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Support Greater Competition in the Cell Phone Industry

Essay by   •  February 22, 2012  •  Research Paper  •  1,386 Words (6 Pages)  •  1,701 Views

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Support greater competition in the cell phone industry

In the last decade the popularity of owning mobile phones has increased substantially. With new innovations rolling out every year the cell phone industry is one of the fastest growing markets worldwide. Individuals are relying more on network providers to supply devices and services to satisfy their personal needs. Studies that have been conducted by Statistics Canada has proven that there has been a four percent increase in years 2008 to 2010 nationwide, which brings the total from 74% to 78% of wireless phone customers (Statistics Canada 2011). This data also indicates that users are substituting landline phones to use cellular devices as primary telecommunication handset. Canadians are paying some of the highest prices for mobile phones. The cell phone industry is dominated by a few big players in the market: Apple, Google and RIM. These manufactures control and set market prices, if there was an increase in competition than manufactures will be forced to reduce prices to satisfy its customers.

In the cell phone industry there are many economic concepts involved. Since this is an industry that deals with selling products, supply and demand are strongly used. The amount of products wanted by consumers is called demand and the amount of available products is referred to supply. When these are set appropriately they create an equilibrium point that is at an ideal selling price for products. Canada is a mixed economy; the prices are set by manufactures and are based on consumers. Manufactures sell products to different groups based on tastes and consumers income. Producers adjust prices of their products if the competitor offers a similar product at a better price. The amount of people in a location also affects supply and demand, because the amount of needs and wants in that area are different from a low to a high population. According to mobilesyrup.com, RIM own 38% of the smart phone market in Canada and as of September 20, 2011 it is the largest competitor (mobilesyrup.com 2011). RIM maybe on the top of the charts, but its fame will not last for long. In March of 2011 RIM was at 42% market share and was the highest, but six months later it has lost 4 percent of its shares and it continues to fall (mobilesyrup.com). Individuals have switched to a more advanced operating system which has been created by Google, it is called Android (mobilesyrup.com 2011). Google has licensed their operating system to many manufactures such as HTC, LG, Motorola, Samsung, Sony Ericsson and other companies. Google's market share has increased from 12% to 19%, this company is growing rapidly and eventually will be a big threat to Apple who currently owns 31% market share (mobilesyrup.com 2011). With all the companies running the android operating system, there has been an increase in competition which has caused manufactures to create competitive prices as well as offer additional products and services. The customer will be the one who benefit from this; the reason is there are more variety and reduced prices to choose from. If companies cannot satisfy the public, then it will suffer and lose its portion in the market.

Elasticity of demand is the measure of quantity demanded to a change in price (about.com 2011). When the demand of a product is very responsive to a change in price either being positive or negative it is considered to be elastic. Now when quantity demanded of a product is unresponsive to price it is considered to be inelastic (Regan Lipsey 2011). The cellphone market is considered to be elastic. The reason for this is based the number of close substitutes of a product. Consumers can change their demand for certain products if there is a change in price of a commodity (tutor2u.net 2011), examples of this occur in the Google's smart phone market. The big players are HTC, Motorola, Sony Ericsson and Samsung (mobilesyrup.com 2011) these manufactures all offer devices with the android operating system with little differences but the prices are set accordingly based on the competition. While this market is elastic, it is also considered to be competitive. Prices vary on type of product if it is a normal good, prices will be higher in price and if it is an inferior good [inferior good refers to, lower quality products] prices will be much less. "Price elasticity of supply measures the rate of quantity demanded to a change in price" (about.com 2011). In other words it is saying how much can the suppliers react to a change in price. So if there is an increase in supply prices go up, but what will be the cost. Manufactures use this term when putting their products up for sale. One determinant of supply elasticity is substitution. Substitution refers to how easily producers can shift production from one product to another.

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