Does Apple stand a chance? | Economics in Plain English

Nov 17 2007

Does Apple stand a chance?

China Mobile negotiating with Apple to carry iPhone

Try try as he might, Steve Jobs and Apple can barely launch their hottest new product, the iPhone, before the Chinese have copied it and put a knockoff on the market as quickly as you can say “can you hear me now?” But what is Apple doing making a cell phone anyway? Isn’t the mobile phone market pretty much dominated by a few big name companies already? How will apple ever survive in a market with such well established firms as Nokia, Samsung, and Motorola?

The answer is through product differentiation. The iPhone is truly an innovative little gadget. More than an MP3 player, more than a cell phone, the iPhone has features that differentiate it from most products available from the established firms in the mobile phone market. Like any firm, Apple advertises its iPod through commercials and other media in order to inform consumers about what makes its product special. What message does the following advertisement send about the iPhone?

[youtube]http://www.youtube.com/watch?v=2k3zvI2tyPM[/youtube]

The table below shows the market shares of the larges mobile phone makers as of late last year (before the release of the iPhone). A simple calculation finds that the four firm concentration ratio in the mobile market was 75.6%, clearly putting the market in the realm of an oligopoly (a market in which the four firm concentration ration is 40%).

source: http://www.swivel.com/graphs/show/5071535?per_page=50

With 75% of the market being controlled by Nokia, Motorola, Samsung and Sony Ericsson, the question arises whether Apple will be able to overcome the barriers to entry in the mobile market and establish itself as one of the big boys. Apple’s strategy for profits and market penetration certainly leverages the power of product differentiation and non-price competition, both firm behaviors common among firms in oligopolistic markets.

To make matters worse for Apple, only months after the iPhones release, and in the midst of negotiations between Apple and China Mobile to officially launch the product in China, a cheap, 4 GB knock-off of the fancy device comes along to entice Chinese consumers away from the 5,000 RMB (nearly $700) real deal. Check this thing out… would you be able to tell the difference?

Discussion Questions:

  1. What barriers to entry exist in the market for mobile phones?
  2. Why do you think so few firms produce mobile phones?
  3. Do you think Apple will be able to successfully penetrate the mobile market?
  4. What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

167 responses so far

167 Responses to “Does Apple stand a chance?”

  1. rkangon 12 Feb 2013 at 4:08 am

    What barriers to entry exist in the market for mobile phones?
    – New mobile phones would have a hard time getting their brand name out to the public. They will be simply overshadowed by larger companies like Apple and Samsung. It is practically impossible for smaller firms to enter such market unless they have a revolutionary idea.

    Why do you think so few firms produce mobile phones?
    – I think it is because of the larger firms killing off or buying out the smaller firms. Larger firms can sometimes act as a monopoly even if they actually aren’t. Samsung can buy smaller firms to prevent the chances of another competitor arising. Or sometimes, larger firms even wipe out smaller firms by creating better products.

    Do you think Apple will be able to successfully penetrate the mobile market?
    – Apple is already a very successful company in the mobile market. Most of their revenue comes from their I-Phones. I can’t imagine what other smaller firms have to do to stay in par of Apple.

    What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    – It is natural for people to make “knock-offs” of very successful products. In this case, the knock offs of I Phones are a lot cheaper and still function in the same way as an I Phone.

  2. rkangon 12 Feb 2013 at 4:11 am

    #tlee

    It is almost impossible for these smaller firms to come even close to Apple and Samsung. These companies have been developing their tech gear for many years to get to this point. Over the many years, they have developed a trust between their company and its consumers. Many people trust that Apple will supply high quality phones to people are convinced to buy it for large amounts of money.

    Like I said earlier, the only way for these smaller firms to make it big is to create a revolutionary idea that replaces the common phone.

  3. avonwendorffon 12 Feb 2013 at 5:49 am

    What barriers to entry exist in the market for mobile phones?

    There are many barriers of entry evident in the market for mobile phones. Legal restrictions are evident in patents that Apple and Samsung for instance are currently in court over. Non-price competition is definitely a big part of the industry as well. Apple runs a very successful marketing and advertisement campaign which increases the demand of iPhones.

    Why do you think so few firms produce mobile phones?

    I believe that it is difficult to enter the market of mobile phone. Mobile phones require investment of capital in order to create an efficient and innovative product. This would create product differentiation, and therefore increase demand for the new firm’s mobile device. However, few firms have the ability or capital to invent new devices or to advertise, and therefore the market remains an oligopoly.

    Do you think Apple will be able to successfully penetrate the mobile market?

    Yes, I think the innovation, exclusivity, and advertisement of the iPhone is the reason that it is so popular. The innovations of the iPhone made it unique as a product, and this made it exclusive because few people had it, and everyone wanted it. The great, modern advertising techniques enhance this.

    What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?

    I think that the fake iPhones pose serious threats to the demand of the iPhone. As shown by the video, the fake and true iPhones look remarkably similar. Some customers might purchase the fake iPhone, thereby drawing a small market share away from Apple. Not all customers will realize this and not all customers will chose to buy real iPhones once they do realize it. Therefore, Apple will lose profits.

  4. avonwendorffon 12 Feb 2013 at 5:52 am

    Hi # david.yoo
    I thought you brought out a good point in mentioning customer loyalty. I think it’s amazing how dedicated Apple customers are. We hear stories of waiting in lines for hours simply to get a Apple product first. This is a tremendous asset in Apple’s advertising and selling.

  5. david.yooon 12 Feb 2013 at 11:43 am

    #clund

    I agree with your points and liked how you used the concept of economies of scale like I did and pointed out how Apple has been successful in the market. Also, how people would buy the knock offs iphones than the real one if they can’t afford them.

  6. amcpikeon 12 Feb 2013 at 1:22 pm

    What barriers to entry exist in the market for mobile phones?

    The primary barriers to entry which small companies will experience are: brand loyalty, economies of scale, and the threat of anti-competitive behavior. Perhaps this can best be illustrated through the example of an imaginary company: “SumoPhones”. “SumoPhones” being a new company in the vicious mobile phones industry would begin to face challenges such as the inability to fund the TC of producing a large amount of phones to get them started -economies of scale-. They may enter a price war with a much larger already established company, which would drag prices lower than they could afford -competitive behavior-. They may even encounter people who although could improve their situation will refuse to based on the fact that they have been using a phone for so long that they are reluctant to switch -brand loyalty-.

    Why do you think so few firms produce mobile phones?

    Personally I believe that it is due to two reasons: one the already existing oligopoly in the market -consisting as we learnt of Nokia, Samsung, Motorola, LG, etc.-, and secondly due to the difficulty of coming up with an innovative product in the field. Working in tandem this means that companies cannot enter the market without a highly innovative product due to the oligopoly, and it is very difficult to innovate a new product due to the nature of the industry.

    Do you think Apple will be able to successfully penetrate the mobile market?

    It is definitely possible for Apple to take a massive foothold as they were able to do something that most other companies in the industry can only dream of doing -create an innovative product-. What other phone when it was first released had the ability to download user created apps, had a balance sensor, camera, and internet access when it was first released? None, which is what allowed Apple to enter, and will allow Apple to stay in the mobile market.

    What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete China’s mobile market?

    It is highly unlikely that cheap knockoffs produced will affect the number of iPhones sold. This is because those purchasing knockoff goods likely only do so because they cannot afford the real product. Rarely will someone take a knockoff good over a genuine one if they can afford it. This means that those purchasing knockoffs were never potential consumers of iPhones and therefore irrelevant in Apples sales, and therefore do not affect Apples ability to compete within Chinas mobile market.

  7. amcpikeon 12 Feb 2013 at 1:25 pm

    # avonwendorff

    Hey man I was really interested in your replies, and had to agree with most of them. However I think that we may take varying perspectives on the knockoffs affect on Apples sales. I don’t believe that the people who are buying knock off phones are representative of potential consumers of iPhones due to economic restrictions. Thus nobody who could buy an iPhone is buying a knockoff, and nobody buying a knockoff could buy an iPhone. However this is if we keep the “Ceteris Palibus” assumption in mind, and assume that real iPhones are preferable.

  8. Csabaon 12 Feb 2013 at 2:04 pm

    1. Economic scale keeps the smaller companies out of the market. This means that consumrs prefer the prodcut of an larger company because they trust them more than a smaller company.

    2.The Economic scale makes fewer firms to produce phones, because it is difficult to become successful.

    3. The Brand name and the product differentiation will allow apple to become a huge firm in this market.

    4. The “knock off” will cause the consumer to buy the cheaper product, rather than the apple product. This will be only for a short time, because i don´t think that they can compete with the technology that apple has.

  9. ghyafilon 12 Feb 2013 at 2:47 pm

    One of the biggest barrier for firms to produce phones is the product differentiation as stated in the article. The production of phones has a cost and the company needs to be sure of selling before the commercialization. Companies such as Microsoft who tried to penetrate the phone market failed pretty badly as they were certain of getting a huge part of the market.
    Apple has successfully penetrated the mobile phone market with their Iphone. They had a pretty huge advantage on their competitors, it was the first smart-phone on the market. Very innovative, its price was the only turn-off for the consumers who found it quite expansive.
    Fake Iphones are a real threat for Apple. They really look like real ones, and often customers mistake the real ones for the fake. Some customers also want to find an a cheaper alternative but still be able to show off with their Iphones. Since we know that almost 10% of the Apple products in the Apple Store in China are fake this shows how much of a threat it is.

  10. ghyafilon 12 Feb 2013 at 2:50 pm

    # Csaba
    I believe people who buy fake Iphones do it usually not on purpose. Fake Iphones are just basically a toy in shape of an Iphone and most of the people don’t want to buy it.

  11. bobby con 12 Feb 2013 at 4:25 pm

    -What barriers to entry exist in the market for mobile phones?

    I think that one of the biggest barriers new participants in the mobile phone market must get through is getting your name out. Because mobile phones is such a large market, many new participants just get forgotten. A company like Apple already had a nice name for themselves, so they didn’t really have to face that problem.

    -Why do you think so few firms produce mobile phones?

    So few firms produce phones because of how dominant the current makers are. Only a few were able to get through the initial barrier strong, giving them a huge advantage over companies that wanted to try after them.

    -Do you think Apple will be able to successfully penetrate the mobile market?

    Well I guess this question was made out a few years ago, but even back then I thought Apple would be able to when many people didn’t. Apple has been great at becoming a big name in almost any market they touch, and the mobile market happened to be no different.

    -What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?

    The threat of these knock-offs are that with every fake iPhone sold, Apple receives no revenue. And because knock-offs look so similar and cost much less, a large percentage of consumers will buy the knock-offs.

  12. bobby con 12 Feb 2013 at 4:47 pm

    # Paul Jeffries

    You bring up a strong last point about the cheap knock-offs. “Real knock-offs” that are illegal tend to break easier and make transporting harder. Apple ended up doing very well when they finally released the iPhone in china, selling 2 million the first weekend. Turned out that years of cheap knock-offs didn’t stop people from buying the real thing.

  13. irizarryon 12 Feb 2013 at 6:42 pm

    The iPhone is saled as if it was a new generation of phones, something so advanced that people will want it. Apple is confident about there product and still still risked the chance of producing it. The fact that it has a touch screen, internet, cell phone and iPod all mixed into one small hand device gives it great strength in the limited market.

    It requires parts to put together the iPhone, and in order for it to survive in this market, it also needs to come up with new ideas. Thats what the iPhone does.

    People won’t mind the small differences and are willing to pay less for a product that looks like an iPhone. Apple is losing a lot of its customers, which can result in smaller amounts of profit.

  14. nwarneron 12 Feb 2013 at 6:55 pm

    What barriers to entry exist in the market for mobile phones?
    There are many barriers to enter. The production costs are so high that only a few large companies can afford to do it. In addition there is also loyalty to the brand which is ensured through the use of contracts to ensure that a consumer stays with the same phone for two years.
    • Why do you think so few firms produce mobile phones?
    Overcoming barriers has become even harder now that Apple as done it as now there are even fewer companies that control the main cell phone market. There is an oligopoly at the top with two large companies (Apple and Samsung) controlling much of the market. In addition, with the large contracts that keep people in the phone for years combined with brand loyalty it will be difficult to enter the market.
    • Do you think Apple will be able to successfully penetrate the mobile market?
    In hindsight clearly Apple was extremely successful in entering the phone market. However, at the time there were many who thought that Apple would not be successful as the large entry barriers. However, it was more realistic to think that because of the innovation that occurred they overcame these barriers to become the largest company in the firm market.
    • What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    The threat is that many people would prefer to buy the cheaper knock-off rather than purchase the real iPhone. Another real threat is that the people may not be able to tell the difference as they look very similar. In addition since China is a developing country the people often cannot afford to buy the real iPhone so they would be able to buy the new iPhone but would want it as a status symbol so they might buy a knockoff.

  15. nwarneron 12 Feb 2013 at 7:00 pm

    #jyoung
    Nice answer. You include lots of statistics to back up your point. I especially like your response about the brand loyalty that each of these companies have. That is clearly evident with the people camping out in line to get the new iPhone or Apple product. Furthermore, I think the long contracts that many consumers especially in the US sign on to make it impractical for them to change phones or carriers.

  16. ykim3on 12 Feb 2013 at 8:24 pm

    Discussion Questions:
    1.What barriers to entry exist in the market for mobile phones?
    – I think the exclusive technology is the barrier to enter the industry of mobile phone because it is not easy to invent good mobile phone with decent software. It would take a lot of time and money.
    2.Why do you think so few firms produce mobile phones?
    – It is related with the answer of question 1. There will not be so many firms that can afford money and time to invent and produce phones because it is high-tech and high-cost production.
    3.Do you think Apple will be able to successfully penetrate the mobile market?
    – Apple has succeeded to penetrate the market by supplying the great phone. People could easily adapt it and many people started to use it without concerns because they also give helps and technical supports in the stores.
    4.What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    – When people do not feel any differences between fake one and real one, it will be the serious problem. It is because it is taking the efforts by illegal ways. But, the thing is people will prefer cheaper phones and it will make the market unorganized.

  17. ykim3on 12 Feb 2013 at 8:26 pm

    nwarner3
    I like your answers. Especially, I agree that threat will exist when people started to purchase the fake one. It is the worst loss for Apple.

  18. DBharwanion 12 Feb 2013 at 9:30 pm

    1. What barriers to entry exist in the market for mobile phones?
    There are many barriers of entry in the market for mobile phones. Consumers will prefer to buy a mobile phone from a larger and well know company like, Apple or Samsung. There are many legal restrictions in place for companies to design and sell mobile phones such as having patents. Breaching or copying patents cause a lot of conflict between the holder and the copier. The patent holder has the right to sue the copier in court.

    2. Why do you think so few firms produce mobile phones?
    I think not many firms produce mobile phones or don’t enter the mobile phone market due to the amount they have to invest in the project. The mobile phone market is huge and it is a very big risk for a firm to step into the market. The firm has to invest in a large sum of their capital in order to innovative and create a new product.

    3. Do you think Apple will be able to successfully penetrate the mobile market?
    Yes I think Apple will successfully penetrate though the mobile market due to the innovation and advertisement of the iPhone is the main reason it is so popular.

    4. What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    The main threat Apple faces is the fake iPhones in the market. As owning an iPhone is more of a necessity than a want. People who can’t afford iPhones tend to buy fakes or duplicates from Chinese markets. Due to this the market shares don’t reach the potential and Apples looses a small part of its profit.

  19. jaimejaime8on 12 Feb 2013 at 10:19 pm

    We can see many types of barriers in phone industry. Economies of scale and Brand Loyalty are two big ones, for consumers will prefer to buy cellphones from well known companies such as Nokia or Apple. There are also legal barriers that have been seen a lot lately since apparently Microsoft, Samsung and Apple have been copying old designs that didn’t work out at first from each other, sometimes even breaking the patents rules. I don’t think there is any anti-competitive behaviour taking place since we can clearly see Apple still sells a large amount of their goods even having a much higher priced than their equal competitors. I think this is due to Brand Loyalty and people who prefer “luxury” goods.

    I think few firms produce mobile phones since the only ones who produce are the ones that either were already into the market (Nokia) when the boom started or that were big enough to enter it after (Apple). However no other new firms will try to enter the market at this point since they wouldn’t manage to keep up with the quick technology development and the low price production of the competitors.

    I do indeed think apple will be able to do so since we are already seeing the results of it. Most people now choose an iphone over any other type of high-quality and lower price product from another company.

    In China’s mobile market fake iphones are a very big threat. Some reasons for this might be the fact that if they leak too much into true iphone markets, consumers will start to lose trust on Apple. Another reason might be that many people might directly choose to buy a much cheaper fake version of the phone instead, not allowing Apple to compete against it and therefore retiring from the Chinese Market.

  20. jaimejaime8on 12 Feb 2013 at 10:26 pm

    # DBharwani

    I am happy to see we agree in pretty much everything, including the fact that new firms will avoid entering the cellphone industry because they would need to be very big in order to have the potential to invest their money into technology development, thus making a competitive product. However reading through your comment I don’t agree with a statement you made, although I think you meant the opposite. This statement is “owning an iphone is more of a necessity than a want” I indeed think that the choice of an iphone over any other type or phone is more of a want, since nobody ‘needs’ any special feature of the iphone.

  21. rparsonon 13 Feb 2013 at 1:29 am

    1. What barriers to entry exist in the market for mobile phones?
    Any company attempting to enter the mobile phone market needs to conduct a large amount of R&D in order to produce a product which does not infringe upon pre-existing patents, and also in order to build up an arsenal of patents which can be used defensively in any legal battle. They must also manage to successfully negotiate with carriers in order to bring their phone to market in a usable state. They also need sufficient investment to produce their products in enough quantity to make a profit.

    2. Why do you think so few firms produce mobile phones?
    The barriers to entry are fairly high, and without patents it is very difficult to create a new product which will not be sued by larger competitors. The industry is also quite volatile, with new technology becoming dominant every couple of years.

    3. Do you think Apple will be able to successfully penetrate the mobile market?
    Yes, as they already have the patents and means of production to make themselves successful.

    4. What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    As China has a population of over 1 billion, this is a massive potential market. If cheaper competitors are able to become dominant, this will deal a massive blow to apple attempts to expand.

  22. rparsonon 13 Feb 2013 at 1:33 am

    # nikolay@pamoja,
    I like your point about how new companies entering into the market have less experience then the previously entrenched companies. This is a pretty big factor in a lot of industries, but especially in such a competitive industry as this.

  23. Malen Kon 13 Feb 2013 at 10:55 am

    • What barriers to entry exist in the market for mobile phones?
    The barriers to entry that exists in the market for mobile phones are economies of scale and brand loyalty. As mentioned in the article, there are already many well established firms in the mobile phones industry like Nokia, Samsung and Motorola and these firms benefits from economies of scale which makes it harder for new firms to enter the market as they are unable to produce at such low costs to compete with the controlling companies. These established firms are also famous and popular and has gained such strong and huge brand loyalty, which makes it hard for other firms like Apple to compete in the market against these huge firms.
    • Why do you think so few firms produce mobile phones?
    I think that so few firms produce mobile phones because mobile phones have always been the fastest growing advancements and has continuous and constant changes every few months of so. It is difficult for firms to try to compete against the strong competition. If the firms want to produce mobile phones and gain a strong customer base then it would have to be unique and different from the rest and that might require more knowledge and more costs. The firm would have to be really different and creative if it wishes to be successful in the mobile phone industry.
    • Do you think Apple will be able to successfully penetrate the mobile market?
    This was written in 2007 and as we know of today in 2013, Apple has become successful in the mobile market. Apple is able to think of new ideas and build unique and different yet useful gadgets like iPhones, which contains many programs that are very useful to users. Due to its continuous improvement each generation of the iPhone, it is able to maintain its customer base and even became one of the dominating mobile phone firm.
    • What threats do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    Cheaper “knock-offs” of the Apple iPhone will decrease the demand for the real iPhone and this will negatively impact Apple as it will not be able to earn enough revenue to cover its costs. Apple will have to lower their prices or even shut down if these cheaper “knock-offs” of the iPhone continues to exist. However, if for consumers that are particularly focusing on quality then the fake iPhones would not be able to compete with the real iPhone as there are very limited functions that the fake iPhones have.

  24. Malen Kon 13 Feb 2013 at 10:56 am

    #Mkhoso

    I definitely agree that the “knock-offs” would not be able to match up with the real iPhones when considering quality or the program itself however there is a huge price difference between these two phones which don’t you think can be one of the factors that could possibly be harmful to Apple as it attempts to compete in the China’s mobile phone market.

  25. m2keoon 13 Feb 2013 at 12:52 pm

    1. What barriers to entry exist in the market for mobile phones?
    There are two barriers to entry that exist in the market for mobile phones. One is economies of scale, and the other is brand loyalty. As mentioned in the article, there are already so many established firms in the mobile phone market that are benefitting from economies of scale that it will be hard for new firms to enter the market as it will be challenging for them to compete against the leading companies. Brand loyalty is another barriers to entry in the mobile phones market because there are already so many popular brands/companies in the market that it will be really hard for other firms such as Apple to enter and compete in the market.

    2. Why do you think so few firms produce mobile phones?
    I think the main reason why so few firms produce mobile phones because the advancement in technology for mobile phones is constantly growing and changing that it is very hard to keep up and depending on the size of the firm, it might be hard to always be funding on research development to create new innovations. It is also very hard to gain strong customers base and to be just at the top so firms are more reluctant to join in the mobile phones market due to these reasons.

    3. Do you think Apple will be able to successfully penetrate the mobile market?
    Since this blog/article was written all the way back to 2007, obviously we know now that Apple has made it very big and has successfully penetrate the mobile market by product differentiation. Apple was able to produce a new mobile phone, which is very different and also with a very developed high technology yet. The iPhones include many different programs that allow Apple to be able to gain a huge customer base and still going strong til today with a constant improvement of technology. Apple has also now become the dominating firm in the mobile market.

    4. What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    The cheaper “knock-offs” of the Apple iPhone will obviously attract more customers in China’s mobile market that it will lead to a decrease in demand for the orginial Apple iPhone. Obvioulsly many customers will look for a cheaper substitute to the original iPhone, so there’s no doubt that Apple iPhone might face a decrease in sales especially in China. Although these alternative substitutes will somehow also reach out to other countries, and thus more and more customers will be demanding for this cheaper “knock-offs” iPhones. Apple will face a decrease in their sales revenue, which will also lowers their profits.

  26. m2keoon 13 Feb 2013 at 1:00 pm

    # ABarrow
    As always, very interesting response. I really liked how you actually separated all your points by using the bullet points instead of just writing it as a big chunk of words. Also, I agree with you that the market for mobile phones can be very costly (or in your words, capital intensive) because as I’ve mentioned in my response, it takes a lot of money and effort to do all the researching and developments especially in this market. As the technology of mobile market is constantly advancing, it is very hard to cope with because you’ll need to be always up to date and producing something that is different and better than the other firms’ products. However, lucky for Apple they were able to do so and even better they are now so successful with their iPhones.

  27. xhuanfon 13 Feb 2013 at 4:47 pm

    What barriers to entry exist in the market for mobile phones?
    The economies of scale and the brand loyalty. The four big firms that controlled the mobile market are able to produce massive amount of phones with low cost. They are able to buy the resources with discount. On the other hand these firms produce phones with better quality than phones from other company. This creates brand loyalty. Most consumers will be only willing to buy phones from these brands. These barriers made it difficult for Apple to enter mobile market.

    Why do you think so few firms produce mobile phones?
    That is because different phones can have big difference on quality. Best technology of phone is concentrated within few companies, therefore these firms are able to produce better quality phones compete away the market from other firms. Then they will use economies of scale to advance technology and produce even better phones. Eventually the market will be mostly controlled by few firms.

    Do you think Apple will be able to successfully penetrate the mobile market?
    Yes. Apple is able to use its best technology to produce innovative Iphone, which has better quality than any other firms. Not only Apple is able to survive the mobile market, it will take a big share of the market and threat the other four big firms such as Nokia and Samsung.

    What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    The knock-offs have a much cheaper price, so it can compete away the market. And since the knock-offs have bad equality, it hurts the brand loyalty of iPhone. Consumers might be afraid of buying a fake iPhone so change their mind and buy other phones.

  28. kkozlovskison 13 Feb 2013 at 8:28 pm

    # xhuanf
    About the last question. Don’t you think that the real iphone has nothing to do with the fakes. Because every costumer which buys a fake one knows that it’s a fake. So I think that if the quantity demanded for the fakes decreases this doesn’t mean that it will happen for the real ones.

  29. doan hai vanon 13 Feb 2013 at 11:25 pm

    The biggest barrier to entry in the market for mobile phones is there is oligopoly. That is only a few large firms dominate the market supply and influence market price. These firms have factories and retail stores in many countries all over the world. They have lots of experiences in business which enable them minimize the cost of production through cheap labour and bulk buying. Moreover, these firms have identical products that consumers are loyal to. It seems impossible to defeat these firms in term of non-price competition. Large mobiles phone also are also able to sponsor for movies and tv shows which will promote their products. Any firms want to step in to this market, has to prepare vast amount of money only for advertisement.
    The market of mobile phone has been existed for less than 40 years. There are only few firms who are strong and adventurous enough to step into this “young” market and able to stay back after many destructive competition. Motorola and Nokia were those who set up their business in the market when the cellular network was discovered. That’s why their name is remarkable and trustworthy. Believe it or not, Motorola were imported to Vietnam in . Although it was late but it was so popular that people back then didn’t say “buying a mobile phone” but “buying a Motorola”. Thus the loyalty of consumers to these brands has enabled them become oligopoly.
    The idea of Apple penetrating the mobile market is positive. Apple has made a big innovation for the new phone generation. Iphone is proven to be more than just a typical phone. Firstly, consumers favour the plain, simple but very elegant look of an Iphone. Secondly, an Iphone provides consumers with all the functions of a camera, a phone and a mp3. People usually say that a phone can never take a good picture as well as a truly camera, or music in a phone can never as good as it is in a mp3. However, Iphone has all these functions in high quality. Moreover, Apple is working in a very competitive manner. New generations of Iphone are established every year with new apps that can only use in Iphone for example: instagram, map, angry bird, ninja fruit, temple run,… these apps attract people from all around the world. Apple also focuses on advertisement. It seems like all characters in most of the movies use products from Apple. They appear in Hollywood movies so much that even Movie firms in Vietnam have to ask for Apple’s sponsor to prove its profession.
    It is undeniable that there is large number of consumers who prefer cheap but fake products. However, cheap and fake products can only flow in local trades because it’s illegal. Lots of people from average to high income will wish to consume real one t proof their wealth. Moreover, Chinese mobile can olny fake the outside look of an Iphone but cannot provide consumers with all “cool” apps. Thus Chinese mobile cannot knock off Apple Iphone by any trick.

  30. doan hai vanon 13 Feb 2013 at 11:35 pm

    hi # Malen K

    I agree with you that consumers’ loyalty is a very important part to form any monopoly, because if majority of consumers chooses to commit with only one brand’s product, they don’t give other brands a try. And to me, this is the biggest barrier firms from ouside the market have to consider. Thus they have to invest a lot of the appearance, quality and advertisement of their product in order to survive in the non-price competition

  31. xhuanfon 14 Feb 2013 at 4:42 am

    to # m2keo

    I enjoyed reading your comment and I agree with you on all the questions. I agree that economies of scale and brand loyalty are the barriers to entry, and technology is the key reason few firms can stay in the industry. By using economies of scale the big firms kept advancing technology while small firms couldn’t catch up, therefore big firms are able to produce better phones and compete away the market, forcing smaller firms to leave.

  32. xhuanfon 14 Feb 2013 at 4:48 am

    to # kkozlovskis

    Yes consumers know it’s fake iPhone after they bought it. But I assume they don’t know it’s fake before they buy it. What I was thinking is consumers might be scared of getting a fake iPhone, so they give up consuming iPhone and purchased other phones. Consumers know there are fake iPhones, and if they buy an iPhone it might turn out to be a fake one. Some consumers will not be willing take this risk and decide to buy other phones.

  33. jduplessison 14 Feb 2013 at 9:18 am

    • What barriers to entry exist in the market for mobile phones?
    It is always difficult to break into an established market with a new product. The established companies use economies of scale to their advantage.
    • Why do you think so few firms produce mobile phones?
    Due to the power that established companies draw from economies of scale.
    • Do you think Apple will be able to successfully penetrate the mobile market?
    They already have.
    • What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    It seems obvious that when given the choice most people would choose to pay a lower price of a product. If the customer can buy a “knock off” for a lower price and if it is also very good then why wouldn’t he buy it.

  34. jduplessison 14 Feb 2013 at 9:32 am

    # jaimejaime8 Yes I agree. Brand loyalty is also especially important to monopolies. It’s also a good thing for monopolies to have an emphasis on keeping their customers happy. This is one way in which monopolies are not always bad.

  35. jduplessison 14 Feb 2013 at 9:35 am

    # tlee
    I definitely agree that apple has already penetrated the mobile phone market. Android phones are still far more numerous that Apple but Apple is a very large player in the market with an established presence.

  36. jshinon 14 Feb 2013 at 7:40 pm

    What barriers to entry exist in the market for mobile phones?
    I think that economies of scaled and brand loyalty exist in the mobile phone market.
    Why do you think so few firms produce mobile phones?
    I think that few firms produce mobile phones because the barriers of entry are high and that the competition between existing brands are high. A new company will not thrive in the mobile phone business.
    Do you think Apple will be able to successfully penetrate the mobile market?
    I think that Apple has already penetrated the mobile phone market because it is really popular in the phone industry.
    What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    The threat is that people may buy the knock offs because they will be much cheaper and they will look almost identical. Apple may lose money if the knock offs thrive in the mobile business.

  37. jshinon 14 Feb 2013 at 7:42 pm

    #tlee i agree that apple has penetrated the mobile market.

    # jduplessis i agree that it is hard for a company to go into the market because of the existing economies of scale.

  38. cmacleodon 15 Feb 2013 at 11:42 am

    1. What barriers to entry exist in the market for mobile phones?
    There are many barriers of entry in the market for mobile phones. It is very hard for a new company or pre-existing companies to enter these markets with already two companies dominating the market like Apple and Samsung. There are many legal restrictions such as patents which is the legal right granted by the government to produce and sell an invention over a period of time.

    2. Why do you think so few firms produce mobile phones?
    The main reason why there are so few firms producing mobile phones is because it is because completion is too high and it takes a lot of capital put into research and development to be able to make an innovative product that would sell.
    3. Do you think Apple will be able to successfully penetrate the mobile market?
    Apple will be able to successfully penetrate the mobile market since they are already an innovative company with well advertising especially from its most successful product, the iPhone.

    4. What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    The main threat that Apple faces to compete in china’s mobile market is the fact that fake iPhones or imitations are being sold if there is a product that is cheap and appealing to the consumer then why not buy it. That is Apple’s main threat, that if people can buy the “knock off” for a lower price as it is really good as well then there would not be such a high demand for the iPhone.

  39. cmacleodon 15 Feb 2013 at 11:50 am

    #jduplessis
    I definately agree with your last point. If a phone is cheap and has a good quality then why not buy it specialy in china which its population exeeds a billion people that is a huge advantage but a disadvantage to Apple because the only way that they will be able to do well in china would be to lower the price of their products there.

  40. Btunceron 15 Feb 2013 at 6:29 pm

    1. What barriers to entry exist in the market for mobile phones?

    There is a great barrier which is the already high competition in the mobile phone market. As the graph illustrates, when Apple started making the Iphone, the cell phone market was dominated by 4 manufacturers which were Nokia, Sony Ericsson, Samsung and Motorola, which meant there was an oligopoly on the cell phone market.

    2. Why do you think so few firms produce mobile phones?

    Because of the growing high technology, it gets harder and harder to develop which makes small firms nearly impossible to catch up with the big firms on technology. This is also why when we look at the knock-offs of a high technology product such as Iphone, it is very obvious to see the differences on the way they function and look (such as the screen on the fake Iphone 4). This is because small firms who make knock-offs don’t have the knowledge on the technology used in the real Iphone; thus, they can’t make everything identical (touch screen sensitivity, compactness etc.)

    3. Do you think Apple will be able to successfully penetrate the mobile market?

    Since this article is a fairly old one from 2007, which was before Iphone became very, very popular, this question has to be answered from 2007 perspective. Since at that time, I phone was very ahead of its competition in terms of technology and convenience, yes it is safe to say it would be able to penetrate the market successfully.

    4. What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    This may pose a serious threat to Apple China. Since the cheaper knock-offs are not functioning well at current time (can be seen in the video attached to this article), they wouldn’t have a huge impact on the Apple’s sales because why would consumer buy a product if it stops functioning in 20 minutes. However, as these knock offs get better on their technology and reliability, then Apple might have some big problems which would lead Apple to either sell their product cheap or withdraw from the Chinese market (Since in China income for the overall population is very low, in most instances they do not prioritize quality which would increase the threat to Apple who prioritizes quality).

  41. Btunceron 15 Feb 2013 at 6:35 pm

    #cmacleod

    I really liked your answer to question 1. Because of all the existing patents owned by big firms in new technology, it makes the market much harder to get into. Also, many companies own patents on technologies they are not currently using, so if a small company has a very good idea and spends time developing it, there is a big chance that when they try to patent their product, they would find out that it is already been patented.

  42. dtumanavarroon 17 Feb 2013 at 11:12 pm

    1. What barriers to entry exist in the market for mobile phones?
    The majority of problems faced by a firm wishing to enter the mobile phones market would fall underneath the ‘economies of scale’. A firm competes with monopolies of this market, which is difficult because the bigger firms have more money to advertise themselves better and more efficiently. Along with that, their name itself consumers learn to trust unlike a new smaller firm wishing to sell their products. Bigger firms also are more stable and have other merchandise and goods to put on the market if one of their goods fails to sell.
    2. Why do you think so few firms produce mobile phones?
    The competition within the market is difficult to withstand and survive in, especially if you’re an entrepreneur. If a firm wants to succeed, they need to be innovative and quick, and somehow find a way to make their prices competitive with the monopolies. A firm producing phones also needs to establish or attain a partnership with a service provider (att, Verizon).
    3. Do you think Apple will be able to successfully penetrate the mobile market?
    Well, we already know they did since it’s now 6 years later and they’ve just come out with the iPhone 5. But if I were answering the question 6 years ago, I believe I still would have said yes. This is because I had already observed apple dominating other markets like the mp3 or computer industry. My dad owned a mac and I thought that it was much nicer than the pc’s all my other family members had so I would have thought the same for the iPhone that would be coming out. The touch screen was relatively new as well so it’s innovative, and innovation always attracts consumers.
    4. What threats do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    Knock offs can deter people from consuming pricier apple products and to purchasing cheap, lower quality iPhones. This will only minimally lower apple’s demand for the iPhone. Since knock offs are known for being lower quality and short lived the majority of consumers will stay loyal to Apple.

  43. dtumanavarroon 17 Feb 2013 at 11:39 pm

    Hey # Csaba!
    I agree with you that one of the economies of scale is that consumers will trust the bigger firm, but there are many more ways that economies of scales affect the market. Bigger firms can also afford expensive and nice advertising and money for designing and innovation etc. For your answer for number two, I understand from your response that you think it’s difficult because it is hard to become successful, but I think the question is asking more about what factors make it hard to become successful. As for your 3rd response, although Apple is a well know and strong brand, it doesn’t mean that all of its product are great, take it’s earphones for example. Overall the responses were to the point, thanks!

  44. deborahs56on 18 Feb 2013 at 1:10 am

    1)What barriers to entry exist in the market for mobile phones?
    A barrier that exists in the market for mobile phones is the economies of scale. Big firms in comparison to smaller firms have more economies of scale; such as specialization,the division of labour, bulk-buying and financial economies. As a result, the new firm cannot compare with the bigger firms that have the benefits.
    2)Why do you think so few firms produce mobile phones?
    So few firms produce mobile phones because it is difficult to enter the phone market. Again, the economies of scale hinder other companies from entering the market.
    3)Do you think Apple will be able to successfully penetrate the mobile market?
    Apple will be successful because their products are so innovative. In addition to that, they have a huge product loyalty. Perhaps with their innovation and customer loyalty , apple will be able to enter the mobile market.
    4)What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
    The knock- offs degrade the real apple iphone. As people in chinese see that the fake is cheaper than the real ,they will have a preference toward the fake. Also if the functions are almost identical but the price is different , people will more likely go for the cheaper product. In that case, the introduction of the fake apple iphone will cause apple to lose sales in China.

  45. Jazzyon 19 Feb 2013 at 1:59 pm

    What barriers to entry exist in the market for mobile phones?

    One of the biggest barriers is reputation in the market for mobile phones. If you are a new firm that wants to enter the market, you need to think how is our product different or better than the other products. Mostly, your product has to have something revolutionizing to enter the market and to be really eye-catching to enter such a market and become one of the “big-boys” of the market.

    Why do you think so few firms produce mobile phones?

    Because there already has been created an oligopoly. The few firms such as motorola, nokia, samsung are dominating this market. A new brand cannot just come in with the same type of phone that the others have, because the consumer would rather go for a brand which is known and trusted rather than a completly new brand. To enter this market the firm will have to something which is revolutionizing.

    Do you think Apple will be able to successfully penetrate the mobile market?

    Yes, I do think it can and already has. The iphone is now a common phone to have, just like nokia was once a couple of years ago. Having an iphone is seen a better smartphone than others. They are commonly known and they have entered the market with their revoltionary design and idea of a touch screen.

    What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?

    Well, if the knock-off is really so similar to the iPhone and at the same time is much cheaper, than the consumer will most likely take the knock-off because of its price and wouldnt care much about the brand name.

  46. Jazzyon 19 Feb 2013 at 2:04 pm

    Response to deborahs56:

    I agree with many of your points. I really liked that you put economies of scale into your first answer though I also believe that the brand name and reputation is a big thing and a big barrier into trying to enter the mobile market. Even though the iPhone is now better and most people rather prefer that one, Nokia has still kepts its reputation and many believe that Nokia will come out with something soon which will beat the Apple iPhone.

    Though, still really liked your use of economies of scale.

  47. mchastanet2on 12 Mar 2013 at 12:57 pm

    1.Barriers to entry are economies of scale as hey produce at the lowest price possible.
    Another barrier is branding. New firm may not have enough money at first to compete
    With other large firms who are ready to lower their price to turn of competition.

    2.Because the barriers to entry are very big and in order to get past them and get the resources to make your phone, you need a lot of money. Also because in order to compete with big firms you need to be ahead of them in innovation to attract consumers, but it’s very hard to make big innovation.

    3.Apple already has successfully penetrated the mobile market since it is the first producer and already has millions of consumers and many shops around the world. Most of its consumers are loyal to the brand so they have time before they run out of demand.

    4. Because Apple will loose consumers who would rather get the same IPhone at a cheaper price and that looks the same. In the long run I think that Apple will generate enough revenue to impose itself in the Chinese market. The cheaper iPhones will shortly become illegal I believe.

    Max Chastanet

  48. mchastanet2on 12 Mar 2013 at 1:03 pm

    Responce to #Jazzy

    I really like your answer to the first question that in order to make yourself a place with the biggest firms you need to innove a revolutionizing product, just like Apple did to compete with Windows, Nokia…
    For answer 4, i think that those knock-off will eventually become illegal…

    Great answers!

  49. Discover More Hereon 30 Apr 2016 at 3:18 pm

    Discover More Here

    Does Apple stand a chance? | Economics in Plain English

  50. goldenageracing.comon 05 Jul 2016 at 4:13 am

    goldenageracing.com

    Does Apple stand a chance? | Economics in Plain English