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In July 2016 Apple's share of the UK market for smartphones was 38% - Edexcel - A-Level Economics A - Question 8 - 2018 - Paper 1
Question 8
In July 2016 Apple's share of the UK market for smartphones was 38%. Evaluate whether such a high market share for one company is in the consumer interest. Use app... show full transcript
Worked Solution & Example Answer:In July 2016 Apple's share of the UK market for smartphones was 38% - Edexcel - A-Level Economics A - Question 8 - 2018 - Paper 1
Step 1
Understanding of Monopoly
Answer
In examining Apple's market share of 38%, it suggests a significant level of control over the smartphone market in the UK. This can be understood as a situation where Apple operates potentially as a monopolist, especially as the Competition and Markets Authority (CMA) identifies a market share exceeding 25% as an indicator of market power.
Step 2
Consumer Interest: Positive Aspects
Answer
One may argue that a higher market share can be beneficial to consumers for several reasons:
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Price Competition: A dominant firm like Apple may implement lower pricing strategies due to economies of scale. Thus, efficiencies could be passed on to consumers as lower prices.
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Product Quality and Innovation: A large market share can provide the firm with the necessary resources for R&D, leading to better product quality and innovative features.
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Greater Choice: With a significant market presence, Apple might increase its investment in customer service, thereby enhancing consumer satisfaction.
Step 3
Consumer Interest: Negative Aspects
Answer
Conversely, a high market share can detract from consumer interest:
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Limited Competition: A significant share may reduce market competition, leading to higher prices and less choice over time.
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X-inefficiency: A monopoly may lead to inefficiency as there is no pressure to minimize costs or improve service levels, potentially leading to higher prices.
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Collusion Risk: There is an increased risk of collusion in markets dominated by one firm, which can negatively impact prices and consumer choice.
Step 4
Diagrammatic Analysis
Answer
To illustrate this evaluation, a monopoly diagram can be used, showing the price (P), marginal cost (MC), and average revenue (AR). The diagram demonstrates how a monopolist sets prices above marginal cost, leading to supernormal profits, which can either be reinvested into the company or passed on to consumers through improved services and quality.
Step 5
Conclusion and Evaluation
Answer
Ultimately, whether Apple's market share is in the consumer's interest depends on various factors, including:
- The dynamics of competition in the smartphone industry, with emerging competitors like Huawei.
- The effectiveness of regulation by the CMA in managing monopolistic behaviors.
- Potential benefits such as lower prices due to efficiencies versus higher prices resulting from lack of competition.
A balanced view recognizes that a high market share can have both positive and negative implications for consumer welfare.