Mp3 Player Industry Monopolistic Competition

1 - Mp3 Player Industry Monopolistic Competition introduction. To what extent is the market for MP3 players an example of monopolistic competition? Show using diagrams the effects on the Apple iPod of increased competition from other firms successfully entering the market. Introduction The first Mp3 player was launched in the market in the late 90’s (Pham-Gia,2009). However it was due to the emergence of the Apple iPod in the Mp3 player industry in October 2001 which changed the niche market into a booming market.

Since then it has been a large and fast growing market with new firms entering and introducing innovative products to capitalize on the demand created for this product. In this essay we will analyse the market for Mp3 players. Part 1 of the essay deals with the monopolistic competitiveness of the Mp3 player market, where we will analyse the characteristics of the market and determine to what extent it is monopolistically competitive. Part 2 of this essay analyses the influence increasing competition has had on the Apple iPod.

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More Essay Examples on Monopoly Rubric

Is the market for MP3 players an example of Monopolistic Competition? According to the theory proposed by Edward Chamberlin in 1933 Monopolistic competition is a form imperfect competition which contains elements of both perfect competition and monopoly. This form of market structure arises when: * There are a large number of firms operating in the market. * The products sold by each firm differ from each other and are not prefect substitutes. * Low barriers to enter and exit the market.

While analyzing the market structure of Mp3 players it is evident that it displays characteristics of a monopolistically competitive market such as firstly the number of firms operating in this market is large, as per the data obtained from amazon. com it sells more than 300 different makes of Mp3 players and the companies producing them range from large global firms to small firms which are not very well renowned hence the existence of a pure monopoly or an oligopoly in this market is ruled out.

Secondly the website also shows the prices vary depending on the brands and features offered by it and every producer uses different operation strategy to create a brand loyalty for it product and claim to be better than its competitors by differing in its marketing, packaging, product design or any other feature to gain a competitive advantage displaying another important characteristic of monopolistic competition which is product differentiation and non-price competition. Thirdly Barriers to entry and exit the market is fairly low as there are a large number of firms operating.

The only barriers which exist are related to patent rights and high cost of R&D which is relatively common in monopolistic competition due to the existence of product differentiation. Effects on Apple iPod due to increasing competition In order to establish the effects of increasing competition on Apple iPod we have used Apple’s financial data which will help us analyze the changes which have taken place. In this analysis we can observe positive effects which have helped Apple iPod retain its dominance in the market and also some negative effects which is not desired by a business after dominating an industry for several years.

Fig 1. 1 In fig 1. 1 shows the market share of Apple iPod from 2002 to 2009 (money. cnn. com and afterdawn. com/news). The Mp3 player was launched by Apple in October 2001 and like any new innovation introduced in the market iPod started off slowly. It had various issues regarding compatibility which were resolved very quickly then began to show an upward trend in the market. It is evident that Apple’s iPod steady gained its market share from 2002 to 2009 and maintain a market share of over 70% from 2006 to 2009. This growth attracted various other firms such as Microsoft, Sony, Scandisk, Creative to name a few.

Still Apple succeeded in dominating the market through constant innovation of it products and providing its customers the latest technology before any of its competitors could. Another key to the success of Apple’s iPod is it introduced a wide range of products to cater all segments of the buyers. Hence it could be said that increasing competition encouraged Apple to constantly innovate and enhance its product rage through implementation of market segmentation to gain leverage. In order to determine the effect increasing competition has had on the sales of the

Apple iPod we will analyze the net sales report from the annual report obtained from the Apple website. Fig 1. 2 shows the net sales of Apple iPod from 2002 to 2010. It can be observed that the sales were showing an upward trend from 2002 ($143 million) to 2008 ($ 9,153 million) but due to more firms successfully entering the market and bring in new innovations the sales of the Apple iPod have begun to show a slight decline in 2009 ($8,091 million) and 2010 ($8,274 million). Fig 1. 2 Pricing of the product is another factor which is directly impacted by increasing competition.

In a monopolistically competitive market when a firm introduces a product in the market it tends to price it high in order to earn maximum profits in the short run. This profit which the firm earns attracts other firms to enter into the market. Now with many firms selling similar products in the market, the firm which initially introduced the product will be forced to reduce its prices in order to compete with the newer firms in the long run. (Parkin et al, 2000) In Fig 1. 3 the net sales per iPod unit sold (Apple annual report) is shown which will help us determine if the price of the iPod was effected new firms entering the market.

Fig 1. 3 The fig1. 3 clearly shows the net sales per unit sold has been constantly decreasing from 2004 ($296 per unit sold) to 2010 ($164 per unit sold). This means due to the number of competitors increasing over the period of time Apple iPod was forced to reduce its prices to sustain in the market Conclusion From the analysis of the Mp3 players market we can conclude that it can be considered as an example of a monopolistic competition to a great extent. It follows all the rules of the monopolistic competition theory.

Product differentiation being one of the most important elements of the monopolistic competition it is seen despite of new firms entering the market Apple iPod dominates the market using innovation as a key strength. However due to competition it is forced to reduce its prices to sustain in the market and is experiencing a decline in its sales, which is considered inevitable in theory of monopolistic competition.

References

1. Parkin, Michael. Powell, Melanie. Metthews, Kent. (2000) 4th edition, Economics, England: Addison-Wesley. 2. Eckaus, S. Richard. (1972), Basic Economics, USA: Little, Brown and Company. 3. Chamberlin, Edward. (1935), The Theory of Monopolistic Competition, England: Harvard University Press 4. http://books. google. co. uk/books? id=FlopJOHDWNIC&pg=PA12&dq=the+first+mp3+player+in+the+market&hl=en&ei=Fb77TIuoKsnChAfMqKTfCg&sa=X&oi=book_result&ct=book-thumbnail&resnum=2&ved=0CDUQ6wEwAQ#v=onepage&q=the%20first%20mp3%20player%20in%20the%20market&f=false 5. www. amazon. com 6. http://www. afterdawn. com/news/article. cfm/2009/09/09/ipod_market_share_at_73_8_percent_225_million_ipods_sold_mor e_games_for_touch_than_psp_nds_apple 7. http://phx. corporate-ir. net/phoenix. zhtml? c=107357&p=irol-reports 8. ttp://www. ilounge. com/index. php/articles/comments/instant-expert-a-brief-history-of-ipod/ 9. http://www. businessweek. com/technology/content/aug2002/tc20020827_7649. htm 10. http://money. cnn. com/2006/03/29/technology/apple_anniversary/? cnn=yes 11. http://japanfashionshanghai. up. seesaa. net/image/japanfashionshanghai-2010-07-06T12:32:54-6. %20in%202010. pdf 12. http://www. anderson. ucla. edu/faculty/dominique. hanssens/content/e-Sentiment%20as%20a%20Leading%20Indicator%20of%20Price%20Fluctuation. pdf 13. http://www. straightstocks. com/stock-watch/a-look-at-apples-aapl-ipod-business/

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