A view on the smartphone market - An Oligopoly

The smartphone market is one of the most prominent oligopolies. It is one of the largest and most profitable markets in the world . Among the major players in the smartphone industry are Apple, Samsung, Nokia, Blackberry, HTC, Sony Erricson, LG and Motorola.

The most identifying characteristic of an oligopoly is the number of sellers . In the case of the smartphone industry, the number of sellers are small, each of them holding a sizable percentage of the market share, with Apple and Samsung being the dominant players. When firms are working within an oligopoly, the number of sellers are so small that they must anticipate their competitors' reactions before making a pricing decision.

Being an oligopoly, the barriers to entry for the smartphone market is very high. It is extremely difficult for new firms to enter the market as barriers such as existing patents, control over essential raw materials and market, high customer switching costs and strong customer loyalty for existing brands block access to new firms who wish to enter the market. For example, Apple and Samsung's existing loyal customers would not be inclined to switch brands to a new startup firm as they have strong customer loyalty and trust in the brands that they are using , not to mention the extreme difficulty any new firms face with patent ownership, making production of new smartphones a very difficult task.

When firms work within an oligopoly, they have a joint control over the price of the products. Thus, there exists a mutual interdependence between firms to strategically price their products in order to mutually enjoy the highest profits. In the case of the smartphone industry, firms are forced to comply to the prices that are set in the market, or risk losing the demand for their product. When one firm lowers the price of their smartphone, the demand will increase and thus profits will increase. However, this increase in profits cannot be enjoyed for long because other firms will decrease the prices of their smartphones as well, in order to even the playing field .

Mergers also exists within the smartphone market. When firms sense the danger of new firm entries, they merge and create joint policies in product pricing and and production in order to discourage the entry of new firms. This is an integral component for the survival of the current firms. In order to continue profiting, the firms that exist within an oligopoly must work together to block the entry to new firms who wish to enter the market.

Samsung has recently taken the lead in the smartphone market, overtaking Apple in terms of market share, thanks largely in part to their flagship device, the Samsung Galaxy S4 outselling Apple's iPhone 5. And thus, as the smartphone market continues to grow and evolve, Samsung will be spearheading this movement forward, dominating the market with their Samsung galaxy S4, at least for the time being.

Written by : Keeve Wong Wekit (0315620)

References :

http://money.cnn.com/2013/06/05/technology/mobile/samsung-apple-market-share/index.html

http://www.oocities.org/znuniverse/micro_economics/Price_Determination_under_Oligopoly.htm