Jan 28 2009

Product differentiation in imperfectly competitive markets – the MacBook Wheel

45 responses so far

45 Responses to “Product differentiation in imperfectly competitive markets – the MacBook Wheel”

1. # Guillermo Pereyraon 29 Jan 2009 at 10:26 am

   Dear Jason:

   I think you are right about the concept on product differentiation, but you are wrong about mac book wheel. It is a joke by Onion New Network.

   The best for you.

2. # Jason Welkeron 29 Jan 2009 at 2:50 pm

   Thanks, Guillermo…

   I know… The blog post was written “tongue in cheek”, i.e. the joke of the MacBook Wheel can still be used to illustrate the economic concept of product differentiation!

   Thanks, Jason

   -This message was written on a MacBook Wheel

3. # Rocioperezon 05 Feb 2009 at 1:10 am

   Apple has done a great job when it comes to differentiation since all their computers, ipods..etc have a very unique design that make them stand out from all other computer designs. This is like the example of the toothpaste section in a Chinese store in which there is so much variation that advertising is used by firms to catch the consumers eye. Due to branding toothpastes such as Colgate are more prominent.
   In this case Apple uses their distinct feature, the “click-wheel” on the MacBook Wheel. The click-wheel was clearly a huge success amongst customers since “nothing is more simple than a single, giant button” as one of the promoters in the video stated. He also adds that Apple’s philosophy is to create products that are simple to use. This is another advantageous aspect of the click wheel as it is easy to use, thus enabling a broader range of the public to enjoy it such as younger kids and older people. Anyways, as Mr. Welker wrote, branding is one way for a firm to increase the inelastic demand of customers to increase their prices and in turn profits.
   Although Apple is not a complete monopoly, it can use other methods to increase profits such as price discrimination. This causes the producer surplus area to increase and the consumer surplus area to decrease.

4. # bill farrenon 05 Feb 2009 at 9:34 am

   “This message was written on a MacBook Wheel”

   Too funny.

5. # B Joneson 06 Feb 2009 at 9:35 am

   I am a huge fan of Apple, always have been. I’m always impressed with the speed in which they are able to make one of their latest products seem like an antique. For example: I got a Nano 3rd generation for my birthday last year and its already been taken over by the newer, sleeker, shiner, etc. version.
   This product differentiation and timing of new releases is, in my opinion, key to Apple’s success. Even though they are seemingly releasing new ipods or laptops every few months, its helping to keep the customers that are looking to replace their “antiques”. Not everyone can afford, especially in these times, to buy and new version of the Ipod every time its released; however, when Joe the Plumber’s mom is looking for a Christmas present for her little boy, she knows that Apple always has the lastest technology at the ready.
   Its nice to see something as common as the keyboard finally being modernized. Congratulations Apple.

6. # Christian Evertzon 27 Feb 2009 at 11:09 pm

   The fact that mp3 players are referred to as Ipods by the teenagers shows how successfully Apple managed to increase their market share through product differentiation. Brand loyalty is so huge that consumers don’t even know other mp3 player brands and stick to buying apple products. Apple is a perfect example of product differentiation and the company has been so successful that it sort of created a new market where it enjoys monopolistic power.

7. # Christian Clausenon 03 Mar 2009 at 4:21 pm

   At first I thought this was ridiculous, but after reading Guillermo’s post I am relieved. But yes, this is a very good example on how Apple tries to differentiate their products, but it’s also an example on how you can actually lose a large market share if you come out with a product differentiated in a way which makes it worse.

8. # Younes Huberon 04 Mar 2009 at 2:38 am

   The use of the macbook wheel as an example of product differentiation is very effective. The macbook wheel is definitely something out of the ordinary and IS different from other laptops. Apple has large amount market power especially when it comes to mp3 players; I think we can soon say that iPods to mp3 players will be what mp3 players once were to cd players. They have totally revolutionized products with their flashy yet simple designs and their unique style which is recurrent in their products. Furthermore, Apple has a huge amount of loyal customers; this means that should apple release something like the macbook wheel, which customers will still buy it because they trust Apple to create superb products, if not simply to test out Apple’s newest laptop. Also the fact that apple constantly has newer versions of previous products makes these rivalrous products always the latest hit, meaning people will want to buy these, especially if they now have an older, outdated version

9. # Gabrielon 04 Mar 2009 at 5:33 am

   I completely agree with Younes, even though this is fake, it can still be applied to product differentiation. Making the Macbook with only one wheel and no keyboard would be a revolutioary idea. This is a clear form of product differentiation. It would be completely different from all the other standard laptops. The ultimate goal of this is to increase demand and make it more inelastic. It becomes more inelastic because if Apple were to raise the price then consumers would still buy this for various reasons. Consumers would buy this because of its new revolutionary idea that makes it simpler than any other laptop. Everybody would want the latest apple computer, just like everybody wants an iphone. Some consumers would also buy it just beacuse they are loyal to apple, just like someone states in the video. Apple is not a monopoly since some other firms also exist in the computer market, but since they have a large percent of market share, this is possible. Infact this is exactly the reason for this product differentiation, it is to increase demand and therefore also increase market share.

10. # Daniel D'Amcoon 05 Mar 2009 at 4:38 am

    Apple always has to come out with new ideas and inventions. They do an excellent job of it as well they are always thinking of new ideas, at first it was the mp3 player, then the touch wheel and eventually the touch screen. Apple does a great job at product differentiation and advertising. A big part of apples sales comes from brand awareness and its advertising. There are a lot of different mp3 players out there, but the only company that I know makes them is Apple.

11. # Denizon 16 Mar 2009 at 8:36 pm

    I have to agree with christian evertz on this one, their marketting strategies are amazingly effective. Like he said, brand loyalty is a very important factor, an apple has surely established a secure root, because I also call such technology Ipods, and never mp3 player. Maybe its also just easier to say “Ipod” instead, but whatever the reason is, for most people, there is no other choice than to buy one of their products. Apple surely deserved this power over the market.

12. # Chamonix.echl.f09on 07 Jan 2010 at 9:53 am

    1. In the Apple demand curve, the demand curve increases after successful product differentiation. This is because customer demand for Apple has increased as they believe that it is worth paying more for an Apple product because of differentiation.
    2. Over time, Apple will stop making supernormal profits and make only normal profits. This is because their supernormal profits will attract other firms to the market. As there are no barriers to entry in a monopolistically competitive market, these firms will become a part of the market. This will increase supply and therefore reduce demand, returning the profits of all firms to normal.
    3. Firms such as Apple have attempted to differentiate their products through design and advertising. New designs, such as Apple’s super light computers (or the big wheel on the MacBook Wheel!) can attract customers to products. Laptop advertisements always seem to list new features. I like to think that I would not buy a MacBook Wheel as it does not work properly. Although I have a PC and prefer PC to Mac (I am one of few!) I did buy an Apple iPod. I would not really have bought any other kind of MP3 player. I believe that this is due to effective advertising and also good design on the part of Apple—iPods work, and I know that. This makes me think that perhaps if MacBook Wheel became the standard for computers, as iPods are for MP3s, then I might buy it.

    Chamonix

13. # Trevor.echl.f09on 09 Jan 2010 at 11:54 am

    1. After successful product differentiation, consumers see a real and discernable difference between the product Apple is offering as opposed to other brands. This would probably mean that Apple computers would have something that no other computer has as of yet. This would make the demand become more inelastic and the slope increase. Consumers would still be relatively interested in buying the product if the price went up, because in their opinion there is no real alternative to the Apple computer.

    2. If the market for laptop computers is monopolistically competitive, then eventually Apple’s supernormal economic profits will eventually become only normal profits. If Apple wants to maintain its supernormal profits in the long-run, it will have to break out of the cycle of monopolistic competition. Therefore, it would have to provide a product that differentiates itself from other laptop computers with technology that will not be available to their competitors for some time. This will ensure their dominance in the industry.

    3. One technological example that I can immediately identify as a company trying to differentiate their product is Apple with the iPhone. The market for cell phones has been fairly consistent with many different companies offering slightly different features. What Apple tried to do with their iPhone was to completely revolutionize the way phones are used by inserting many new “apps” unseen in phones before into their apparatus. Now, it is not clear the full effect of this move by Apple, but it is certainly clear that this new product has done very well and has differentiated itself from other cell phones in a drastic way, leading to supernormal profits for Apple. And, no, I don’t think I would ever buy a MacBook Wheel. Though I do love The Onion because they bring up a very good point on how far this technology will go before becoming simply ridiculous.

    * Trevor Tezel *

14. # Trevor.echl.f09on 09 Jan 2010 at 12:01 pm

    Chamonix,

    I completely agree with your responses to the first two questions. As for your emphasis on design and advertising, I had not considered it before but these sheer factors alone may be able to create product differentiation. Many consumers can often be wooed by a well thought-out advertising campaign that can turn a mediocre and typical product into the hot new item of the season. I’m just not sure if this can maintain the long-term product differentiation needed for long-term supernormal profits. You also mention design which I think is something that can be emulated by other products unless they just develop the stigma of not being “cool.” Speaking of which, I am also a PC so you’re not alone. ? But I do have to say, I hope your last comment was made in a sarcastic manner regarding your purchase of the MacBook Wheel if it became the new thing. I know at least I’ve spent too long getting to the point where I can type fairly fast to move to a wheel….

    * Trevor Tezel *

15. # Meiling.echl.f09on 09 Jan 2010 at 12:24 pm

    After successful product differentiation, Apple appears to project the image that the particular product it intends to put out on the market is totally unique and unlike any existing product on the market. Whether this supposed new innovation is superficial or genuinely useful does not matter at first. This is because a good marketing campaign which enables Apple products to transcend other computer products in the eyes of its customers. As a result demand becomes more inelastic, as consumers are led to believe that Apple, and only Apple is able to provide that specific type of product, thus eliminating any viable competition, which in turn enables them to charge higher prices.

    –
    If the market for laptop computers is indeed monopolistically competitive, then what was once supernormal profits for Apple will become normal profits in the long run as other companies copy Apple’s innovation techniques. In order to break the cycle and maintain profits in the long-run, Apple must constantly innovate – and therefore invest large amounts in R&D – and create new markets and new needs for consumers, or improve vastly on an existing market so that they achieve overwhelming dominance of that industry, as with the iPod and the Mp3 player market.

    –
    I think a way in which Apple is particularly successful at differentiating its products is by building a whole culture around its computers and entertainment products by developing a very unique and specific brand image. One thing about Apple that other companies do not have is its universal recognition. Aesthetically Apple is an iconic brand because it creates very elegant, clean, minimalist designs in very few colorways (with the exception of the iPod mini). This image is replicated across a wide variety of platforms including the design of the advertisements, the store layouts and the website. If you were to take an Apple product and smash it, it would still be recognizable as an Apple product.

    Similarly, Apple caters to the creative types, although not so much so anymore, in the same way the IBM and Windows caters to office workers. Apple succeeds at product differentiation because it carves out a new niche in the market. Before Apple, there were no computers/software that specifically catered to creative individuals.

    I don’t think I’d ever buy a Wheel, it seems a bit silly and inefficient but I guess that is how Apple’s innovation process works. I’d rather stick with a keyboard. I’ve noticed that the Wheel has been taken off the Apple website and no news about it has come out since mid-2009, so maybe Apple has realized its lack of actual potential.

16. # Meiling.echl.f09on 09 Jan 2010 at 12:28 pm

    @Trevor,

    With regards to your comment about the iPhone, I think a reason why Apple was so successful with it was because it was marketed as not a phone but ‘an iPod with phone capabilities’. Apple took a lot of care to emphasize its power as a multi-media platform and communications device instead of just a phone, or even a smart phone. One way in which they highlighted this was, like you said, with the App store, allowing users to customize their iPhone with fun and useful applications in a way that no other company had ever achieved before.

17. # Ralph.echl.f09on 09 Jan 2010 at 8:25 pm

    1. In the graphs above, the slopes of the demand curve increases after successful product differentiation by Apple. Why does this happen?

    Apple always creates products which are different to their competitors, they create their own uniqueness, which consumers are very attracted to, as it is something different. The slope would rise due to demand becoming more inelastic. As the consumers desires a apple product opposed to another brand.

    2. Assuming the market for laptop computers is monopolistically competitive, what will likely happen to Apples economic profits over time? What must Apple do if it wishes to maintain its profits in the long-run?

    In the long term, supernormal profits would become normal profits, however Apple would have to differentiate in their products to stand out from the crowd, and create their own uniqueness to dominate the market and to continue to make supernormal profits.

    3. What are some real ways companies like Apple and its competitors have attempted to differentiate their products over the years? Would YOU buys a MacBook Wheel if it were real?

    Apple and different companies over the years, have tried to bring in new technology and design to attract us. Apple uniqueness is its OS, design and simplicity. Some consumers just want to be “up to date” with the latest gadgets and technology, and then most consumers will tag along after they realize they fall behind. Personally I wouldn’t by the wheel as I believe I would find it impractical. It would have been a total flop in my opinion.

    @Trevor, liking the comparison with the iPhone, great example of how apple was innovative and was spot on.

    @Meiling, Id agree with you the Wheel just isn’t practical and I would stick to the keyboard, agreeing with your point on the marketing as the ipod with phone capibilities!
    “I’m a PC” -Microsoft

18. # Masaya.echl.f09on 09 Jan 2010 at 11:16 pm

    1. The slopes of the demand curve increases after successfully product differentiation by Apple because more consumers attracted to the uniqueness to Apple’s technology, and hence purchasing their products. In addition, it indicates that the PES is become less elastic. In other words, more consumers are becoming addicted to Apple products.
    2. Over the long-run, the supernormal profit Apple is currently gaining gradually starts to diminish and turn into normal profits – the minimal amount of profit needed to operate the firm. Apple needs to continue effective advertisement and research and development of new techonology to attract more consumers in order to maintain its supernormal profits.
    3. Some real ways Apple and its competitors have attempted to differentiate their products over the years are Macbook Air, the thinnest and lightest Apple laptop; and Windows 7, the newest Windows OS. I would NOT buy a Macbook Wheel if it were real for its slow typing speed and ridiculous predictive sentence techonology.

19. # Masaya.echl.f09on 11 Jan 2010 at 12:44 pm

    Chamonix>>
    Do you think consumers are fascinated by Apple’s product for their illusions created by their uniqueness and effective advertisement? On the other hand, do consumers focus on the practicality of the product or the appearances of the products?

20. # Elijah.echl.f09on 12 Jan 2010 at 12:26 am

    1. The demand curve increases after a successful product because the more successful products (especially in a row) increases customer loyalty. Customers consistently see good products and begin to just assume the company in question makes good products.

    2. Over time in a monopolistically competitive environment, Apple profits will fall to equilibrium with that of its competitors. The only way to maintain its profits are to distinguish itself from its competitors perhaps by advertising or superior R&D and potentially with a pure lucky break-through.

    3. Some of the real ways companies like Apple have attempted to distinguish their products are by ridiculous market campaigns, and consistently claiming that there products are safer and easier to use have more support. I would of course never buy a MacBook wheel being that I have a deep and abiding hatred for all things Mac being that they charge more in effect for “support” and “compatibility” and I know how to use a computer well enough to do those things by myself. Additionally this particular product would be useless.

21. # Elijah.echl.f09on 12 Jan 2010 at 12:33 am

    @Meiling.echl.f09

    Apple’s strong point has always been marketing. Consistently their marketing campaigns have been more successful to the point where some of them have become cultural standards (“I’m a Mac, and I’m a PC”.) Windows has never achieved this success in its campaigns, and consistently gets bad press due to accusations of monopoly. Ultimately when you buy any apple product you are very much paying for an image and pretty colors.

    While their ad campaigns so successful it doesn’t really matter if the product is any good. People are hooked on the Apple Mythos.

22. # Mattea.echl.f09on 12 Jan 2010 at 4:38 am

    1. In the graphs above, the slopes of the demand curve increases after successful product differentiation by Apple. Why does this happen?
    As Apple differentiates their products, their demand increases. The products become more appealing to the consumers. Along with this demand increase, demand becomes less elastic. Less elastic demand has a higher slope. This is why the slope increases.
    2. Assuming the market for laptop computers is monopolistically competitive, what will likely happen to Apples economic profits over time? What must Apple do if it wishes to maintain its profits in the long-run?
    In monopolistic competition, all supernormal profits are competed away in the long run. The only way for a company to increase or maintain their profits is to create new products.
    3. What are some real ways companies like Apple and its competitors have attempted to differentiate their products over the years? Would YOU buys a MacBook Wheel if it were real?
    Apple and other companies have differentiated their products by improving on old ones, such as the release of new iPod models, and by creating entirely new products, like the iPhone. Companies also put a lot of money into advertising, like with the Mac vs. PC commercials. These make Apple’s product seem superior to Microsoft’s, though these differences may not actually exist.

23. # Mattea.echl.f09on 12 Jan 2010 at 4:41 am

    Elijah,
    Would you say that Apple concentrates specifically on making their Macs seem to operate better? I’ve noticed that there seems to be a sort of Mac culture, and that people seem to buy Macs because they’re cool. I think this is a highly desireable form of non-price competition for a company. It could perhaps be even more effective than a superior product; why spend money to develop something better if buying what you already have is the cool thing to do?

24. # Ralph.echl.f09on 12 Jan 2010 at 7:18 pm

    Another point, We can not forget that apple as well as being an operating system, is also a computer system itself, its a design. Where as Microsoft is only an operating system , and the computer system itself is build by many computer system manufacturers around the world. E.g. Sony, Packard Bell, HP etc. Which is also what I believe is part of Apples’s success, is having created something unique and keeping it unique by investing more money into R&D.

    @Mattea
    You are right about their coolness, however the main aim of apple when they started was to provide consumers with another operating system, an option, that was better. Apple will have to continue to develop their products to maintain their uniqueness, otherwise its gets old, and people wouldn’t be willing to buy it.

25. # sara.echl.f09on 12 Jan 2010 at 10:44 pm

    1. The slope of the demand curve increases because apple is always coming up with new products to interest their customers and bring more and more people in. With the demand increase, the demand also becomes inelastic because people become more dependant on apple products rather than products from a different brand.

    2. In the long-run apple’s supernormal profits will become normal profits. Apple must create new products and bring new clients in if they want to increase they’re profits again.

    3. Apple constantly releases improvements of previous products and every six months, thy release a new product. They also put a lot of money into advertising their new products to make them appeal to the public so that they get bought. I don’t think I would buy a Macbook Wheel because I don’t think i could get used to typing on a touch screen and the computer finishing my sentences for me.

26. # Dennis.echl.f09on 13 Jan 2010 at 1:03 am

    1. The slope of the demand curve increases after this product differentiation because consumers are interested in new technology and are interested in the firm that releases it.

    2. Assuming a monopolistically competitive market, the long-run profits for apple will always be only normal profits because supernormal profits will still always be competed away. In order to maintain supernormal profits, Apple will have to continue to innovate at a constant rate.

    3. The history of attempted product differentiation in the computer industry started with laptops. When laptops were first invented by Osborne Computers (http://timesofindia.indiatimes.com/home/sunday-toi/open-space/Who-invented-the-laptop-and-which-company-first-produced-it-commercially/articleshow/991598.cms) it started the wave of new innovations in the computer industry. Since then, things like wireless mouses and flatscreens have been innovations, along with increased hardware. I would not buy the macbook wheel because it seems like it would be really annoying.

    Dennis

27. # chamonix.echl.f09on 13 Jan 2010 at 1:33 am

    Masaya,
    In response to your questions:
    I do think that customers buy Apple because of their uniqueness and advertisement. I think that one of the especially effective things about Apple’s product differentiation is that the public does a great deal of it. I am very familiar with the iPod ads featuring a silhouette listening to an iPod against a brightly colored background, but I also see people use iPods every day. My iPod came with Apple logo stickers which I have seen on everything from cars to ski helmets. Apple also has excellent product placement (Carrie Bradshaw, the protagonist of the Sex and The City TV series, uses an Apple laptop in almost every episode!) There is such intense brand loyalty to Apple that I think that consumers help to expand use of the products.
    I also think that customers are drawn to the design of the products. I have to admit it: my laptop (Compaq) is not pretty. My iPod (blue Nano) is. The designers of Apple have made a very beautiful product, and people want products that look good.
    Finally, I do think that consumers focus on practicality. Apple products are proven to work, and many programs such as iMovie are considered some of the best in the field.
    So I think that it is for all of these reasons that people buy Apple products. However, I would say that the first–uniqueness–is the strongest factor. I think most people who bought an iPhone wanted to not just have all of the features and abilities of an iPhone, but also the statement “I own an iPhone.”
    Thanks for the interesting questions!

    Also, Trevor, in response to your question about me saying I might buy a Wheel:
    Five years ago, would you have said you would buy a cell phone with one button? Would you buy an iPhone today (or at least be happy if you got it for a gift)?

    Chamonix

28. # Jacob.echl.f09on 13 Jan 2010 at 4:15 am

    1. This is because the demand becomes more price inelastic as a result of the new innovation.
    2. In a monopolistically competitive market, profits are always normal in the long run. The product’s elasticity will become more elastic over time because the excitement of the new innovation would have worn out and a new product may have appeared. Apple must continue to innovate or increase advertising to keep normal profits in the long run or else a similar company would overrun them.
    3. In real life, Nintendo’s DS and Sony’s PSP have continuously fought to pull ahead. The DS has a touch screen, but the PSP can access the internet, then the DS evolved to also include internet and a built in camera. These two handheld gaming systems will continue to innovate until they get the upper hand. And, uhhh… no

    Jacob

29. # Jacob.echl.f09on 13 Jan 2010 at 4:21 am

    sara.echl.f09,
    You and others have all been making a good observation in that Apple is constantly trying to improve. With their iPhones, they have to compete with products such as Verizon and AT&T’s 3G phones. Also in regards to music they have to compete with Microsoft’s Zune.
    When it really comes down to it, it doesn’t always come down to advertisement, it comes down to the uniqueness of the Apps each product offers. They are all essentially the same product, but some companies offers better apps than the others, which makes them better
    -Jacob

30. # victoria.echl.f09on 13 Jan 2010 at 5:25 am

    1. The slope of the demand increases after the new innovation. First because there is a demand for the new product. Customers who are fan of apple want to have the new product as quick as possible, and new customers are attracted. Secondly because with the new product, the price of old models can go down and this can be interesting for customers for whom apple has been too expensive up to that time

    2. In the assumption of a monopolistic competition the profit of apple should go down over time when competitors catch up with their products. In the long run to maintain its profit, they will have to develop new products.

    3. Apple and its competitors have attempted to find new features for the customers like touch screen, voice recognition, Tablet PC where you can write with a pen on the screen. The Mac Book Wheel sounds very interesting but I don’t like the look of the wheel and specially it will not give me more functions and I would take more time to type.

31. # victoria.echl.f09on 13 Jan 2010 at 5:28 am

    Hey Jacob

    I really like your example with the Nintendo DS and the PSP it is so true that these two compete very hard against each other and if one doesn’t bring a new product at least every year then they will be lost in the market.

    Vica

32. # sara.echl.f09on 13 Jan 2010 at 6:45 am

    Jacob,
    I like your comparison of the Nintendo DS and the PSP. They are just like apple and Microsoft: always competing against each other to make sure they stay on top and don’t lose their place in the market.
    Sara

33. # Dennis.echl.f09on 13 Jan 2010 at 10:20 am

    Hey Vica,

    I like how you mentioned the tablet pc because its one of the more interesting new developments in computers and I definitely agree with you that the macbook wheel would slow me down because it seems a lot more difficult to navigate through the system than just a regular computer.

    Dennis

34. # Eline.echl.f09on 13 Jan 2010 at 11:38 am

    1.Apple invests a lot in R&D, or Research and Development, to distinguish their product from products of competing firms in such a way that it does not scare away customers and even makes it seem more attractive and advanced than competing products. With their huge marketing campaigns Apple increases the popularity of its products and thus also demand.

    2.Characteristics of a monopolistic market are easy access to information and no barriers for entry to the market. Assuming the laptop market is one, then it would not be hard for new firms to enter the market and imitate Apple’s technology or even come up with a better technology. In that case Apple will no longer have supernormal profits but normal profits in the long run. To avoid this Apple should research ways to differentiate their product even more from other laptops in order to increase its monopolistic power, hence increasing chances of earning supernormal profits.

    3.Apple and competitors are constantly seeking new technologies with which they can impress the public more. They often seek for ways to increase the number and quality of the functions their products can perform – people like having a multifunctional phone such as the iPhone. Apple is also proud of its anti-virus systems, it is much harder to get viruses with Apple than it is with Windows. I would not buy a Macbook Wheel – I wouldn’t like to know that I have learned to type for nothing. Anyhow, I do agree with Chamonix’ point that people not buying the Macbook Wheel could change their minds if the product is advertised enough.

    Eline

35. # Laura Yilmazon 13 Jan 2010 at 11:38 pm

    1. In the Apple demand curve, the demand curve increases after successful product differentiation. This is because customer demand for Apple has increased as they believe that it is worth paying more for an Apple product because of differentiation.

    2. In the assumption of a monopolistic competition the profit of apple should go down over time when competitors catch up with their products. In the long run to maintain its profit, they will have to develop new products.

    3. In real life, Nintendo’s DS and Sony’s PSP have continuously fought to pull ahead. The DS has a touch screen, but the PSP can access the internet, then the DS evolved to also include internet and a built in camera.

36. # Laura Yilmazon 13 Jan 2010 at 11:46 pm

    dear eline,

    i think your answers are very wise and thoughtful.

    laura

37. # Eline.echl.f09on 14 Jan 2010 at 3:19 am

    Hey Vica,

    I really like your point about the lower price of old Apple laptops contributing to the increase in demand. I had only considered the increased demand for the new product and not the effect this would have on older models, so thank you for bringing that up!

    Eline

38. # issa.echl.f09on 15 Jan 2010 at 12:18 am

    In the graphs above, the slopes of the demand curve increases after successful product differentiation by Apple. Why does this happen?

    After successful product differentiation by apple the slope of the demand curve increases because demand increases. The number of people willing to pay the higher price for a computer increases as a macbook wheel is very expensive. The number of people buying lower priced macbook computers decreases as more people want to buy the expensive macbook wheel. This increases the slope of the demand curve.

    Assuming the market for laptop computers is monopolistically competitive, what will likely happen to Apples economic profits over time? What must Apple do if it wishes to maintain its profits in the long-run?

    Economic profits will be competed away. Apple has to keep differentiating its product so that it can maintain a monopoly on specific areas of its market.

    What are some real ways companies like Apple and its competitors have attempted to differentiate their products over the years? Would YOU buys a MacBook Wheel if it were real?

    Over the years Apple has differentiated its products by continually updating its ipods and computers. Because nothing apple creates stays as the new thing for long, people are always willing to buy new products, even if they are only slightly improved. I might be inclined to buy a macbook wheel if it were real as it as almost as dysfunctional as the macbook air i really wanted.

39. # Issa.echl.f09on 15 Jan 2010 at 12:29 am

    Hey Eline,

    I really like the way you explained the answers to all of the questions in relation to economic theory. By explaining what the characteristics of a monopolistic competition is you relate the issue of the macbook wheel really well.

    You answered that the increase in the slope of the demand curve is attributed to an increase in demand. However, wouldn’t that just cause the demand curve to shift?

    -Issa

40. # Marcelo.echl.f09on 15 Jan 2010 at 5:39 am

    After product differentiation, apple has added some unique and attractive characteristics to its products, which make consumers want the good more and care less about the price. Thus, the demand becomes less elastic.

    Indeed, as in any monoplistic competitive market, in the long run, apple’s profits will become only normal profits. The only way it could its supernormal profits is through making its product so different from the rest and so superior in fact, so attractive to consumers, that no other firm would be able to compete.

    These types of companies are always trying to research and develop new technologies which are better than its competitors; they innovate, and create special and attractive designs which people would like; they also do lots of branding and advertising to manipulate consumers and make them believe their product is the best. No, I actually would not buy the Mac Wheel: I prefer microsoft.

41. # Marcelo.echl.f09on 15 Jan 2010 at 5:48 am

    Laura,

    I like your example about the Nintendo DS and PSP. It is true that nowadays one of the businesses that provide more money and have more competition is the games business: Microsoft Xbox is always competing against Sony Playstation and Nintendo Wii; they are always trying to innovate and create more realistic games and gameplay, with better graphics and more technology to attract consumers. They mainly use non-price competition.

42. # Catherine.echl.f09on 16 Jan 2010 at 5:50 am

    1.) The demand curve changes after successful differentiation. Since Apple has differentiated its product exceptionally well, the consumer demand for it has increased. Due to Apple’s differentiation, consumers can see a difference between an Apple and, say, a PC, and are willing to pay more for the Apple. Customer loyalty to Apple also makes its products more inelastic – people want them and are willing to pay for them.

    2.) In the long run, Apple will return to normal profits. With its new product, Apple is enjoying supernormal profits. However, Apple’s success will draw other firms into the market (since entry is not blocked), and the profit will then become more evenly distributed among the various competitors. To maintain its supernormal profits, Apple would have to maintain technological supremacy over its competitors. If Apple differentiated its products and promoted technology that was not yet available to its competitors, people would definitely want more Apple products.

    3.) I think Apple has differentiated many of its products. I associate Apple with a high standard of technology and an aesthetic appeal – I get this opinion from Apple’s differentiation. This makes me think of iPods. When Apple released them into the market, they were by far the coolest thing for months. No other product was able to defeat the iPod. Even today, I would still buy an iPod instead of any other MP3 player. This is surely thanks to the advertising and hype that Apple created for its product. If the MacBook Wheel was real, I probably would not buy it because I am not very interested in the latest technology. However, I will also add that I have my own MacBook, and I absolutely love it. If anything were to ever happen to it, I would definitely purchase the MacBook Wheel as a replacement.

43. # Catherine.echl.f09on 16 Jan 2010 at 6:00 am

    Hi Mei,
    You mentioned that Apple’s products are inefficient – or that the innovation process is inefficient. I don’t really agree with you on that. Apple seems to have created some environmentally conscious products, especially with its new computers and iPods and such. Then again, I may just be falling prey to the advertising campaigns they have put on. And, in general, I really do like Macs.

    Happy New Year!
    Catherine

44. # Armando.echl.f09on 19 Jan 2010 at 12:17 pm

    Marcelo and other students,
    The example of the Nintendo DS and PSP, its true, both of these companies Nintendo and Sony must compete by developing their portable consoles in order to gain more money and popularity. Nevertheless, if we talk about bigger consoles or products by the companies of Microsoft, Sony and Nintendo, they have a very tight competition due to the greater quality than portable products. Sony making Playstation 3 and older versions and Microsoft making Xbox 360 and older versions, both have a very tense and powerful competition; but on the other hand, Nintendo producing the Wii, has sold numerous copies of their console, due to the motion sensor, but the problem for Sony and Microsoft is that this Wii is just a demo or trial version, which is why is so cheap and has still gotten massive amount of money. The issue for these two companies is that once Nintendo brings up its actual and real version of the console both will be left behind. However, Microsoft and Wii has gotten a massive advantage since their consoles can be pirated and u can use cheap copy games, but not PS3, due to the blue ray games, which are of much better quality than the previous ones. As well Project Nathal from Microsoft will push Xbox to the skies as is the only console to have an optical motion sensor for all its games. The aims of these companies is to develop their consoles into a more realistic environment so that you feel in the game by having wireless controls, high quality graphics, surround sound and motion sensors. In addition; for instance, the new Google phone the“Nexus One”is a great competition for the iPhone since it has the same qualities but is much cheaper, which will cause to gain popularity and be bought rather than the Apple product.

45. # Armando.echl.f09on 19 Jan 2010 at 12:29 pm

    Due to the development and change Apple has obtained unique and sophisticated qualities of its products, causing consumers to desire this product not matter its price, causing the demand to become elastic. As a result of this characteristics Apple is at the top, but still has competition, so if in the long run apple doesn’t develop its products then it will lose its average profits. Both companies have great publicity to gain popularity and both develp their products just like people want them. I would rather Microsoft; I don’t really like Mac, except for iPod, so I wouldn’t buy the Mac Wheel.

Leave a Reply

Name (required)

Mail (hidden) (required)

Website

Notify me of followup comments via e-mail