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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 appr... 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
One may illustrate the concept of a monopoly, which can be either a natural monopoly or an imposed monopoly, where one firm dominates the market. In this case, Apple's 38% market share exceeds the Competition and Markets Authority (CMA) guideline of 25%, suggesting a potential monopoly situation.
Step 2
Consumer Interest Analysis
Answer
One firm may operate in consumer interest by:
- Limiting Pricing: This could act as a substitute for competitive pricing, potentially leading to lower prices for consumers.
- Supernormal Profits: High market shares may allow a firm to achieve supernormal profits, which can translate into enhanced investment in product quality and customer service.
- Economies of Scale: As a large player, Apple might achieve economies of scale that lower production costs, allowing these savings to be passed on to consumers.
Step 3
Potential Limitations on Consumer Interest
Answer
However, one firm operating with significant market power may also lead to:
- Collusion Risk: The possibility of collusion where firms could coordinate to keep prices high.
- Higher Prices: If competition is limited, Apple could maintain higher pricing strategies, reducing consumer access to lower prices.
- Quality Concerns: Potential for decreased emphasis on customer service or quality due to reduced competition and market pressure.
Step 4
Diagrammatic Analysis
Answer
A monopoly diagram will illustrate the price and quantity resulting from Apple's dominance. In the diagram, the demand curve will exhibit a downward slope, while the marginal revenue curve will lie below it. The intersection with the marginal costs can indicate the monopolistic pricing level, showing how quantity produced may be lower and the price higher than in a competitive market.
Step 5
Evaluation of Market Share
Answer
The evaluation depends on factors such as:
- Market Contestability: If other firms like Huawei are entering the market, competition could reduce Apple's excess market power.
- Regulation by CMA: The effectiveness of any regulatory body in controlling potential monopoly power impacts consumer interest.
- Investment in Innovation: A higher market share may lead to increased profits, enabling more investment in high-quality products and innovation, ultimately benefiting consumers.