Apple iWatch Market Analysis: Oligopoly, Pricing & Economics
This paper provides a microeconomic and macroeconomic analysis of the Apple iWatch (Apple Watch) as a consumer product. It examines the smartwatch industry's oligopolistic market structure, the inelastic price elasticity of the iWatch as a luxury good, and the relationship between pricing decisions and marginal cost and revenue. The paper also explores non-pricing competitive strategies—including advertising and product differentiation—and how changes in business operations affect fixed and variable costs. Finally, it considers global economic conditions, the United States business cycle stage, and credit market conditions as they relate to consumer demand and planning decisions for the iWatch.
- Market Structure of the Smartwatch Industry: Identifies smartwatch market as an oligopoly
- Price Elasticity of the iWatch: iWatch demand characterized as price inelastic
- Pricing Decisions and Marginal Cost and Revenue: Calculates marginal revenue from iWatch price change
- Non-Pricing Strategies and Barriers to Entry: Advertising and brand differentiation as competitive tools
- Fixed and Variable Costs in Business Operations: How operations changes shift cost structure
- Global Economic Conditions and Macroeconomic Indicators: Global volatility affects retail and CPI indicators
- Business Cycle Stage and Credit Market Conditions: U.S. expansion phase and tightened credit access
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What makes this paper effective
- Applies established microeconomic concepts—oligopoly, elasticity, marginal cost, and marginal revenue—directly to a real and recognizable consumer product, grounding abstract theory in a concrete case.
- Uses a numerical example (price change from $350 to $450, marginal revenue calculation) to illustrate theoretical relationships, making the analysis accessible and verifiable.
- Moves logically from micro-level firm decisions (pricing, cost structure) to macro-level considerations (business cycle, credit markets), demonstrating multi-level economic reasoning.
- Connects non-pricing strategies to market structure, correctly identifying why advertising and brand differentiation are especially potent tools in an oligopolistic environment.
Key academic technique demonstrated
The paper demonstrates applied economic analysis: taking standard textbook frameworks (elasticity, marginal analysis, market structure) and using them systematically to evaluate a specific business scenario. The marginal revenue calculation is a particularly clear example of translating a formula into a real-world context, showing how pricing decisions translate into quantifiable financial outcomes.
Structure breakdown
The paper is organized as a business proposal analysis with seven sections. It opens with market structure identification, moves through demand-side analysis (elasticity and pricing), then supply-side analysis (marginal cost and revenue), then competitive strategy (non-pricing approaches and barriers to entry), then internal cost structure (fixed vs. variable costs), and concludes with external macroeconomic factors including global conditions, the business cycle, and credit market effects on planning decisions.
Market Structure of the Smartwatch Industry
The Apple iWatch operates within the smartwatch market, which is best characterized by an oligopoly market structure. An oligopoly refers to a market dominated by a small number of large sellers. Smartwatches are produced by only a few major companies, and each firm's output and decisions are substantial enough to carry significant weight in the market as a whole. Furthermore, companies in this market are acutely aware of how rival firms react to changes—particularly with respect to price.
This market structure is distinctive in the sense that a company's pricing and output decisions must also account for the perceived or anticipated reactions of its competitors. For instance, the pricing and output decisions made for the iWatch must consider the likely responses of competing products such as the Sony Smartwatch (Salvatore, 2015).
Price Elasticity of the iWatch
The elasticity of demand measures the degree to which the quantity demanded of a product changes in response to a change in price. A good is considered elastic if the quantity demanded changes substantially when the price changes. The iWatch, by contrast, is a luxury product whose demand is inelastic—meaning that an increase in the price of the iWatch would have relatively little impact on the quantity demanded (Salvatore, 2015).
References
Apple Website. (2015). Watch. Retrieved 12 June 2015 from: http://store.apple.com/us/watch
Bureau of Economic Analysis. (2015). Gross Domestic Product (GDP) Graph. United States Department of Commerce. Retrieved 26 June from: http://www.bea.gov/newsreleases/national/gdp/gdp_glance.htm
FedGazette. (2009). How have current credit conditions affected your business, community or industry? Federal Reserve Bank of Minneapolis. Retrieved 26 June from:
Mudida, R. (2003). Modern Economics. Nairobi: Focus Books Publishers.
Nielson, S. (2014). Why innovation could be the key to Apple's growth. Market Realist. Retrieved 12 June 2015 from: http://marketrealist.com/2014/01/apple/
Salvatore, D. (2012). Managerial economics in a global economy. New York: Oxford University Press.
Salvatore, D. (2015). Managerial economics in a global economy. New York: Oxford University Press.
Scott, G. (2011). Is brand loyalty the core to Apple's success? Forbes. Retrieved 12 June 2015 from: http://www.forbes.com/sites/marketshare/2011/11/27/isbrandloyaltythecoretoapplessuccess2/
The Conference Board. (2015). Global Economic Outlook 2015 — Key Findings. Retrieved 26 June from: https://www.conference-board.org/data/globaloutlook/
The Economic Times. (2013). Real Business Cycle Theory. Retrieved 26 June from: http://articles.economictimes.indiatimes.com/2013-04-11/news/39065904_1_business-cycle-shocks-phases
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