IB Economics Microeconomics IA
The revelation of the new Samsung Galaxy S4 has brought a new product to the smartphone market. With the release of the Iphone, Apple had majority until Samsung and Android released their own models. Samsung has introduced the new Galaxy S4, a new edition to the Galaxy series. Samsung is using product differentiation in a market in order to gain market share from both Apple and Android.
The smartphone market is comparable to the oligopoly as there are only a few standardized firms who control a majority of the market share. There are also significant obstacles in the conditions of entry; a firm must create a phone and launch satellites into orbit in order to start a firm in the smartphone industry. As an oligopoly the introduction of the S4 affects all other competitors, including Apple and Android. The smartphone market is a differentiated oligopoly because all producers offer different products, and this indicates that the introduction of the S4 will affect sales of Iphone 5s, Google Nexus 4, and Blackberry Z10. We can find that the Herfindahl Index is 1832, from the graph, which indicates that there is not that much market power in the smartphone industry. Since there is limited market power, Samsung cannot differentiate the supply of Galaxy S4 in order to maximize profit and sales.
In this diagram we find the marginal utility by finding the derivative of this line. The derivative is very small so the marginal utility is very small.
The Samsung Galaxy S4 is a luxury smartphone which costs upwards of $800. A smartphone is not essential and can be easily forgone, which conveys that the price elasticity of the Samsung Galaxy S4 is theoretically above 1. Since the price elasticity of smartphones is above zero the competition between firms is very high. Besides the fact that it costs $800 to purchase a Samsung Galaxy S4, there is very little marginal...