Report on Price Elasticity, Monopoly Power, and Market Analysis

This economics report delves into the concepts of price elasticity and monopoly power, providing an analysis of three distinct products: gold, iPhones, and Marlboro cigarettes. The report examines the factors influencing the price elasticity of demand for each product, considering market share, consumer behavior, and the availability of substitutes. Furthermore, the report investigates the Microsoft monopoly case, discussing the company's market dominance in the operating system market, its anti-competitive practices, and the legal implications under the Sherman Act. The analysis covers the judge's findings, Microsoft's actions, and the laws applied to the development of monopolization. The report concludes by summarizing the key findings related to price elasticity and the Microsoft monopoly, offering valuable insights into market dynamics and business strategies. The report is available on Desklib, a platform offering AI-based study tools and past papers for students.

ECONOMICS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Question 1........................................................................................................................................1
Question 2........................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Price elasticity and monopoly plays a vital role in every business as it directly reflects upon it’s
position as well as success in the market. The present report will focus on the the price elasticity
estimates of three distinct products and the reason behind their high demand or price in the
marker. Alongside, the report will also discuss the Monopoly power of Microsoft with a specific
case regarding the same.
Question 1
The three articles chosen for examining price elasticity relates to three different products –
Gold, IPhones and Marlboro Cigarettes.
“Growing Demand for Smokeless Products to Drive Altria's performance in the fourth
quarter”, 2019.
Altria Group Inc is one of the biggest tobacco corporations within the world will release
its fourth quarter 2018 outcomes on January 31, 2019. The market is expecting Altria Group to
attain net revenue of $4.82 billion, 2.3% higher as compared to growth achieved every year.
$0.95 per share is expected as the adjusted earnings for the quarter in comparison $0.91 per share
in the previous year. The higher EPS is meant to be the outcome of increased prices of tobacco
products along with the growth in the smokeless products segment and better premium mix
within the wine category. The company’s price estimate of $61.65 per share for the organisation
which is higher in comparison to its present market price. As the young generation stopped
purchasing cigarettes in a large number, the demand for same products has observed a continues
decline in the US market recently. This is seen in a decreased in domestic cigarette shipment
with 6.3% every year. In the same period of time volume of domestic cigarette industry also
decreased by 4.5%. Altria’s Marlboro brand positioned itself continuously as a leading cigarette
brand in US with a 43.5% share in the tobacco market of the country. Cigarette is addictive in
nature which is the reason of its reduced price elasticity. Marlboro is not much vulnerable to
price hike as compared to other brands due to its impressive market share. This assist gather
company in achieving growth even with decrease in volume of cigarettes sold in the market.
“What Moves Gold Prices?” 2018
The price of Gold fluctuates due to the combination of investor behaviour, supply and
demand. Most of the investors think of gold as an inflation hedge. Unless coffee or oil, gold is
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not consumed. All the gold ever mined or sold is still around. Also there is some use of gold in
industries but that has not increased the demand as much as gold investment or jewellery. The
2017 statistics of World gold council demonstrated that the total demand of gold was 4,071 tons
which includes only 332.8 tons within the tech sector. The remaining was investment at 371.4
tons, jewellery at 2,135 tons, coin and bar demand of 1,029.2 tons and the rest such as ETSs etc
at 202.8 tons. When price of gold was low before 10 years, demand of jewellery was calculated
for 3,009 tons, on the other hand investment was at 357 tons and tech needed 363 tons of gold.
According to various study on price of gold in relation to several factors, it is identifies that gold
does not have high correlation with inflation. It means investment in gold may not be always
beneficial during the period of inflation. During the period of recession prices of gold raised,
although gold prices were rising already in the beginning of 2008. These prices kept increasing
even as the recovery of the economy. The Gold price was highest in the year 2011 at$1,921
which more than ever. In the study “The Golden Dilemma” it is examined that gold has positive
price elasticity. It means when gold is sold or purchase by people more and more its price
increases in line with the demand. It also concludes that there is no fundamental related to the
price of gold. If investors begin flocking to gold, its prices increase without getting affected by
the nature of monitory policy. But it does not mean that it is due to herd behaviour or completely
random. The price elasticity is very low as there are no substitutes in the market there are other
options but there is not specific or identical replacement of gold.
“Apple Stock Is Up After Its Earnings Report. Here’s What Wall Street Thinks” 2019
Apple is considered as a structurally distinct organisation at present than it was few years
ago. It now has a huge cash balance and a services business that is responsible for 18% of its
revenue and more than 30% of the gross profit. During the time when revenue from devices
decreases, services takes the charge driving more profitable and sustainable growth assisting to
increase the value of shares in the market. Price elasticity of demand means the responsiveness
of the quantity demand of services or goods to affect and change its price. There are three main
elements that affects price elasticity of demand(Liozu,2019).The most significant factor that s
affecting the elasticity of demand is the availability of substitutes. It means that the elasticity of
demand will be more if the substitutes are more. Products like IPhone generally are not much
elastic in nature as there are no substitutes in the market. People believe that when the price of a
product increases is demand decreases. It can be true but are exceptions for this theory. The
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sensitivity of the demand of a good to its price is known as price elasticity of demand. According
to traditional demand curve, it can be observed that when the price of a normal product or good
goes down, its demand rises. This concept is also vice-versa, when price of a normal product
increases, demand also increases. But there is one of economic concept, it is concluded that each
and every good or service have different price elasticity of the demand. A necessary or essential
product is one without which people cannot live. Therefore, it is obvious people will pay any
amount of money for that product. This refers that market will take every good produced
regardless of the price at which it is beings sold. The price elasticity of IPhone is more vertical
which means that demand is not much affected when Apple increases the prices of its phones.
Question 2
The Microsoft Monopoly: The Facts, the law and the Remedy
The case of Microsoft is a legitimate and important subject for a political debate; this case
was prosecuted by an Assistant Attorney General for Antitrust, Joel Klein. He was confirmed by
the Senate on a vote of 88-12 along with all the 12 people who were opposing hi nomination
being liberal democrats concerning that he may be highly pro-market in his approach. The Judge
finds three main facts in the trial as mentioned below –
1. Firstly, Microsoft tends to possess monopoly power within the market for personal
operating system.
2. The second fact was that Microsoft is engaged in a wind ranging effort for protecting its
monopoly in operating system by using a full series of outstanding practices.
3. The last but not the least was that actions taken by Microsoft were harmful for the
consumers and to innovation.
Microsoft Monopoly – The findings of judge clearly concluded that Microsoft is a monopoly, it
possesses market power in the marketplace for Intel-compatible operating system. Altogether,
the three facts discussed above indicated that the company is enjoying monopoly
power(Brawley,2018). Its shares of the market for Intel-compatible PC operating system is highly
stable and large. Microsoft’s dominant market share is secured by a high entry barrier and largely
as a outcome of that barrier. The customers of Microsoft lack a commercially viable substitute or
alternative to windows
Microsoft conduct – The fact of Monopoly of Microsoft is not important because it has a
monopoly in it and is not legal but due to the reason that it is one of the organisations that tends
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to possess such power are capable to be engaged in several activities that are harmful for the
consumers. According to the findings Microsoft was mainly concerned regarding the
technologies for example Netscape Navigator browser which may support platform independent
computing and may negatively affect the company’s position. Microsoft is also engaged in a
concerted series of activities developed for protecting the applications barrier to entry, and
therefore it is monopoly power from a wide range of middleware threats consisting Netscape’s
web browser and Sun’s implication of Java. Most of these activities have harmed consumers in
manners that are easily and immediate discernible. It has also caused less direct but nevertheless
far reaching and serious, consumer harm by distorting competition.
The law – Microsoft maintained its monopoly power by anti-competitive means & tried to
monopolize the web browser market, these both actions are violating the section 2. The company
is also found to violate section 1 of the Sherman act by illegally tying its operating system to its
web browser. The facts and findings do not support the conclusion, although the impact of
marketing arrangements of Microsoft with other organisations constituted unlawful exclusive
dealing within the criteria created by leading decisions under section 1.
In other words, judge found Microsoft guilty of monopolization under section 2 of
Sherman act, as it utilised illegal activities for maintaining its monopoly in operating system
market & because it utilised illegal ways for attempting to develop a monopoly in the market for
web browsers. The case findings also found Microsoft guilty under Section 1 of the Act for
unlawfully tying the Internet Explorer browser to the Windows operating system. Although, the
exonerated Microsoft on the charge of exclusively dealing under Section 1.
CONCLUSION
The above summarized price elasticity of three different products, Marlboro cigarettes, IPhones
and Gold. These products are not much affected by demand, they have high prices even if the
demand goes down. On the other hand, the report also discussed about the Monopoly power of
Microsoft within the operating system market along with the laws applied on the development of
monopolization.
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REFERENCES
Books and Journals
Liozu, S.M., 2019. Make pricing power a strategic priority for your business. Business
Horizons, 62(1), pp.117128
Brawley, E.T., 2018. Emoji: The Other Tech Monopoly. Int'l Comp., Policy & Ethics L. Rev., 2,
p.217.
Online
Growing Demand for Smokeless Products to Drive Altria's performance in the fourth quarter.
[Online]. 2019. Available
at:<https://www.google.com/amp/s/www.forbes.com/sites/greatspeculations/
2019/01/30/growing-demand-for-smokeless-products-to-drive-altrias-performance-in-
the-fourth-quarter/amp/>
“What Moves Gold Prices?. 2018. [Online]. Available
at:<https://www.investopedia.com/articles/active-trading/031915/what-moves-gold-
prices.asp>
“Apple Stock Is Up After Its Earnings Report. Here’s What Wall Street Thinks. 2019. [Online].
Available at:<https://www.google.com/amp/s/www.barrons.com/amp/articles/apple-
stock-earnings-report-wall-street-reaction-51556722361>
The Microsoft Monopoly: The Facts, the law and the Remedy. 2018. [Online]. Available
at:<http://www.pff.org/issues-pubs/pops/pop7.4microsoftmonopolyfacts.html>
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