Comprehensive Economic Analysis of Spotify, Adidas, and US GDP

This report provides an economic analysis of Spotify and Adidas, examining demand drivers, market structure, and the impact of various factors on their performance. It explores Spotify's demand drivers, including its popularity and the demographics of its user base, as well as supply-side factors contributing to its success in Latin America. The report also analyzes cross-price elasticity of demand, particularly the effect of Apple Music price changes on Spotify subscriptions, and the impact of artist boycotts on Spotify's equilibrium. Furthermore, it investigates Adidas's market structure, its competitors, and the influence of celebrity endorsements on the equilibrium price and quantity of its products. The report also considers the effects of increased investments in digital retail, macroeconomic risks, and the relationship between US consumption and GDP, concluding with the benefits to both Spotify and Adidas resulting from changes in GDP and consumption.

Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
Question 1....................................................................................................................................1
Question 2....................................................................................................................................3
Question 3....................................................................................................................................4
PART B............................................................................................................................................5
Question 4....................................................................................................................................5
PART C............................................................................................................................................7
Question 5....................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Economics is study which deals with the economies micro and macro factors. Economics
evaluates the problems of the economy and also the functions of economy through the use of
numerical, graphs and examples.
The report will study, the case study of the company Spotify which deals with providing
online subscription of music in the world. The report will include the demand drivers of Spotify.
Also the supply side factors responsible for success of company in Latin America. The report
also includes the cross-price elasticity of demand and effect of increase in price for Apple on
Spotify subscription. It also includes the effect of boycott of top singers from Spotify.
Furthermore, report includes the case study of Adidas which includes the the affect on
equilibrium of the company by advertising through celebrities endorsements. And there effect on
macroeconomic risks.
Thereafter, report will include the Consumption and GDP of US. Also the report will
include the connection between consumption and GDP. The report will study the benefits to
Spotify and Adidas with the increase in GDP and Consumption by the people in the economy.
PART A
Question 1
A) The drivers of demand for Spotify subscriptions.
Spotify is music streaming service which was originally developed in 2006 in Sweden.
The company settled in Latin America before it settled in Brazil. The companies basic demand
drivers were the young age people which was below 30 years of age. While in Latin America
half of the people is below 30 years. This structure of the population in Latin America demanded
the music in the country increasing its demand. Spotify core audience were the middle class
people and also Latin market mainly supports radio-driven technology which supported the
demand of Spotify through playlists and suggested songs.
According to the theory of demand, the demand for any goods and services is the need of
those products by their customers for a given consideration to the seller. Spotify fulfills the
demand of music through the streaming of new involved artists and reviewed playlist (Sahlins,
2017). The main drivers of the demand of Spotify is its popularity itself and the music available
suited to the young age group of people. Young people consist of half of the population in Latin
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America which increases the demand of music in the country thereby increasing demand for the
Spotify.
B) Supply side factors are responsible for recent success of Spotify in Latin America.
Spotify operates a revenue model which includes providing of free trails of music
streaming in their mobiles or desktops via web browsers and mobile apps. Initially Spotify
provided the unlimited free music option thereafter the company puts an limit of music streaming
of 10 hours a day after the unlimited music streaming for 6 months. The company thus increased
the subscribers by unlimited music which is a marketing strategy to increase the demand and
supply of music streaming. Spotify keep evaluating its supply policies and ensure that there is
gain of the music subscribers in each countries where Spotify operates (Pigou, 2017).
According to the supply theory, the supply of a commodity and services refers to the
selling of the products and services at specified price. In the normal cases the supply of the
commodity increases when there is increase in the price of commodities. Spotify kept the price
same for the customers but earned more because there were increase in the customers of the
company at same price level, resulted in the increased earning for Spotify. There were addition
of the 20 million subscribers despite being the same price level. This increase in the supply is the
marketing and revenue plans opted by the company.
C) Cross-price elasticity of demand. Increase in the price for apple music subscriptions affect
Spotify.
Cross price elasticity of demand refers to the increase or decrease of the demand of a
commodity with the change in the price of related goods. The price of the related goods result in
the change in demand for the commodity as the customers shifts to use of those goods which
have lesser price. If the price of a commodity increase in case of substitute goods than the
demand for the elated goods will increase as the customers will shift to the substitute goods
which have lesser price (Cooter and Ulen, 2016). On the other hand if the price of the
commodity reduces than the demand for the related goods will decrease. In case of
complementary goods there exist inverse relationship which implies that with the rise in price of
a commodity there is decrease in the price of complementary goods.
For example- if the price of coffee increases, the quantity demanded for tea (substitute
product) will increase. And on the other hand with the decrease in the price of coffee will
decrease the demand for tea by customers.
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Price of Coffee Quantity demanded of tea
50 $ 10 units
60 $ 12 units
40 $ 8 units
Spotify's competitors are Apple, Amazon and YouTube which effects Spotify widely.
Apple and Spotify compete in the global market. Therefore with the increase in the price of
Apple music subscription there is grater impact on the demand of Spotify music subscriptions.
According to the cross-price elasticity of demand Apple music is a substitute of Spotify so with
the increase in the price of Apple music subscription there is relative increase in the demand of
Spotify music (Persson and Tabellini, 2016).
Question 2
A) Spotify's ability to compete in market without the support of top musicians.
Taylor shift and Drake were the top artist among the Spotify music subscribers. These are
the artists which are mostly listened by its the users of Spotify. The Taylor's shift page was the
most listen artist in the music apps of Spotify.
After the boycott of the top singers like Taylor Swift from Spotify music online app there
was a drastic change in the streaming of music in Spotify. Spotify suffered a heavy loss and a
sharp drop in visits. The drop in the visits were recovered shortly and quickly by the company
Spotify.
Spotify provides the free subscriptions to its users which increased the listeners of the
music through Spotify. I-tunes on the other hand provided with the paid listening to the users
which causes the lesser customer base to Apple (Kagel and Roth eds., 2016). Therefore the
company Spotify recovered the loss incurred by the Boycott of Taylor Shift by having a large
customer base.
B) Taylor shift come back and affect on equilibrium price and quantity of Spotify subscriptions.
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Illustration 1: Effect of Taylor Swift come backs
(Source: The Change in Supply: Increase in Supply and
Decrease in Supply, 2019)
With the coming back of Taylor Swift in agreement with Spotify there is change in the
equilibrium price and equilibrium quantity demanded in the company (De Grauwe, 2018). The
change is shown in the above graph. There is increase in the equilibrium quantity demanded and
decrease in the price of music subscriptions.
Question 3
A) Adidas competitors and its market structure.
Adidas is a company deals in the sports items and sports wear. It have a wide range of products
made available to the customers. The company is renounced for its sports shoes which is widely
used by the athletes and sports person in the whole country. The companies main objective is to
shift from stores sells to the online sales to the customers. The company Adidas's main
competitors are Nike. The company Nike also deals in production and sells of sports items all
over the world.
In the monopolistic market there are large number of sellers and large number of buyers
in the economy (Dahl, 2017). The price determination one firm effects the quantity demanded of
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the other firms. This type of economy deals with the same type of products and services thereby
increasing the competition in the market.
The company Nike and Adidas are in the monopolistic market structure which implies
that there is large number of buyers and large number of sellers. The monopolistic market
increases the competition between the companies. In monopolistic market there are effects on the
price of the products widely. As there is increase in the price of any commodity of company
Nike there is increase in the demand of the products of the company Adidas.
B) Affect of celebrity endorsers on equilibrium price and quantity of Adidas products.
With the wider use of advertisements and marketing by the companies it has become
difficult for the companies to survive in the global market (Boserup, 2017). The companies uses
many advertising techniques to advertise its products among the customers in the market. The
most effective advertisements and promotion of the product is to use the celebrity endorses. This
helps the customer to relate to the product in the advertisement. The company Adidas also uses
brand endorses to promote its product. This affects the equilibrium price and quantity demanded
of the products sold by the company. There is increase in the equilibrium price and quantity
demanded of the products.
As the celebrity endorsements results in the increase in the sales in Adidas it effects the
competition among the competitors such as Nike in the market.
PART B
Question 4
A) Effect of increased investments in digital retail market by firms on general income of
economy.
There is increase in the investments in digital retail market by the company Adidas.
There is vast impact on the economy ODF the company on Adidas (Deming, 2018). The increase
in the investment in the digital marketing also implies the increase in income level of customers
in economy. With the widespread use of digital marketing there is increase in the consumption of
products.
With the increase in the consumption of products there is decrease in the level of the
income of the customers as the customers tend to spend more on purchasing of the product. Also
with the increased expenditure on the sports product by the customers there is increase in profit
of the company. While the company invest in the digital marketing in the economy it increases
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the countries infrastructure and there is improvement in economy by the advancement in
technologies.
Illustration 2: Effect of increased investment in digital marketing
(Source: Equilibrium can change when demand or supply
change,2019)
B) Potential macroeconomics risks
With the increase in investment in digital marketing there is decrease in the general
income level of the customers in the economy. This decrease in the income level of the
customers effects the country on wide scale (Arthur, 2018). Also there is a drastic change in the
economies infrastructure with the investment and promotion of the digital marketing in the
country. The digital marketing in the country effects the companies employment in the IT
sectors, implies information to all, there is also increase in the manufacturing of the electronics
in the country.
On the other hand the economy of the country is also effected by the increase in the
digital marketing by including -
 Digital infrastructure as a utility to every citizen
 Governance and services on demand
 Digital empowerment of citizens.
Also, the customers in the country rely mostly on the digital methods and online
shopping, mobile banking and off door shopping. This results in the increase in the competition
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among the companies in the country (Brickley and et.al., 2015). This continuous investment in
the digital market increase the flow of goods and services in the market and availability of the
products are made easy.
PART C
Question 5
A) US consumption and GDP
Illustration 3: US data on consumption and GDP
(Source : Gross Domestic product, 2019)
With the study of above graph it is assumed that there is increase in the gross domestic
product and consumption of income in the economy of US. The increase in the GDP and
consumption is through various factors effected by the economy and the people (Sahlins, 2017).
This includes the recession period which is followed by the over consumption of the income
resources of the people. It implies a situation in which the country is going downwards in
monetary terms.
B) Connection between consumption and GDP.
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The GDP of a country is the gross domestic product inn the country it implies that the
total market value of all the goods and services produced in the economy in the given time scale.
The goods and services are measured in the monetary terms to determine the exact value of gross
domestic product in the country.
On the other hand consumption of the income determines the consumption or the use of
income by the people of the economy (Pigou, 2017). Consumption in a economy includes
payment of rent, food and services etc. the other factors which relates to income are investment,
government spending, exports and imports. These factors are regulated in the market by the
economies in the company.
There is close relation between GDP and consumption, as there is increase in the GDP in
country there is increase in more employment, which implies more purchasing powers in the
hands of customers while finally results in increase in consumption by people.
C) Increase in GDP and consumption benefit to Spotify and Adidas.
Spotify- with the increase in the GDP and consumption by the people in a economy there is
increase in the growth and investment opportunists of the company Spotify. With the increase in
the consumption by the people more number of customers are inclined towards spending more
money on there interest and entertainments. This will also increase the investment in music
subscription in Spotify which intern increase the customers of the company (Cooter and Ulen,
2016).
Adidas- as there is increase in GDP and consumption the customers are more tend to investment
in maintain there health and fitness. This will increase in spending more on the sports equipment
and sports apparels which in turn increase the profit of the company Adidas (Boserup, 2017).
CONCLUSION
The report concludes that the study of economics is the essential for the companies in
order to examine the micro as well as macro environment. The report concludes that demand
drivers of the company Spotify is the young age people in middle class families. Also the report
also states that the supply of music apps Spotify depends on the free trail provided by the
company its subscribers which in turn increasing the subscribers of the company. The main
competitor of Spotify is Apple and increase in the price of it will increase the demand for Spotify
music. The report concludes that there is no major impact of boycott of Taylor Swift from
Spotify on the earning of company.
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Furthermore the report concludes that Adidas's main competitor is Nike and they both
operate in monopolistic market. The report also includes that there is increase in the sale of the
products of Adidas by advertising through celebrities.
Thereafter report concludes that there is close connection between consumption and
GDP. And it benefited the companies Spotify and Adidas.
REFERENCES
Books and Journals
Arthur, W. B., 2018. Self-reinforcing mechanisms in economics. In The economy as an evolving
complex system(pp. 9-31). CRC Press.
Boserup, E., 2017.The conditions of agricultural growth: The economics of agrarian change
under population pressure. Routledge.
Brickley, J. and et.al., 2015.Managerial economics and organizational architecture. McGraw-
Hill Education.
Cooter, R. and Ulen, T., 2016.Law and economics. Addison-Wesley.
Dahl, R. A., 2017.Politics, economics, and welfare. Routledge.
De Grauwe, P., 2018.Economics of monetary union. Oxford university press.
Deming, W. E., 2018.The new economics for industry, government, education. MIT press.
Kagel, J. H. and Roth, A. E. eds., 2016.The handbook of experimental economics (Vol. 2).
Princeton university press.
Persson, T. and Tabellini, G., 2016.Political economics. MIT press.
Pigou, A., 2017.The economics of welfare. Routledge.
Sahlins, M., 2017.Stone age economics. Routledge.
Online
Gross Domestic Product. 2019.[online]. Available through.
<https://fred.stlouisfed.org/series/GDP#0>
Equilibrium can change when demand or supply change.2019.[online]. Available through.
<http://www.raybromley.com/notes/equilchange.html>
The Change in Supply: Increase in Supply and Decrease in Supply.2019. [Online]. Available
through.
<http://www.yourarticlelibrary.com/education/the-change-in-supply-increase-in-supply-and-
decrease-in-supply-economics/9198>
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