Written by Ivan W.
Article written based on <http://www.bloomberg.com/news/2012-10-04/samsung-3rd-quarter-profit-beats-estimates-on-galaxy-phones-1-.html>
I have always shown an interest in the iPhone battle against Samsung phones in the Smartphone market and now I will explain why Samsung profit is getting higher and why it is dominating the market. The battle has raged on ever since Apple decided to sue Samsung for damages it has caused in copying Apple’s designs. Samsung had been sued by apple for $2.5 Billion in damages in which Apple claimed that Samsung’s phones and tablets copied its devices’ behavior and appearance. Samsung also counter-claimed about $200m, saying the iPhone and iPad used its wireless 3G standard technologies, and methods for tasks such as sending a photo by email from a phone. Now this is an example of an Oligopoly, but not to be confused with a pure competition and also a study of microeconomics of product market.
Firstly, what are an oligopoly and a pure market? It is explained in the table below:
We can safely say that the Smartphone market is an oligopoly with Samsung and Apple being the main distributor and the rest just fighting what’s left of the market. With Samsung controlling 68 percent total share globally according to IDC and Apple controlling 17 percent of the global market. Why is Samsung dominating the market?
Let’s go back to the basics of microeconomic and look at the demand and supply of the phones. It doesn’t take much market research to know that the Samsung SIII is cheaper than the iPhone. With iPhone 4S being priced at USD$399 for the 32 GB and Samsung SIII priced at USD$249.99 for the 32 GB as well. According to the law of demand, when price of a good drops, the quantity demanded for it will increase as shown in the movement along the demand curve:
The vertical axis is the price of the good, while the horizontal axis is the quantity demanded. The Red line (D) is the demand curve of the Samsung SIII and it represents the amount that consumers are willing to pay at any given price. When price of a good drops or lower than its substitute, then quantity demanded of that good will increase as shown above, P1 dropped to P2 resulting in QD1 increasing to QD2.
Focusing on the Middle Class People, this is a very basic common view of what happens in the market for any “normal” good. Now let’s look at how price changes of Samsung can affect the iPhone. Since both companies are competing in the same market, consumers can either enjoy buying the Samsung or the iPhone because both offers almost all the same features. So if price of Samsung decreases, people will buy Samsung instead of iPhone. This is known as cross elasticity of demand where price of one good can affect the other good.
This also creates a substitution for the iPhone. Both company are competing so if price of Samsung is cheaper than the iPhone, surely consumers would go for the Samsung phones because Samsung is a substitute for iPhone but at the same time iPhone is also substitute for the Samsung so price plays a big role and affects the quantity demand of a product and this might be the reason why Samsung Sales is increasing and also surpassed iPhone as stated in the article.
Other factor that might affect Samsung Sales is technology. This factor can cause a change in demand for the iPhone therefore making Samsung a more preferred choice over the iPhone. Nowadays the Samsung android market is taking over the apple IOS software. From what I think, when Apple introduced the Apps store a few years ago, there were too many restrictions in place and it wouldn’t approve third-party apps that mimicked functionality of existing apps. The restrictions have since eased, but you still can’t change the default apps in iOS even if the alternatives are better. For instance, hyperlinks will always open inside mobile Safari even if you find Chrome a better browser. Android on the other hand allows users to replace system stuff, like the on-screen keyboard and many more. Also the apps in the android market are almost completely free compare to iOS, who wouldn’t want free stuff?
Now this technological advantage of Samsung has affected the demand of iPhone in the sense that people actually prefer Samsung because of its android OS compare to iOS. The demand is illustrated below:
The Red line represents the demand curve for iPhone and the Green line is shifted to the left due to Samsung technological advancement changing the taste of consumers. When the demand curve shifts to the left, it means demand for iPhone has decreased due to many factors like technologies, when it shifts to the right; it means there is an increase in demand for iPhone. Not to be confused with Quantity demanded. The difference is that quantity demanded is when the demand is still there but people actually just buy lesser of it.
This can also explain why Samsung Sales increased therefore increasing profit and also dominating the market.
In my own opinion, I think Samsung is breaking record in Sales compare to iPhone because it’s cheaper and its technology is getting stronger in terms of Operating System (OS). This explained why sales are high in the article.