Management Economics Report: Apple's Market Structure Evolution

This report provides a comprehensive analysis of Apple's market structure, tracing its evolution from a monopoly to an oligopoly within the smartphone industry. The report begins with an overview of Apple's history, manufactured products, and services, highlighting its innovative contributions to the technology sector. It then delves into the current oligopolistic market structure in which Apple operates, characterized by a few dominant players, differentiated products, interdependent pricing, and high barriers to entry. The report contrasts this with Apple's historical operations, where it initially held a monopoly from 2007 to 2009 due to its innovative iPhone. The analysis includes figures illustrating Apple's profit margins during this period. Furthermore, the report discusses the optimal market structure for Apple, concluding that the oligopoly is best suited for its current operations, while also considering potential shifts towards perfect competition in the future. The report concludes by advocating for greater government intervention in the smartphone industry to address unethical labor practices and promote social development.

MANAGEMENT
ECONOMICS – 2

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
1. History of Apple and its Manufactured Products and Services............................................3
2. Market Structure in Which Apple currently Operates in......................................................4
3. Different Market Structure in Which Apple Operated in the History..................................5
4. A) Optimal Market Structure for Apple to Operate in.........................................................8
4. B) Lesser or Greater Government Intervention.......................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Market structure can be defined as the organisational and external characteristics of a
given market in which a business organisation operates in. The market structure is primarily of
four types – Perfect Competition, Oligopoly, Monopoly and Contestable Market. The market
structure is influenced by various factors such as number of businesses operating in the particular
market, market share of businesses, product differentiation etc. (Auer and Schoenle, 2016).
Different types of market structures provide to the business organisation different opportunities
to conduct their operations in a successful manner within the operational industries. This report
analyses the past and current market structures in which Apple operates in.
MAIN BODY
1. History of Apple and its Manufactured Products and Services
Apple is an international technological business organisation that operates in various
global industries such as computer software, hardware, consumer electronics, cloud computing,
artificial intelligence etc. Apple was founded in 1976 by Steve Wozniak, Steve Jobs and Ronald
Wayne in a garage and has grown on to become one of the most successful, valuable and
profitable business organisations in the entire world. Apple operates from its operational
headquarters in California, USA. Throughout its operations, Apple has been innovating and
inventing new technological solutions that provide value to their customers. Apple was founded
as Apple Computer Inc., and specialised in manufacturing and selling electronic computer to the
consumers such as the Apple I, Apple II, Macintosh etc. Currently Apple specialised in selling
hardware products manufactured by them such as the IPhone, IPad, Apple Watch, Apple TV,
IPod etc., Apple also specialises in selling digital software services to their customers such as the
ITunes Store, Apple Music, ICloud, Mac App Store etc. Through its sustained successful
operations within the technological industry, Apple has become one of the most valuable and
profitable business organisations, with Apple’s brand value and reputation amongst the highest
in the entire world.

2. Market Structure in Which Apple currently Operates in
There are mainly four different types of market structures in which any business
organisation can operate in, with these four types of market structures being monopoly,
oligopoly, perfect competition and contestable markets. All of these different market structures
possesses and are influenced by various metrics such as:
Characteristic Oligopoly Monopoly Perfect
Competition
Contestable Market
Number of Business
Organisations in the
Market
Only few
dominant
business
organisations.
Only one
business
organisation.
Numerous
Business
organisations.
Many business
organisations.
Type of Goods Sold Differentiated
products
Limited types
of products
Homogeneous
products.
Differentiated
products.
Pricing Power Pricing power
interdependently
vests with all
businesses
operating in the
market.
Sole business
organisation is
the price
maker for the
market.
Passive pricing
power rests
with all
business
organisations.
The competition
amongst various
business
organisations limits
pricing power of
individual business.
Barriers to Entry High High None Minimal exit and
entry costs.
Apple currently operates in the oligopoly market structure whose features are evident in
the above table. Apple operates within the oligopoly market structure because there exist a few
but highly dominant business organisations within the electronic smartphone and handset
industry such as Apple itself, Samsung, Google, Xiaomi, Motorola etc., with these few business
organisations possessing the most market share and customer base within the industry
(Hovenkamp and Shapiro, 2017). Apple also operates under the oligopoly market structure as it
manufactures highly differentiated handsets such as the IPhone range of smartphones, the likes
of which cannot be imitated or copied by their competitor business organisations within the
smartphone industry. Another reason for Apple to operate under to oligopoly market structure

pertains to the pricing power within the businesses operating within the smartphone industry
being highly interdependent on the pricing strategy of each dominant business organisation.
Though Apple possesses significant pricing power, should it increase the prices of its IPhones
significantly, then it would lose its current market share to its competitors who also possess
interdependent pricing power and vice versa for the competitors of Apple. The final reason for
Apple operating under the oligopoly market structure pertains to the immensely high barriers to
the market entry of new business organisations in the smartphone industry, who would have to
outcompete dominant market businesses such as Apple, Samsung etc., in order to create a
customer base and capture some market share. Operating in the oligopoly market structure has
been highly profitable for Apple as it was able to generate total revenues of over $260.4 billion
dollars as of 2019.
3. Different Market Structure in Which Apple Operated in the History
Though Apple since its inception has operated in various different industries of the world,
when looking at Apple’s operations within the smartphone handset industry which started in
2007, with the introduction of the IPhone I, it is evident that Apple in the past operated in a
monopoly market structure and had to change its operational market structure to oligopoly
because of the introduction of new business organisations such as Samsung and Motorola, who

entered into the smartphone handset industry after 2009 through the android operating system.
Between the periods of 2007 to 2009, Apple was the only major business organisation to operate
within the smartphone handset industry Apple was the first business organisation to innovate the
technologies needed for creating a functioning smartphone in 2007 (Hong and Li, 2017). As
Apple was operating in the monopoly market structure in 2007, it faced absolutely no
competition from other business organisations, with the number of business organisations
operating within the newly created handset smartphone industry being negligent. The only other
business organisation that operated within the smartphone industry in 2007 apart from Apple was
Nokia and Blackberry, and although both Nokia and Blackberry were an experienced business
organisations within the telecommunications industry, the digital technological solutions that the
highly innovative Apple’s IPhone product was able to provide to the customers left both Nokia’s
and Blackberry’s operations and products in the dust and allowed for Apple to operate in the
smartphone industry absolutely uncontested owing to their innovative technology. Apple also
operated under the monopoly market structure from 2007 to 2009 as the products available to the
customers within smartphone handset industry were immensely limited, with the IPhone being
the only major smartphone product that was available to the customers to purchase
(Maghfuriyah, Azam and Shukri, 2019). This had an immense impact on the overall profitability
of Apple between the periods of 2007 to 2009 as it was able to effectively capture a highly
significant portion of the available market share owing to no competition that was present within
the smartphone handset industry that was able to outcompete the innovative IPhone and create a
loyal customer base. This is evident through the following figure:
.

Operating within a monopoly market structure between the periods of 2007 to 2009, also
allowed for Apple to become a highly successful and profitable business organisation as between
this period of operating under the monopoly market structure, Apple was the only major business
organisation within the smartphone handset industry and hence was able to dictate and set the
prices that the consumers would have to pay for the IPhone, considering that they had no
alternative or substitute products available in the consumer markets (Farboodi, Jarosch and
Shimer, 2017). This allowed for Apple to charge the prices that they wanted unimpeded by any
kind of price wars from competition. This increased profitability of Apple between 2007 to 2009
can also be seen from the following figure:
Figure 1: Profit Margins of Apple
From the figure it can be seen that in 2008, operating under the monopoly market
structure, Apple noticed the sharpest rise in its profit margins, which further confirms that they
were able to profit immensely between the period of 2007 to 2009 being the only major business
to operate within the smartphone industry and possessing all the power to set prices of their
products unhindered by any competition.
After 2009, as the number of business organisation such as Samsung and Motorola
entered into the smartphone industry, Apple switched to oligopoly market structure as the
number of dominant businesses within the smartphone handset industry had increased, with the
consumers having choice of differentiated products to choose from. The pricing strategy of

Apple was also interdependent on the pricing strategy adopted by its competitors this too forced
Apple to switch to oligopoly market structure.
4. A) Optimal Market Structure for Apple to Operate in
As there are present various different types of market structure available for Apple to
operate in, choosing the most optimal market structure for the highly successful and profitable
operations of Apple within the smartphone handset industry depends on various individual
attributes. This report cites the oligopoly market structure under which Apple currently operates
in is the most optimal market structure for its current operations as Apple has been able to
effectively differentiate its manufactured products from the products offered by its competing
business organisations (De Quidt, Fetzer and Ghatak, 2018). Though the number of business
organisations within the smartphone handset industry has effectively increased with time, the
number of dominant business organisations are still quite limited, making oligopoly market
structure the optimal market structure for the current operations of Apple.
Contrastingly in the coming years, as the barriers of entry of new business organisations
keeps decreasing and products within the smartphone handset industry become increasingly
homogeneous, Apple may be forced to switch to perfect competition market structure with no
choice available to Apple as the barriers to entry for the smartphone handset industry become
negligent and various different smartphone manufacturing business organisations compete
against one another offering products that are highly similar and homogeneous in nature to one
another.
4. B) Lesser or Greater Government Intervention
This report is of the opinion that the smartphone industry requires greater government
intervention for the social growth of the population and its social development. The main reason
for this is the intense competition that exists currently between the major dominant business
organisations that operate within the smartphone handset industry of the world such as Apple,
Samsung, Xiaomi etc., Due to the intense competition that all these businesses face from one
another, they have been forced to reduce the operational and manufacturing costs of their
products that are sold to the customers within the smartphone handset industry (Aste, 2019). This
focus on reducing prices of manufactured products in an attempt to gain some sort of competitive
advantage over their competitors and increase their customer base, market share, operational and

financial performance, has driven these dominant business organisations to choose some
immoral and unethical practices that severely harm the health and safety of underprivileged
populations and hinders social development. An example of such immoral and unethical practice
is showcased through the operations of Apple, who shifted their entire manufacturing operations
of their IPhone product line to China, owing to the reduced labour costs present in the
developing country. This is resulted in several news articles showing to the public how Apple
makes highly immoral and unethical use of their foreign labours, making them work excessive
hours at minimal hourly wages and exposing them to health and safety challenges and issues,
something which Apple would not be able to get away with in any of the developed or conscious
countries (COLLIN‐DUFRESNE, Junge and Trolle, 2016). If the government is allowed to
intervene into the operations of Apple to a greater extent, then they can regulate such immoral
and unethical practices which have been used by several major business organisations operating
within the smartphone handset industry, which would contribute towards decreased
discrimination of underprivileged population and foster social development within foreign
countries.
CONCLUSION
Through this report, it is concluded that the market structure under which a business
organisation such as Apple operates in has a significant impact on its overall operations and
success within the operational industry. This report describes the Apple technological business
organisation and analyses the market structure under which it currently operates in. Then the
report analyses whether Apple operated in a different market structure in the past and the
characteristics of this previous market structure under which Apple operated in the past. Further
the report assesses the most optimal market structure for Apple and evaluates if lesser or greater
government intervention is required towards the technological industry in which Apple operates
in.

REFERENCES
Books and Journals
Aste, T., 2019. Cryptocurrency market structure: connecting emotions and economics. Digital
Finance. 1(1-4). pp.5-21.
Auer, R.A. and Schoenle, R.S., 2016. Market structure and exchange rate pass-through. Journal
of International Economics. 98. pp.60-77.
COLLIN‐DUFRESNE, P.I.E.R.R.E., Junge, B. and Trolle, A.B., 2016. Market structure and
transaction costs of index CDSs. The Journal of Finance.
De Quidt, J., Fetzer, T. and Ghatak, M., 2018. Market structure and borrower welfare in
microfinance. The Economic Journal. 128(610). pp.1019-1046.
Farboodi, M., Jarosch, G. and Shimer, R., 2017. The emergence of market structure (No.
w23234). National Bureau of Economic Research.
Hong, G.H. and Li, N., 2017. Market structure and cost pass-through in retail. Review of
Economics and Statistics. 99(1). pp.151-166.
Hovenkamp, H. and Shapiro, C., 2017. Horizontal mergers, market structure, and burdens of
proof. Yale LJ. 127. p.1996.
Maghfuriyah, A., Azam, S. and Shukri, S., 2019. Market structure and Islamic banking
performance in Indonesia: An error correction model. Management Science Letters.
9(9). pp.1407-1418.