Question

Earlier, we discussed the concept of performing an ‘Environmental Analysis” on a firm, and an industry, and in doing so, we ASK, and try to ANSWER, “Questions A through F”---and G --- as they apply to that firm and that industry. So…… …………………… please apply Questions A through F --- ask Question A, then B, then C, then D, then E (the big one---barriers to entry!), then F…. to ONE OF THE FOLLOWING MARKETS:   1. Automobile retailing – that is, car dealerships   OR    2. The “smart phone” industry   OR 3. ANY PRODUCT (or service) THAT YOU CHOOSE! YOUR CHOICE! I DO NOT EXPECT PERFECT ANSWERS HERE!!!

A: What is the product (or service)? Please DEFINE the product (or service) by its traits and characteristics: what is it? What is it not? (cola does not equal milk). WHAT OTHER PRODUCTS (or services) COMPETE WITH OUR PRODUCT (or service)?

B. What is the PRICE of this product (or service)?

C. What is the RELEVANT MARKET for this product (or service)? Is it local? Regional? National? Global?

D. WHO ARE THE MAJOR SELLERS IN THIS MARKET? How large are they? Who competes with whom?

E. IF YOU WANTED TO START A BUSINESS IN THIS MARKET, WHAT BARRIERS TO ENTRY AND SUCCESS MUST YOU OVERCOME? Which barriers would be difficult to overcome? Which would be relatively easy to overcome, in theory? Please try to discuss between five and ten barriers, if possible.

F. Could you start a business in this market on a small scale, and succeed? Why or why not? Exactly what would you be ‘up against’? After answering questions A,B,C,D,E,and F… then and only then please answer question

G: which ‘market structure’ do firms in this industry find themselves in: Perfect competition? Monopolistic competition? Oligopoly? Or Monopoly? Why?

Answer 1

Sol:

A. The product that is chosen here is IPhone. Founded By the collaboration of Steve Jobs and Steve Wozniak the iPhone is a smartphone made by Apple that combines a computer, iPod, digital camera and cellular phone into one device with a touchscreen interface. The iPhone runs the iOS operating system (OS).

Following are the specifications of the first launched IPhone:

Apple iPhone smartphone was launched in June 2007. The phone comes with a 3.50-inch display with a resolution of 320x480 pixels. Apple iPhone is powered by a 412 MHz one-core processor. It comes with 128MB of RAM.

As far as the cameras are concerned, the Apple iPhone on the rear packs 2-megapixel camera.

Apple iPhone based on iOS 3 and packs 4GB of inbuilt storage. The Apple iPhone is a single SIM (GSM) smartphone that accepts a Regular-SIM card. The Apple iPhone measures 115.00 x 61.00 x 11.60mm (height x width x thickness) .

Connectivity options on the Apple iPhone include Wi-Fi. Sensors on the phone include accelerometer, ambient light sensor, barometer, gyroscope, proximity sensor, and compass/ magnetometer.

The competitors of IPhone are other smartphone brands. The top competitors are Samsung and Google.

B. The current price of the product is $143.55.

C. The current biggest market for IPhone is China. It holds more than 50% of global smartphone market. It has a global influence on the smartphone market.

D. The major seller in the smartphone market other than Apple IPhone are :

Samsung

Samsung is made up of 80 different businesses and affiliates, which are commercially and legaly independent but unified under a common umbrella.

Samsung has 4 Lakhs 90 thousand employees which even exceeds the total combined count of the employees of Apple and Google.

In terms of revenue, Samsung Electronics' revenue by quarter from 2011 to 2019 (in trillion KRW / billion U.S. dollars) In the third quarter of 2019, Samsung Electronics recorded revenues of around 62 trillion South Korean won, which amounted to approximately 51.5 billion U.S. dollars.

Among the most significant Apple products is the iPhone. As in the computer space, though, Apple has not completely dominated the market. Samsung, a South Korean company producing both personal computers and smartphones, is a major competitor, particularly for the iPhone. The Samsung Galaxy and Note series have been responsible for reductions in iPhone sales for many years. Today, Samsung has developed into one of the largest and most profitable companies, both in the Asian region and in the world overall.

There are many additional competitors which seek to target a small portion of Apple's services or products. Further, because the technology field is always changing and growing, there are frequently new companies entering the fray as well. With all of the competition, the consumer benefits from expanded innovation and lowered prices.

E.

The main barriers to entry in this industry are:

Economies of Scope and Economies of Scale

Consumer electronics with mass popularity are more susceptible to economies of scope and scale as barriers. Economies of scope give established firms an advantage because they can use their existing machines and facilities to launch new products. If an already existing smartphone company, wanted to launch a new device, the company could use its existing marketing staff, factories, and other facilities to support the launch. Any variable costs associated with the new product launch would be the same variable costs new firms face, but the overall cost per unit to the company would be lower since the new firm would be required to take on the fixed costs of salaried staff and leased space.

Economies of scale mean that an established company can easily produce and distribute a few more units of existing products cheaply because overhead costs, such as management and real estate, are spread over a large number of units. A small firm attempting to produce these same few units must divide overhead costs by its relatively small number of units, making each unit very costly to produce.

High Switching Costs and Brand Loyalty

In the electronics industry as a whole, high customer switching costs and brand loyalty are common barriers to entry. Naturally, occurring switching costs include the difficulty of learning to use a new company's products and installing new electronics in a company or home.

As in a lot of industries, brand loyalty keeps buyers coming back to a company with which they have positive associations, and new firms must invest heavily to match years of advertising and user experience.

Research, Development and Capital-Intensive Production

Research, development, and capital-intensive production are more typically the barriers to entry in the field of smartphones.

While consumers may accept generic and simple smartphones, businesses demand smartphones that are specialized in their industries – requiring more intensive research and development.

Existing firms have invested billions of dollars in developing patents and acquiring cutting-edge technology. New firms are forced to either license processes and technology from established firms or tie up capital in an attempt to match established firms' capabilities.

None of these barriers are easy to overcome. If you want to enter the smartphone industry you have to have a high capital budget. This is one of the most established industries int the current world. There is cut throat competiton and the well establishes giants make sure that no new competitors arise, and even if the enter they make sure that they don't survive in the market for long.

F. It would be a Herculean task to enter this market in small scale and succeed. This industry requires large capital and brand loyalty to succeed. The production process itself is a capital intensive task leave alone marketing and advertising. Also people are less willing to try new smartphones as they are more inclined towards well established and trusted firms. No one's going to choose your yesterday released product over Apple's Iphone or Samsung's S series. The barriers to entry in this industry are the exact reason why its so hard to succeed in this industry.

G. The smartphone industry finds themselves monopolistic competition market structure.

The reasons are:

Large number of buyers and sellers

There are large number offirms selling closely related, but not homogenous products.There are large number of buyers who have choices to buy from variety of goods.

Product Differentiation

The products of the sellers are differentiated but close substitutes of one another.