Nov 17 2007
Does Apple stand a chance?
Published by Jason Welker at 12:02 am under Barriers to entry,Competition,Competitive Markets, Demand and Supply,Economies of scale,Market structure,Non-price competition,Oligopoly,Product markets,Technology
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?
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%).
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:
- What barriers to entry exist in the market for mobile phones?
- Why do you think so few firms produce mobile phones?
- Do you think Apple will be able to successfully penetrate the mobile market?
- 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 authorRelated posts:
Hey Lynda, getting into the 3rd category really is just a matter of mindset. Of course, you have to have the right structure to allow you to become a big business, but many small businesses remain small because the owner insists on being the business, his or her ego gets in the way. If he or she would simply think bigger and allow a system to replace his or her personality, he or she could replace him/herself and let the system do the hard work. Always ask yourself how you can achieve the same result in things you do but without you having to do the work. (A great book on this topic of going from a small to big business is the book “E-Myth” highly recommended!)
Hans Schoff recently posted..Why You Need A System For Creating Wealth
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The market for mobile phones, being an oligopolistic market, are probably rather high. To release a mobile phone product, it probably takes a lot of money to design and perfect the phones itself alone. Manufacturing something like the iPhone probably took hundreds of thousands, if not millions. This is probably why there are so little firms producing mobile phones.
Apple's strong product differentiation HAS allowed it a small share of the mobile market, but knock-offs create competition through products that are similar, and cheaper. Also, I read recently and Apple's iPhone was found to be built of certain contents prone to causing infertility
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I think that apple might still be OK because in China it seems that more Chinese with money spend it on western goods. For instance, I find that at least half of the customers at the new Coldstone on Hong Mei are Chinese. I think the fact that the iPod is a genuine western product contributes to its non-price competition, and people would rather buy the real thing than the knock off. The imitation iPhone could be successful, but I essentially see the real iPhone and the fake as appealing to two entirely different consumers. I don't think that a Chinese person truly interested in buying an iphone will go for the imitation, while a Chinese person just looking for a sweet phone will.
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The barriers of entry in this cell phone market is the fact that the four name cell phone produces have about 75% of the market share. In order to start competing in the phone industry, it will take a firm a long time to actually make consumers stop buying cell phones from the top 4 firms. That will take lots and lots of money, and it is not even guaranteed that they will be able to compete. The 4 major firms have cell phones targeted towards everyone, expensive phones and cheap phones. I think Apple will actually be quite successful in China. However many companies such as LG are starting to build their own phones that can compete with it, so Apple will have a hard time. "knock-offs" of the apple iphone will be a great threat. They now sell fake iPod's in those new xiang yang places, and it seems like people actually buy them because fakes are so good now.
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Apple does, in fact, stand a chance to become one of the top possessors of cell phone market share. Brand loyalty may be both an obstacle and bonus for Apple; it just depends on whether you like your current Sony Ericsson on your iPod more. I belong to the latter. The mobile phone market is extremely competitive and this can clearly be seen in the small number of existing firms. Larger phone companies could easily develop similar products to the Apple iPhone, as Nokia is already doing.
I firmly believe Apple definitely stands a chance in penetrating the phone market because its product is so radically differentiated and because Chinese customers would enjoy the status they would attain in owning one, not to mention the many iPods I see on the streets. I am one to believe that the cheap knock-offs in China do not pose as much a threat as they are made out to because people will know they are not the real thing i.e. they are a uglier and tackier, plus the people who buy them will know they are not the real thing and I hope they feel guilt for blatantly ripping off a product that Apple has spent years designing and perfecting.
Here's hoping that the iPhone comes to China.
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barriers to enter mobile phone industry include the technology and machines to create phones, also answers part of question 2. one of the reasons that so few firms produce phones is because of people's brand loyalty. people dont trust unknown brands and therefore new firms will have a MR lower than MC because no one wants to buy unknown brands, otherwise they will have to spend lots and lots of revenues on advertising to gain their popularity, but not a lot of firm owners have so much money to start with. Apple will definitely successfully penetrate the cell phone market because of product differentiation. i've played with an iphone and it is just amusing… totally different from any other phones with great huge screens great graphics and awesome touch screen functions. it collects message in a chat-room kinda way so it is easier to read thru all the conversations with another person. its really convenient.
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Because the market structure of mobile phone is that of an oligopoly, there are significant obstacles for new firms to enter the industry.
That being the reason why, so few firms produce mobile phones; the industry is already occupied by a few but strong companies. I am not really sure how Apple will penetrate the mobile market becuase in my case, i don't really feel the need of mp3+phone combo, which is what iPhone is like, since i already have a pretty looking mp3 and a pretty looking phone. Apple has done an amazing job bringing those two function together along with great design and convenience, but since the two realm of mp3 player and cell phone are clearly distinguished, it will be pretty hard for Apple to compete in this oligopolistic mobile phone industry.
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As proven in the article with the 4 firm ratio test, the market for mobile phones is an oligopoly. One of the characteristics of oligopolies is pretty high barriers of entry. In this mobile phone market, with the four main cellphone firms dominating the industry, I would say that there is a certain economies of scale in this industry that acts as a barrier of entry, as these four main companies have minimum ATC at a very large output. This also explains why there are so few firms in this industry.
However, like Apple, firms sometimes produce differentiated product in order to get into this oligopoly. This is really important, especially for firms like Apple who have big competition in the industry. In the advertisement posted above, Apple sends a message to viewers that it is innovative, new, something that nobody has ever seen before. This appeals to viewers and consumers, as something different, something "cool", a "must-have". I would say that their advertising campaign was extremely successful. The past summer when the iPhone came out in June, I was in San Francisco, and around three days before the iPhone even came out, the lines waiting for it went down almost 6 or 7 streets. It was quite shocking.
China, however, is a different story, especially with the forged iPhone-"wanna bes" coming out. In order to break into the mobile phone industry in China, iPhone has to appeal more to the Chinese customers, who many prefer buying a fake look-alike rather than a real one.
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1. What barriers to entry exist in the market for mobile phones? Barriers to entry in the market for mobile phones include economies of scale and the large expenditure for capital. New cell phone companies would have such a small market share, as opposed to the existing cell phone companies, that production will be too costly to survive. Another barrier to entry is customer loyalty since these cell phone brands are the "tried and trusted," and new brands may not be so popular at first. I think Apple's iphone will be successful in the cell phone market because the iphone is so unique. Knock-offs could threaten Apple's iphone as a source of competition, but there is an aesthetic difference between the two. Apple's iphone advertising and the appearance of a real iphone make it much more appealing than an iphone knockoff that looks like a plastic toy with chinglish writing.
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Although the cellphone market is that of an oligopoly, I believe that the Iphone still has a chance to survive and maybe even perhaps triev well. Apple certainly isn't affected as much by the barriers considering economies of scale. Since Apple is already a well established brand in the eletronics market, people might be willing to buy this new product.
Apple has done something really smart. They introduced a product that is VERY different from the existing cellphones. It's innovative and it's new and different. Every product has a unique selling point (USP). The USP is a concept that explains how successful advertising must offer the consumer a logical reason to buy their product because of what differentiates it from other products in the market. Apple has done this but showing the world the new combination of a MP3 player, a phone, a web browser, and a touch screen.
In China, the Iphone wanabes may cause a minor problem for the sales, but in the long run I think that Apple can still generate a lot of revenue from the Chinese market. Sooner or later customers will realize that their fake Iphones break down after a month or two.
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I think the iPhone certainly stands a chance. It has a really powerful advertising campaign, especially built off the iPod craze there's a pretty good image of apple products being new and different – hence the increase in sales of macbooks and such in the past couple of years. Pirating might be a problem, but I think with the advanced technology there will be differentiation when the real iPhone enters the market. The barriers to entry in this industry are certainly the costs of developing technology to fit in the tiny space, alongside innovative design and increasing functions that consumers demand.
But unlike many clothing companies such as GAP that don't enter China for fear of piracy, I don't think a large share of iPhone sales will be undermined by the pirated versions. After all, the iPhone would become a new sign of status- and who wants a fake phone that may lose its color or quality easily representing themselves?
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Personally, I think Apple has a good chance of creating its own small or large (depends how successful they are in the future I suppose) in the cell phone market. I think that in addition to its product differentiation, it's the brand name loyalty that will help Apple.
We've seen Apple enter a product market and be very very successful – The iPod. Up until the iPod was created, MP3s made by other companies like iRiver dominated the market, but once the iPod came, through product differentiation and its warranty offer that Apple provided, the iPod skyrocketed. Soon, they started to create new modifications, video, nano, touch, etc.
The iPhone is quite different from other cell phones out there, so I think Apple's product has a good chance. People unsure of the phone will be swayed by brand name loyalty or the warranty offers. =) In the first few months the iPhone came out, kids all over America were asking their parents to buy it. Eventually, Apple will be able to decrease their prices of the phone and thus sell more.
On a side note, for band people last year, we played the song in the iPhone ad. =D And we also watched that scene with the bone smashing. Pound-five!
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Apple indeed has a chance to enter the cell phone market, and might even dominate in it; only in the short run, however. Because it has differentiated its product and actually introduced/merged new designs and applications, it's appeal to consumers has skyrocketed; most other cell phones companies such as Nokia and Motorola have differentiated their products, but have not introduced a new, innovative design or mechanic. It is for this reason that these such companies haven't had huge rises in demand.
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I think Apple does have a great chance. When the iPod came out, it was also very expensive compared to others. However it was very successful and therefore I think iPhone will be quites successful too. They will mainly try to target a specific group of people, since its so expensive. Overall, I just believe that Apple has a great chance.
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To talk more about the article, it is interesting how China Mobile is negotiating with iPhone. If China Mobile successfully does negotiate, I think that could have a tremendous influence too. China Mobile is very influential, and therefore not only the iPhone itself is important in becoming successful, but negotiating with companies such as China Mobile could help. The iTouch seems to actually be pretty successful right now. Although it is expensive, people who have it seem to be 'cool.' I think that could be a large factor and help Apple in selling more iPhones.
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I think Apple will be just fine. It's currently one of the most popular, well-liked companies, and, what's more, it's well-liked by teens. People seeking to buy an iphone are most likely NOT buying it for the phone- they're buying it for the prestige of owning something so expensive- it screams, "look at me! I'm a luxury good and normal people can't afford me!" Most people are going to buy the phone with the big name- not an unknown knock-off with the same functions and cheaper price. For this same reason, there are only a few cellphone makers. The established ones have prestige, they have class and loyal customers. It would cost too much (advertising, developing new ideas, etc) for new firms to break in, and they probably wouldn't succeed anyway.
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The costs of entering the cellphone market are extremely high. From idea to conceptualization to actual product realization costs millions of dollars. Once in the market, more money is needed to finance advertising to show consumers the product differentiation. However, Apple, being a successful company does have the fiscal ability to cover these costs. We've all seen the advertisements of the iPhone and its unique design and capabilities. Plus, Apple brand loyalty is evident as many consumers see Apple as a forerunner in inventive, easy to use, and aesthetically pleasing electronics. The success of the iPod will lend much weight to the Apple and the iPhone. Furthermore, the idea of a multi-touch screen phone combined with proper software for the hardware is rare, almost unseen. The closest software would be the new up and coming Google Android. Thus in the area of usability and new design, Apple has the upper hand in functionality over many other phones running Symbian or Windows Mobile operating systems. These are all advantages that make the iPhone geared toward some degree of success.
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Apple has done well through advertising; it has established its dominance in not only the MP3 and computer market, it has successfully incorporated its brand image to its advantage to promote their new iPhones. Apple's advertising successfuly reflects both efficiencies and inefficiencies as it can lessen the opportunity costs of consumers to search for the best cellphone that is avaiable in the market, thus achieving efficiency. However, it also reflects inefficiency as by establishing brand image and brand loyalty, it will gain significant market shares and become more monopolistic.
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The main barrier to entry in the cell phone industry is the high levels of technology you need in order to design the thing in the first place. Especially considering that nowadays cell phones can do all sorts of cool tricks like take pictures or play your music. The iPhone takes all these things and adds another feature, the touch screen. As far as I know, no other cell phone makes use of a touch screen (except for the iPhone knock offs), and until a legitimate company comes along and designs a phone that uses a touch screen too, if you want a cell phone with a touch screen, you have to buy an iPhone. I don't really think that iPhone knock offs will threaten the iPhone's sales, because knockoffs generally have a bad reputation of being very poor in quality. However, if another company comes along and designs a cell phone that can do everything an iPhone do, and then adds another feature of its own, I can definately see that cell phone threatening the iPhone's future.
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One of the barriers of entry that might present an obstacle to Apple is the economies of scale. Nokia, Motorola, Sony Ericsson, and Samsung have been producing cell phones for a while now, and can do it a lot more efficiently than Apple, who just entered this industry, can. These high economies of scale also prevent many other companies from entering this industry because they can't produce at a low enough cost to really compete. Apple might eventually be able to "penetrate" this market because it was originally a huge company to begin with, so they have the resources to continue producing until they are finally able to compete with the other companies without losing money. There might be a little competition between Chinese rip off phones and the iPhone, however, most people would rather buy the real thing if they're going to buy something like that at all. This might be because Apple will offer better quality products, as well as warranties that regular Chinese phones won't offer.
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I believe Apple has the captial and financial resources to overcome the economies of scale, because it has already proven itself as a successful company in the industry of Operating Systems and MP3 players. However, Apple may be entering the multiple industries with one product; that is, the iPhone is a multi-functional PDA, phone, MP4 player, thus will surely high demand because there was nothing like it at the time it came out. However, like we learned in class, the high profits Apple would recieve acted as an incentive for other industries to enter the market as well! Thus, the Chinese knockoffs, which may have a lower ATC curve than Apple (or Apple just was able to charge a high price due to being the only one in that type of multi-function phone market), will be able to reap a bundle of economic profit. However, consumer loyalty is still in effect, as well as consumer preference and taste for a genuine good, so Apple may not suffer that much.
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I guess the reason why people don't try to enter the mobile phone market is due to the big name brands. As that pie chart shows Nokia has the biggest market share and relating to what I learned in class today about oligopolies, it is likely that the other firms set prices according to the Nokia prices. This creates a barrier to entry as other companies might not be able to set their phone prices at the same level. Also the brand loyalty is huge in the mobile phone market. Apple's new iPhone, I believe, will do successful due to its product differentiation; The touch screen and mp3/video capabilities is pretty cool. Plus, since its Apple, there are tons of people out there already loyal to the brand which will make sales easier. Cheap Chinese knockoffs might attract buyers in China if it is cheap but how cheap are they willing to go. I doubt that they will be able to sell a similar product with the same capabilities, such as the touch screen, for any cheaper.
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Eventhough economies of scale may be a barrier for Apple to enter the cell phone industry; there are several of factors that allow it to bypass this barrier. Apple had been known for producing unique and quality products, such as the MacBook and iPod, which differentiate itself from others. Moreover, the success on launching and promoting the iPod had brought apple numerous of loyal users; and, some do not see iPhone as cell phone, but as an iPod with cell phone function. So the net thing when a Apple, especially iPod enthusiast wants to get a new iPod, he would think: “oh, why don’t I just get a iPhone, so I get a new iPod and a new cell phone at once.”
Also, iPod is famous for its complementary products, such as speakers, FM transmitter, earphone, even shoes that are specially designed for iPod. I believe it would be the same case for iPhone as well.
Oh and another little note. Over the years, I’ve realized Chinese, especially those with medium or low income, are willing to pay for new phones, especially top notch ones. I’ve seen my driver changed like 4 cell phones in 3 months, and each cost over 5000 kuai on the market. Today, when I was eating noodle (3 kuai per bowl) off campus, the cook is banging music on his fancy Motorola cell phone. With such demand for top notch cell phones, I believe the success of the iPhone is just a matter of time.
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Apple's doing fine at the moment mainly because of its new iphone, which increases profits a lot. The iphone has many new features that makes it easier to perform functions than on a phone made by Nokia, Samsung, or Song Ericcson. Because of its ipods, Apple will survive at least for the moment. Eventually the other big name companies will put out new phones and gadgets that will have the added features, which would then cut into Apple's profits. Even though the cell phone industry is an oligopoly, Apple was able to enter the market because its products were differentiated. Even so, it remains to be seen whether or not the big companies will deliver.
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Haha. Chinese people can copy anything. And when i say anything, I mean ANYTHING. I think the barriers to enter the mobile phone market are relatively high, because a lot of money and technology are needed to create all the parts of the phones. Very little firms create phones because the already existing firms, such as Nokia and Motorola, have such a large share of the market. Also, consumers are loyal to these already existing brands. These companies spend a lot of money on advertising, which is another thing that new or small firms cannot compete with. I believe that the iPhone will do well because Apple is such a popular brand, and there really isn't any other phone that is like the iPhone. Personally, I don't think fake phones will harm Apple much. How many of us would actually buy a fake iPhone? Fake bags, yes. But fake iPhones?…
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As much as I dislike Apple, I can't refute the fact that they are increasing in popularity. My parents don't believe me, so they're not putting any stock into it.
Anyways, it is obvious that "economies of scale" prevent the cellphone industry from becoming close to purely competitive.
I personally think that brand loyalty is a good reason for why new Apple products succeed, along with product differentiation. Of course, p.d. started it with the iPod, which lead to the Mini, Photo, iPhone, etc.
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A very noticeble threat may be china's fake good market. Fake Ipones and fake i touchs starts appearing in the market looking exactly the same, however, only a fraction the price. This would have to make Apple company, either lower it's price or to product defrenciate even more in order to compete.
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I do not think cheaper "knock-offs" of the Apple iPhone will pose much of a threat to Apple's attempt to compete in China's mobile market. Even if it is half the price, the imitation will not have the Apple logo on it and thus, the utility derived from it will not be the same as from purchasing a real iPhone. Sure, the Xiang Yang Market that existed a few years ago was a big attraction to tourists because it sold fake merchandise, but in the end, what most people care about today is the quality of a product. Most people will be willing to pay that extra $15 for a product that works more efficiently and lasts for a longer period of time. This sense of quality is an example of non-price competition; if the quality of an iPhone is better than that of other cellphones, more people will want to buy it. In addition, just the brand name of Apple is appealing to consumers because it is a big name that is known for producing successful products (iPod). This can be seen as brand loyalty in an economic sense. Apple will undoubtedly be able to penetrate China's mobile market, but how successful it will be, only time will tell.
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1. The barriers to entry would be pretty strong because this is an oligopoly marktet structure. However, Apple has its strength as a recognized brand and is very strong in other markets. It is very appealing to the people for their iPod and cell phone to be together.
2. Few firms produce cell phones because of the barriers to entry. Whenever a new firm comes in, the bigger more dominant firms such as Nokia, Moto, and Samsung will kick them out of the market.
3. I think Apple will be successful in this market because they provide a whole new type of cell phone. Their idea is very appealing to anyone who likes the iPod and wants a phone.
4. I don't think they pose much of a threat.
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1. The barriers to entry are high due to the nature that it is an oligopoly market. But Apple has power in other markets and is well known as a brand and has great money to spend.
Apple has spent a lot on advertising which is a crucial aspect to oligopolies, apple also has spent a lot of money to ensure that its phone is more technologically advanced than other giving it an upper hand. Apple also has a great amount of customer loyalty which is why its still in business.
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I agree Apple has more power with its iPhone, as it stresses the differences it has compared to other phones. This gives Apple an advantage over others in attracting a certain pool of consumers who would most likely be loyal to the brand. Thus, I don't think knockoffs would pose a significant issue to Apple – consumers would most likely buy the real iPhone for it's gadgets and function, and the quality would not be as high in knockoffs.
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Oligopoly is a market structure which is mostly very hard to get in due to the economies of scale, however, for Apple, I think it is a different case. Apple is a industry big enough to afford the whole price barriers to get into a new market. Also, since its brand name is well-known, even though it could give them a bit loss at the short-run, still it would be able to gain a lot later in the long-run, because the product differentiation and a lot of strategies they use will probably appeal to many people.
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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?
Barriers to entry in the market for mobile phones lie in the area of knowledge. There is imperfect knowledge and on top of that, the market is an oligopoly and there for collusion may also create barriers to entry as collective price battling may nudge smaller competitors out of the market. So few firms produce mobile phones because of the high costs associated to the technology required to produce and update cell phones. There are also so few firms because of the relatively high barriers to entry, with it being an oligopoly and all. I Apple will penetrate the mobile phone market, but not to the degree some think it will. I think that Apple as a brand has generated enough credit that it will do reasonably well, or at least as can be expected, for a new phone providing new capabilities, but I think that the reliability of the phone and the battery life will be observed initially by consumers before the masses go out and buy them. Knock-offs present a huge threat to the iPhone in China because well the publicity and use of the iPone may be high, the actual sales would suffer and therefore, Apple would incure large losses.
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[...] Does Apple stand a chance? [...]
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The advertisement for Apple's iPhone is basicallys stating that it's a whole new generation of cell phones, something so advanced that people will be awed by it. Although Apple probably realized that the cell phone market is an oligopoly, they felt confident about their product that they still risked the chance of producing it. Despite not being part of the oligopoly, it's reputation for the iPod and its great new features enticed thousands to buy the iPhone. 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.
There aren't that many firms in the cell phone market because there are great economies of scale associated with it. Not only does it require machinery to put together such an intricate piece of technology, in order for a company to survive in this market, it also needs to continually come up with new ideas. Thus, there is great demand for entrepreneurs. However, that resource isn't very easy to find.
Looking at the cheap knock off of the iPhone, there are some small differences in this product and the real one. However, it's functions and it's overall look is the same. This may be a great threat to Apple, seeing as how some people probably won't mind the small differences and are willing to pay a lot less for a product that looks a lot like an iPhone. This means that Apple is losing a lot of its consumers, which may result in not as large of an amount of profit as previously hoped.
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[...] I wonder if the real iPhones in China outnumber the fake ones [...]
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1. There are high barriers to entry in the cellphone market mostly because of economies f scale. Creating a new company would consist of building massive factories, employing large work force and allocating many resources all for such a small market share because in oligopoly's the consumers will have already been loyal to the other companies. Apple has a different aspect though, they are entering the market with an established name and established resources to back their product in addition to it uniqueness i believe the I phone will do well in the market.
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What barriers to entry exist in the market for mobile phones?
There are many barriers to entry, some of which are economies of scale, and customer loyalty. Many cellphone companies have already built up a huge customer base, of loyal people who already know about the quality of the phones and trust in them. It is hard for a startup company to get that same base. Also, economies of scale makes a big difference. Large firms often have expensive capital that can lower average costs, but are unavailable to smaller firms. When small firms enter the market, larger ones can force them out by selling their product at a price that still earns profits for them, but is too low for new firms to cover their costs.
Do you think Apple will be able to successfully penetrate the mobile market?
I think Apple will be able to enter the market, because it has not much trouble with the barriers to entry. As it is already a large firm, it has plenty of money with which to buy capital, and many loyal customers that have bought computers before, but will also buy phones. Also, since Apple partnered with AT&T, another large phone firm, working together, they can easily penetrate the mobile market.
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Why do you think so few firms produce mobile phones?
There are a lot big firms like Nokia and Samsung in this market. Which set high priorities and only a few firms can keep on track with them. Apple who entered the market did it great. It came in with new ideas and new features for a phone for example the touchscreen, which almost everybody loves on the ipods and made their phones like them. The barriers to enter are low, but a lot of firms would have problems keeping up with the differentiating.
Do you think Apple will be able to successfully penetrate the mobile market?
I think Apple has no probloems in differentiating himself and keeping up with the other firms in the market. It does a great job advertising and knows what people want and what makes them special.
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What barriers to entry exist in the market for mobile phones?
One of the main barriers to entry is economies of scale. The main companies such as samsung, nokia and motorola all can produce at lower costs than a new market joining. The new market would simply be too small and it would take too much time and money to build factories and create new phones. Another barrier may be customer loyalty; people that may have been using nokias for years to are unlikely to want to switch to a new firm which has just entered the market. The apple iPhone however, will do very well in the market as people loyal to the brand and it already has a very large industry for i-pods and mac's.
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1.What barriers to entry exist in the market for mobile phones?
One of the barriers to entry is economies of scale. Companies like Samsung have already reached economies of scale, in that they have grown to the best size at which to produce at the lowest price possible. An incoming firm will have trouble doing that, as it first needs to get all its resources, and then establish itself. Another is branding, and customer loyalty. In addition to low prices, customers will buy certain phones because they know how to use them well, for example, or they like what kind of service they get from the phone. An incoming firm will have trouble setting itself up as an established firm because it has to compete with these respected firms.
2.Why do you think so few firms produce mobile phones?
The barriers to entry in the phone market are demanding, and to actually get the resources you need requires a lot of money.
3.Do you think Apple will be able to successfully penetrate the mobile market?
I think it already has. Apple ha successfully advertised its iPhone, and has thousands of customers, of which the majority, no doubt, are completely loyal to the brand, as we see whenever a new version of the phone comes out and the fact that there are people crowding in front of the Apple shop on the day it is released.
4.What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
First, they look alike. Why get the real thing, when you can get a cheaper one, that looks exactly like it? Second, it has all the major features that characterize the iPhone, but for some reason, it is cheaper, which will tend to attract potential customers away from the more expensive version.
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1.What barriers to entry exist in the market for mobile phones?
The barriers to entry that Apple faced during its entering into the mobile phone market were mainly economies of scale and brand loyalty of consumers to other products. The iPhone for one would have to be able to differentiate itself above other products as something significantly better, as most consumers would most likely be fairly hesitant to change from the familiar product to an unknown one unless reaping significant benefits. Furthermore, the iPhone’s production costs before launching full off and gaining market share—which would allow them to benefit from economies of scale in relation specifically with the production of the phone product—may be an issue as it was at first somewhat more expensive than the competitions phones, another deterrent for consumers, going back to the idea that it would have to hold some unique aspects to it in order for consumers to switch.
In addition to these, however, if a firm that would not already previously be of such massive size and a very similar area of expertise, such as Apple, it would face economies of scale of a colossal magnitude, the issue of gaining consumer popularity is another significant one, and pressure from larger firms in the form of anti-competitive behavior may be overwhelming (for ex. they might forcefully lower prices in order to force the new firm out of business).
2.Why do you think so few firms produce mobile phones?
It is extremely difficult to enter the market due to economies of scale and existing consumer bases that the existing firms in the market have.
3.Do you think Apple will be able to successfully penetrate the mobile market?
Most likely Apple will be able to do so because there product does offer a revolutionizing technology if compared with other phone companies, despite being in a slightly higher price range. And as mentioned they do not faces significant issues considering barriers to entry. In addition, they also hold a previous customer base with their computers that will help them with gaining market share.
4.What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
It poses the threat that people may simply buy the knock-off instead of it because they assume they are of similar quality, which will not only diminish market share for Apple, but it may also negatively affect the image of the product, if a poor knock-off, damaging Apple from gaining consumer attention overall.
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I agree with your thoughts about the competitiveness of the mobile market, especially in North America. With binding contract, many cell phones are of similar or slightly price point. Therefore, many people would choose to buy brands that are more well-known like Apple and Blackberry.
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What barriers to entry exist in the market for mobile phones?
The mobile phone market is a oligopoly, so there are many difficult barriers to entry. The most common include patents (government given authority, something like a copyright that firms obtain to make themselves ‘untouchable’ in the market. Then there is brand name recognition and customer loyalty, that comes when firms that are quite old and very established become a iconic brand and customers become attached to the firm and their products. There is also the chance of government franchise, which allows firms to do certain, perhaps commercial stunts, that other firms are not allowed by the government. And then there is a very important one, economies of scale, which simply makes it hard for new firms who are not experiencing economies of scale unlike the other established firms, to enter the market.
Why do you think so few firms produce mobile phones?
Only few firms produce mobile phones because it can be risky entering a market with so many well-established famous firms. There are also high barriers to entry so it is not easy to enter.
Do you think Apple will be able to successfully penetrate the mobile market?
Apple has already proved that they have been successful. Obviously, the crowds of people waiting outside the apple store when the new iphone comes out are a proof of their success already however it is also the way they differentiate that is brilliant. We can see that because all of the other mobile phones firms have started ‘copying’ the designs, the new touch screen phones look sometimes identical to the apple ones. Also we can see this effect with the ipads that were first released by apple but now all the other firms seem to be releasing their own version of the ipad.
What threats do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
China has a massive population, and it is the most and quickest economically developing country in the world, therefore it represents a huge potential market. The cheaper knock-offs attract customers because they look the same as the apple products but have a much lower price. Because the product is essentiality the same, but much cheaper it is likely that many people will purchase it over the real thing and Apple may experience a decrease in profit.
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Hi Felipe! I really like your post and agree with pretty much everything you said. I like your answer about the barriers of entry especially because it shows your understanding. You explained why economies of scale pose such a problem and also added some interesting points about people getting used to a product. I also like your last point, I agree with it but I also wonder, because you mentioned brand loyalty, wouldn't customers that are loyal to apple feel obligatory to buy the real thing?
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What barriers to entry exist in the market for mobile phones?
There isn’t a strong product differentiation in mobile phone abilities. A phone calls, and text messages, sometimes with a few other abilities, but it’s pretty standard. Pre-established phone companies are barriers as well, because consumers are already attached to the phone, and the mobile phone ‘plans’ as well, with their respective companies.
Why do you think so few firms produce mobile phones?
I believe that since firms are aware of the potential competition, they hesitate to take the risk of entering the market. The lack of consumers also makes the mobile phone industry not so promising, because most people already have mobile phones!
Do you think Apple will be able to successfully penetrate the mobile market?
Apple’s success is very clear now. Like the video described, the iPhone offers many more features than a standard mobile phone does, and therefore more consumers are willing to abandon their old cell phones to join in on the phone that is taking the world by storm.
What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
The knock-offs may provide VERY similar services at a much lower price on the phone, and therefore consumers would be willing to sacrifice the brand name and pay much less for an incredibly similar phone.
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You raise a very good point about the long-run sales in the Chinese market. Soon, the knock-offs won't be as popular, and additional software upgrades – only operating through Apple – draw consumers to chase down the innovative, high-in-demand phone. By now, Apple is so weel established that the iPhone is truly the "it" phone, with the most popular status in the market.
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What barriers to entry exist in the market for mobile phones?
The little product differentiation makes the big companies monopoly, and they dominate the whole market, opting out small firms. Without product differentiation, it is unwise to enter the market for mobile phones.
Why do you think so few firms produce mobile phones?
Because the products are pretty much the same, meaning there is very low level of product differentiation. The fact that a few big firms occupy 75% of the total market makes it impossible for the birth of new firms.
Do you think Apple will be able to successfully penetrate the mobile market?
It is very obvious now Apple is very successful. The product innovation has totally enticed the consumers. Apple has successfully penetrated the mobile market.
What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
Cheaper knock-offs are indeed competitive. They have the similar features but far cheaper prices. Consumers will definitely choose the cheaper products, which are not any inferior that the authentic ones. So Apple may find it harder to penetrate China's mobile market.
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You made a good point that Apple cooperates with AT&T so they can provide products together, making Apple more competitive in market.
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What barriers to entry exist in the market for mobile phones?
One of the barriers to entry to consider is customer loyalty. Since there is already an oligopoly present in the market for mobile phones, it would be hard for the Apple iPhone to win over some customers who are happy with what they have. When customers already trust the firms in the market, any new firm entering the market has to win over the trust to be successful. Another barrier to entry is a partnership between mobile phone producers and phone plan providers – if a company is paired up with a plan provider, consumers may find it easier to buy from that company and coordinate their plan. Finally, economies of scale present another barrier to entry, since a firm entering the market will not be initially large enough to benefit from the large economies of scale existing companies already have.
Why do you think so few firms produce mobile phones?
There are a limited number of firms producing mobile firms because of the barriers of entry into the market. It is nearly impossible for a small company to enter the market and be successful. Also, there is a limited amount of product differentiation in the market: all mobile phones do the essentially same thing – make calls – and so there is no need for multiple companies to be producing such similar products.
Do you think Apple will be able to successfully penetrate the mobile market?
This question is kind of in hindsight, as we can see in the world today that Apple has been extremely successful in the mobile phone, with the iPhone being one of the most popular mobile phones today. When they started, the reason they were able to successfully penetrate the mobile market was due to their success in other areas – they were already a well-established popular firm, due to their sales of the iPod and Mac computers. This meant they could already benefit from some of the economies of scale of production, technology, etc – the iPod and iPhone look quite similar, perform similar functions, and could probably be manufactured using similar technology. As well, they already had a large customer loyalty for the “Apple lifestyle”, and so people wanted to get iPhones to complement their other Apple products, which other mobile phone companies do not produce.
What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
The knock-offs pose a threat because they seem similar to consumers, yet their prices are much lower. This means, if a person wants to buy an iPhone but finds them too expensive, they will buy a knock-off instead. Apple competes mainly on the basis of non-price competition, with its product differentiation and marketing techniques, however the knock-offs would force Apple to participate in price-competition, which would threaten their profits.
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1. What barriers to entry exist in the market for mobile phones?
The barriers include the economies of scale and brand loyalty of consumers. To justify the price, the iPhone, for instance, must prove itself to be a superior product for customers to be motivated to change. In addition, a problem that arises for companies like Apple is that it is slightly more the expensive to the competition. Hence, the company had to consider a great deal about its production costs before bringing forth its product and gain market share in order to fully benefit form the economies of scale in relation to the production of the phone product. Another problem that might arise is that if a firm is not large nor it is known for its technological expertise, it would encounter large economies of scale and the problem of gaining consumer loyalty.
2. Why do you think so few firms produce mobile phones?
There are only a handful of firms which dominate 90% of the industry and therefore make it very difficult for small companies to join in the competition.
3. Do you think Apple will be able to successfully penetrate the mobile market?
In countries like Canada and the United States where the price of cell phones is not as huge of a factor due to binding contracts, Apple is able to successfully penetrate the market. However, in other countries like China and Japan, price point is still a factor. However, it doesn't stop it from being a desirable product.
4. What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
Due to the higher price point, if China is able to produce a exact replica of the item by penetrating in the system, many people might opt for the replica since they are able to produce some of the applications in Chinese.
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1.What barriers to entry exist in the market for mobile phones?
A major barrier that exists in the market is trust, a certain firm has to earn the customer’s trust so that they are willing to buy their product instead of another firm’s product – as well as customer loyalty, we have to consider that all customers stick to their proper firm. Another barrier would be the relationship between the mobile phone producers and phone plan providers, because when someone buys a phone they will want to start a plan on it, and what better way to buy a phone from a firm that sets up a plan for you. It is simple, easy and convenient for the consumer – rather than having to buy the phone, then look for a good plan.
2.Why do you think so few firms produce mobile phones?
In a mobile phone market, it is really hard to keep up with the competition – especially when a market has so much competition, there are so many companies such as Apple – Nokia – Blackberry, HTC etc.. It is in some ways an oligopolistic market – consumers will buy the product that seems most convenient to them, the cheapest and one they will get the most benefit out of. Especially when there are many barriers to entry, all the bigger companies push the smaller companies out by lowering their prices, then these companies are forced to leave the market as they are out of business.
3.Do you think Apple will be able to successfully penetrate the mobile market?
This question depends on who you ask, as we can see in the world today that Apple has been extremely successful in the mobile phone, with the iPhone being one of the most popular mobile phones today. When they started, the reason they were able to successfully penetrate the mobile market was due to their success in other areas, they would produce a phone that could basically do anything a person would want: phone, play games, send emails, look up things on the internet, watch movies, listen to music etc.. I feel as if Apple will continue to be as successful as they were if they keep up their variety and produce goods that the consumers will always buy no matter what year it is – as people still buy the iphone 3, even though it is at least 4 years old.
4.What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
This creates a major issue to Apple stores in developed countries as many stores sell them for much more expensive prices, where as the consumers will buy them from China or Asia for much cheaper and the same quality. This mean that the Apple store will have to lower their prices to a point where they are making minimal profit just to compete with these “knock-offs”.
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Good answers, I feel as if we have the same responses, except for the question question 3. (sort of), I think that apple is successful due to its diversity and variety, it produces goods that a consumer wants – for example the Iphone can do so many things that the consumer is mind blown and will automatically want it.
Thanks Sol
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Perhaps the most influential barrier to entry into the market for mobile phones is the prospect of it being an oligopoly. Although there are no actual barriers from entering the phone industry; there are several deterrents that prevent possible competitors from doing so. Similar to the situation of a monopoly; the large firms in the industry (with the benefits of economies of scale) will be able to produce their product at a much lower cost than a newcomer into the industry; therefore being able to supply it to the consumer at a lower price as well. The large firm 'brand-names' also play a large role in deterring possible competitors from entering the market. This is illustrated in the article above; Apple has to compete against well-established firms that already have a certain degree of brand-loyalty; and only manages to do so successfully due to its 'product differentiation'.
I think that so few firms produce mobile phone due to the 'deterrents' illustrated above. It is an already well-established oligopoly in which a few firms hold sway over the entire range of consumers; which is quite an intimidating prospect for potential competitors. Additionally, only the large firms with their economies of scale can afford to spend great quantities of money of technological research and product development. This means that new firms entering the industry will be unlikely to be able to compete with these technologies. These deterrents prevent potential competitors from entering the industry.
I know that apple will be able to penetrate the mobile market; as that is exactly what has happened since it launched its first I-phone several years ago. This was possible through its product differentiation- the product that it advertised surpassed the capabilities of the products' of its competitors in numerous ways. However, in retrospect, the extent to which it was successful is surprising; considering the established oligopoly that already existed in the industry.
The cheaper "knock-offs" of the I-phone (such as those that were advertised in China) pose serious threats to Apple's attempt to compete in the market. They effectively present a substitute to the I-phone; a substitute with very few differences to the original product, and at a much lower price. As, at the time, the I-phone was a new and perhaps relatively unknown product, the prospect of the 'brand-name' wasn't as prominent. This could result in many potential consumers of the I-phone purchasing the cheaper substitute; reducing the profits made by Apple.
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Hey kedwards,
I agree with your answer to the second question; that the fact that the industry is an already established oligopoly (with large firms and much competition) will deter potential competitors from entering the industry at all. Although there may not be any actual barriers to entry; deterrents from entering the industry definitely exist; and keep the number of firms in the industry relatively low. I also agree with your response to the third question; product differentiation is one of the main reasons why Apple was able to successfully compete, and indeed thrive, in the mobile phone industry.
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1. The barriers to entry would be pretty strong because this is an oligopoly marktet structure. However, Apple has its strength as a recognized brand and is very strong in other markets. It is very appealing to the people for their iPod and cell phone to be together.
2. Few firms produce cell phones because of the barriers to entry. Whenever a new firm comes in, the bigger more dominant firms such as Nokia, Moto, and Samsung will kick them out of the market. People buy phones mainly depending on how reliable the brand is. If a mobile phone brand has not been in the market since the beginning, it is very hard for it to start to get recognised, and become one of the leading dealers.
3. I think Apple will be successful in this market because they provide a whole new type of cell phone. Their idea is very appealing to anyone who likes the iPod and wants a phone. It is the first successful touch screen phone, and it pretty much has everything on it. This product will only keep on getting better and better, and slowly start to dominate the market for cell phones in years to come.
4. I don't think they pose much of a threat. Since it is such a creative, different and advanced product, the chinese market will find it extremely hard to provide anything that is slightly similar that can compete with it in China.
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hey Sophie! I agree with you answers. it is very difficult for firms to enter this market, because consumers always go for reliable products that have been prooven to do so since they are spending alot of money on it and need everyday. Therefore new firms will have to wait years before there product starts to become regconised, and this may too much of a loss. I also think that is will be very difficult for China to replicate the iphone, since it is such an advanced and different product with new technologies!
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1) What barriers to entry exist in the market for mobile phones?
Any new firm entering the industry in an oligopoly would have a way too small market share and would produce at really high prices. Another issue that was addressed in the article would be that consumers would be loyal to their brands, they wouldn’t want to switch to Apple, just because they are more used to maybe Nokia, and they trust that brand. This is what would make it hard to enter a mobile phone market.
2) Why do you think so few firms produce mobile phones?
I think one reason could be that smaller firms might have merged together; this is definitely something that has happened in the UK recently. If firms merge, then they as one have a bigger market share, and therefore have more market power. I also thing that barriers to entry is another reason why so few firms produce phone, there are high start-up costs and the existing companies are very well established, they have high economies of scale and often use it for R&D, which makes it hard for other firms to enter or compete with them.
3) Do you think Apple will be able to successfully penetrate the mobile market?
I think we would all agree, that over the years, Apple has been very successful in penetrating the mobile market, and has gained significant market power. They were able to do this because they were very successful at three things – product differentiation, and innovation and advertisement. Because of this, they have been able to generate high demand and interest from consumers and have also been able to gain a lot of consumer loyalty.
4) What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
I think they do pose a threat because China is able to produce similar looking products at a cheaper price that is more affordable to a lot of consumers.
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Hey Sophie!
I think you did an amazing job, and your answers are really detailed. I think that it was excellent that you mentioned how brand loyalty is a huge part of the high barriers to entry. I also agree when you said the production costs are high, because to be able to enter an industry like that, the start-up costs have got to be high, with all the advertising and everything!
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What barriers to entry exist in the market for mobile phones?
For most people, there isn’t a difference between a mobile phone. The system would be similar as long as there is basic communication tools. The only difference to some people is the quality of the phone call from phone companies. Also, the key barriers to market for mobile phones are the trust from costumers to the company. The company gains trust from their loyal costumers to buy every new product of theirs.
Why do you think so few firms produce mobile phones?
There is a good competition for the firm if they produce mobile phones. There is this risk of lack of costumers, with all costumers taken by other phone companies, without a creative masterpiece, the company is hard to gain trust, and fame.
Do you think Apple will be able to successfully penetrate the mobile market?
Apple already succeeded. At the point when apple entered, the company already had established wealth, fame with royal costumers. With Apple’s contract between big phone companies, it is easy to be well known using commercials.
What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?
As Apple tries to reach China’s mobile market, their biggest competition is not other mobile companies its the “knock-offs”. They are very high in similarities yet far cheaper in price. Costumers are able to buy the almost same quality of service for a much cheaper price.
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Hi Monique!
I really like your points on the Apple competes mainly on the basis of non-price competition,and that the product differentiation and marketing techniques," I haven't thought of that before you brought it up! it is a really good point!
Thanks for Sharing.
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1. It will be hard to enter the market of mobile phone as already a lot of company are part of it but only 3 companies are actually leading the industry. But as Apple is a well-known company and is good quality, they know that consumers will be interesting in their product. This is named as brand loyalty.
2. Mainly because of the barriers, few firm will enter the industry because big firms such as nokia or few others are already well known and big and with lot’s of choice. So people will prefer to buy something that they are sure they can rely on.
3. Of course Apple will be able to penetrate the market successfully. People already know about their laptops and other products and they know that it’s good quality. So if a new product comes out they will be interested to see it. Plus the Iphone is more than a simple phone because of the numerous applications or other things.
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