Market Structure Articles Analysis - Essay Example

?Introduction The article “The Power of the Platform at Apple” has been written by Steve Lohr and appeared in the New York Times on 29th Jan Though the article discusses as to how the so called platform strategy can provide comparative advantage to the firms in information technology market however, underlying, different themes and economic ideas have been discussed. The article is specifically about the Apple Inc- one of the leading consumer electronics companies in the world producing MP3 Players, tablet computers, desktops and other computers and consumer electronics goods. Though the strategy of the Apple has been discussed as the one which is based upon platform strategy however, the article focuses on how this industry or market works and who are the key players, how external events are affecting the firms and how prices are set up. What is also significant to understand that the article discusses how the services are packaged together with the goods to deliver a unique combination of offering to the consumers? This combination of selling the services and goods as the bundled products are changing the way traditionally goods and services are being offered. This article discusses also the strategies of the leading players in the market and how the competition between them is shaping the future of the industry. This paper will discuss the market structure described in the article, how the externalities, environmental policies as well as the public goods are being offered and finally how the production takes place and the relative costs associated with it. Market Structure This article discusses an industry which is an oligopoly in nature. Oligopoly is that form of market structure where the industry or the market is dominated by smaller number of sellers. (McEachern 2008). Since in oligopoly, there are smaller number of sellers therefore each participant in the market is aware of what other is doing and thus the decisions of one firm is either influenced by the decisions of other firms or its decision influence the players in the market. The overall strategic planning process of each of the player in the market therefore takes into account the actions and strategies of other players. (Bowles 2006). This article discusses as to how the Apple, through its products especially smartphones, MP3 players and tablet computers is influencing the market. It is also important to note that unlike other firms in the market, Apple is offering both the hardware as well as the software thus affecting and influencing the market from both the ends. It is also important to note that Apple and other producers in the market i.e. Microsoft and Google specially are the price setters in the market rather than price takers. Barriers to the entry in the market are high too owing to the high cost involved in the acquisition of sophisticated technology as well as economies of scales involved due to sheer production of number of units by each of the player in the market. Apple and other firms in the industry also seem to capture the long run profits thus ensuring that the new entrants into the market cannot access to the abnormal profits in the long run. This ability of the firms like Apple has allowed it to set higher prices for its products such as Apple IPAD and IPODs. Externalities, environmental policies and Public goods Public goods, in economics, are considered as the goods which are non-rival as well as non-excludable. Non-excludable goods are those goods which create the problems of so called free riders wherein once the goods are produced, it is almost impossible to exclude the people from using them even if they have not paid for it. Further, the non-rival nature of the goods suggests that the consumption of goods by one individual does not reduce the quantity available for consumption to other consumers. (Baumol and Blinder 2008). Considering the above clarifications in mind, it is important to note that the article has discussed that Apple and other companies in the market are offering free public goods. The case of Google is specially interesting because it is offering the products and services which are truly public goods in nature as their use is not dependent upon whether the person has paid for them or not. Further the use by consumer does not restrict the consumption of the same good by other consumers. It is also important to note that the rivalry between the firms and the production of the public goods is creating positive externalities for other players. The creation of positive externalities for other firms is really interesting in the sense that it allow other firms to actually imitate the success of market leaders and engage into the actions which take into account the actions already taken by the existing players. The article mentions the Google’s Android operating system which runs on the Smartphones as that of the Apple’s own operating system. Article has mentioned that the shipments of the phones using Google’s Android operating system is increasing and also beating the Apple produced phones. Though Google is considered as a late comer in this market as it followed the strategies and actions of Apple however, it has based its strategy on offering the free goods i.e. goods and services which can be used free of cost. It is also important to note that the positive externalities resulting due to providence of the public goods in this industry has resulted into the better product offering. For example, the author has discussed about Google about its entry into the software side of the product and mentioned that due to the better technological understanding as well as the low cost of production, the firm has been able to offer better product and its because of this reason that number of smartphones running on the Google’s operating system are increasing in the overall sales. In terms of public policy and the environmental impacts, since most of the products discussed in the article are virtual therefore both these factors may not be affecting the market players. Firm Production and Cost One of the essential characteristics of oligopoly is that the products offered by the firms in oligopoly can be either homogenous or differentiated. Under the oligopoly, the firms face kinked demand function wherein the relative price elasticity of the goods offered by the firms change above and below the kinked demand curve faced by the firms. Further, the degree of competition between the firms is mostly based upon the non-price competition and each firm with the ability to offer better non-price options can tend to capture the market very easily. Source: http://tutor2u.net/economics/content/topics/monopoly/kinked_demand.htm Though there exists no cartel in the industry defined in this article however, the overall supply decisions are still seem to be dominated by the suppliers. At the given price levels, Apple, tend to decide what it needs to produce and at what cost. What is interesting in this form of market structure is that firms are not colluding with each other to maximize the profits however, are competing in order to capture the further market. It is also because of this reason that the firm production decisions are based upon the marginal cost basis. The case of Apple is also different because unlike other firms in the market, it offers both the hardware and software component of the product it is offering along with allowing other software developers to sell and produce their applications which can be used on their handsets. The production and output decisions therefore are largely based upon the kinked demand curve model for oligopoly. (Boyes and Melvin 2007) Bibliography Baumol, William J., and Alan S. Blinder. Microeconomics: Principles and Policy. (London: Cengage Learning, 2008.) Bowles, Samuel. Microeconomics: behavior, institutions, and evolution. (Princeton: Princeton University Press, 2006.) Boyes, William, and Michael Melvin. Microeconomics. (London: Cengage Learning, 2007). McEachern, William A. Microeconomics: A Contemporary Introduction. (London: Cengage Learning, 2008). Read More