still come in to this market to acquire the net income of officeholders. To forestall or protract the demand line of Apple ‘s merchandise displacements to the left, Apple has to come up with new schemes. The first and the foremost concern scheme is that Apple should maintain seeking to distinguish their merchandise comparison to rivals through important investing in research and invention. Customers could be drawn by developing devices, fresh characteristics and services that may be hard to happen in other MP3 participants. Actually, Apple has been making this for a important sum of clip. For illustration, there is no uncertainty that iTunes and iTunesMusicStore which sells a music file on the cyberspace are one of the successful development in MP3 participants industry. Since iTunes and iTunesMusicStore released in October 2003, they have been assisting Apple to remain the place of leader of the MP3 participants market with net income shrinkage.
( hypertext transfer protocol: //www.happle.org/etudes/happle-anglais_ipod.pdf, [ Accessed on 11th December ] ) Another concern scheme can be used by Apple in monopolistically competitory market is marketing and advertisement. Firms in monopolistic competition normally spend immense costs on selling and advertisement of its merchandise to carry clients to purchase their goods. Both of them are considered as a signal that will supply information about merchandise quality and denote the trade name name to purchasers. Apple set $ 501 million budget for advertisement in 2009. This had increased from $ 467 million and $ 486 million between 2007 and 2008. In fact, Apple has really been diminishing its ad disbursement every twelvemonth. A per centum of gross of Apple ‘s ad disbursal was about 5 % in 2005, but it decreased to 1.37 % in 2009. It does non intend that Apple makes a rebuff of the consequence of advertisement and selling. Some of possible grounds could explicate the ground for that. As an illustration, Apple normally tries to doing a originative ad that is memorable and impressive instead than being easy forgettable 1s. Apple has besides their ain best advertizement methods which are iTunes and iTunesMusicSotre. Hence, Apple does non necessitate an excess cost for ads. Furthermore, non surprisingly Apple took the twentieth most recognizable trade name name in the universe harmonizing to Interbrand ‘s 2009 study. ( http: //tech.fortune.cnn.com/2009/10/28/apples-2009-ad-budget-half-a-billion/ , [ Accessed on 11th December ] ) For that grounds, Apple can be said marketing their merchandise and the trade name name really good. These facts will assist Apple to increase the demand for iPod ‘s household and keep its market portion.
In decision, MP3 participant markets could perchance be described as a monopolistically competitory market, because of differentiated merchandises, close replacements and the absence of barriers to entry in the market. Despite of these fact, this market still seems to be more oligopoly at the present as Apple has been dominated the market as a leader place with over 70 % its market portion, nevertheless, no 1 can be certain that Apple will be one dominator of the MP3 participant market without any intuition. In footings of monopolistic competition theory, the monetary values and the market portion could be changed by new entries as the gross revenues addition and size of market is acquiring become broader. Therefore, Apple should maintain seeking their best schemes in order to accomplish the economic net income from the market at the right clip.