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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 appro... 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
A market share of 38% by Apple exceeds the Competition and Markets Authority's (CMA) definition of a monopoly, which is typically at 25%. This indicates that Apple operates in a near-monopoly situation within the smartphone market. Understanding monopolies is crucial, as they can impact pricing and consumer options.
Step 2
Evaluation of Consumer Interest
Answer
One might argue that a high market share can benefit consumers through:
- Efficiency Gains: Larger firms often experience economies of scale, which can lead to lower costs being passed to consumers.
- Improved Investment: Higher profits can lead to increased investment in product quality and innovation.
Conversely, high market shares can also act against consumer interest:
- Price Increases: Without competition, firms may implement limit pricing or take advantage of their market control, leading to higher prices.
- Reduced Choices: Lack of competition can stifle variety and consumer choice in product offerings.
Step 3
Market Structure Analysis
Answer
A diagram illustrating monopolistic behavior can be useful here. A typical monopoly diagram would show:
- The downward sloping demand curve (D)
- The marginal revenue curve (MR) beneath it
- Costs indicated by average cost (AC) and marginal cost (MC) lines This shows the monopolist setting a price higher than marginal cost, resulting in supernormal profits, which impacts consumer welfare negatively.
Step 4
Conclusion and Context
Answer
Ultimately, whether Apple's high market share serves consumer interests depends on various factors, including the ability of new entrants to challenge Apple, regulatory oversight, and the overall competitive landscape of the smartphone market. The presence of competitors, such as Huawei, indicates that while Apple has a significant share, the market dynamics could change, impacting consumer choice positively.