Supply and Demand in substitute products (cell phones) in our current time - Research Paper Example

? Supply and Demand in Substitute Products (cell phones) in Our Current Time Supply and Demand in Substitute Products (cell phones) in Our Current Time Introduction In the current world where price is a paramount factor, supply and demand of substitute products can be significantly influenced by changing customer interests. This paper will specifically analyze various factors affecting the supply and demand of cell phones with particular attention given to effects of macroeconomic events and global economy. Non-price Factors Influencing Demand and Supply A number of non-price factors such as government policies, technology, cost of production, and nature of the industry influence both the demand and supply in the cell phone industry. It seems that government policies can have a great influence on the demand and supply of cell phones. To illustrate, as Luo (2006) points out, if government imposes higher tax rates on cell phones, consumer demand for cell phones would decline whereas demand and supply would increase when the government sets favorable tax rates. Government policies regarding imports can also significantly affect the demand and supply in the cell phone industry. Similarly, as Pierskalla and Hollenbach (2013) point out, technology also plays an inevitable role determining the demand and supply of cell phone products. The industry analysts say that technological innovations can reduce the production costs of products like cell phones and this situation in turn would increase their demand and supply. In addition, advancements in technology would assist cell phone manufacturers to offer technologically improved products to customers and consequently the demand and supply would be improved. Evidently, cost of production is inversely related to demand and supply (Hortman, n.d.). When the cost of production increases, manufactures will be compelled to charge higher prices for their products and this in turn would lead to a decline in demand and supply. In emerging countries like China and India, labor costs are relatively low and therefore production costs can be notably reduced. According to Sugden (2022, P. 42), nature of the industry can influence the demand and supply to some extent. Today cell phones have become increasingly popular and therefore people consider it as a necessity product. As a result, the supply and demand of cell phones would remain to be stable regardless of small variations in price. Degree of Competitiveness Degree of competitiveness is very high in the cell phone industry because there are numerous potential players like Nokia, Samsung, LG, and Sony operating in this sector (see Figure 1). Price competition is very common in the cell phone industry because every marketer tries to improve the demand and supply of his products in order to obtain an edge over competitors by taking advantages of price sensitivity of modern customers. Therefore, a cell phone marketer cannot sustain in the industry if he fixes prices above the par industry prices. In addition, cell phone companies compete based on technology also. To illustrate, today cell phone marketers integrate technological features like video facility, high MP cameras, Wi-Fi, Bluetooth, GPRS, dual sim, external memory into their products with intent to retain customer interests. In order to address the intense market competition, the firm’s managers should particularly try to keep their labor costs and material costs low and thereby minimize costs of production. For this, managers need to establish their production plants in countries where cost of raw materials and labor is relatively low. Effects of Macroeconomic Events A decline in the relative value of the US dollar can have a significant impact on the demand and supply of cell phones. Evidently a declining value of the US dollar would directly lead to an increase in US import prices (Effects of a Falling Dollar). It is clear that the US cell phone market is dominated by foreign companies and hence a fall in the relative value of the dollar will cause an increase the import prices of cell phones. As a result, there will be a rise in the market prices of cell phones and this situation may negatively affect consumer demand. At the same time, the fall in the interest rates would promote the demand for cell phones because the decreased interest rates can assist firms to reduce their operating expenses and hence set attractive prices for their products. Finally, a fall in the price of oil can be beneficial to cut down production costs and transportation expenses. Hence, companies can price their products cheaply in order to take advantages of higher market demand. Impacts of the Global Economy Undoubtedly, the global economy can greatly influence the cell phone industry. The global economy is fast recovering from the shock of the recent global recession. In this context, investors are interested in making huge investments in order to take greater advantages of the improving market environment. Similarly, customers who had put off their purchase activities during the recession period are becoming active in the market. As a result, demand and supply of cell phones are increasing and hence the cell phone industry is growing at a faster pace. Market analysts assert that fluctuations in the global economy can significantly impact the demand and supply in the cell phone industry. To illustrate, variations in the foreign exchange rates play a notable role in determining the demand in the cell phone sector. Recommendations It is recommendable for investors to make potential investments in the cell phone firms/industry in order to reap the benefits of a growing market. As discussed already, the global cell phone market is fast recovering from the recent global financial turmoil and this industry maintains excellent growth rates in the newly emerging economies like China and India. Furthermore, today people are extremely interested in the fast developing cell phone market because technological innovations have entirely changed the face of the cell phone industry. More clearly, customers obtain technologically improved cell phones at cheaper costs due to some recent explosive advancement in technology. In short, cell phone industry has high growth potential today and hence it is reasonable to invest in this sector. Conclusion From the above discussion, it is clear that non-price factors such as government policies and technology affect the demand and supply in the cell phone industry. Intensity of competition is very high in the cell phone market. Macroeconomic events like declining value of US dollar and falling interest rates can have also a notable influence on cell phone sector. Finally, global economy may also impact the demand and supply in the cell phone industry. References Effects of a Falling Dollar. Economics.help. Retrieved from http://www.economicshelp.org/macroeconomics/macroessays/effects-falling-dollar.html Hartman, D. Production Cost Increases & the Demand Curve. Chron. Retrieved fromhttp://smallbusiness.chron.com/production-cost-increases-demand-curve-13595.html Luo, J. (2006). the impact of government policies on industrial revolution: The case of China’s automotive industry. Masachussets Institute of Technology. Retrieved from http://polisci.duke.edu/uploads/media_items/technology-collectiveactioncellphoneviolence.original.pdf Pierskalla, J. S & Hollenbach, F. M. (2013). Technology and Collective Action: The Effect of Cell Phone Coverage on Political Violence in Africa. American Political Science Review, doi:10.1017/S0003055413000075. Retrieved fromhttp://polisci.duke.edu/uploads/media_items/technology-collectiveactioncellphoneviolence.original.pdf Sugden, R. (2002). Industrial Economic Regulation: A Framework and Exploration. Routledge Appendix Figure 1 (Source: Daniel. 14 Jul 2011). Four years of disruption: cell phone industry financials 2007-2011. Retrieved from http://www.phonearena.com/news/Four-years-of-disruption-cell-phone-industry-financials-2007-2011_id20153 Read More