Q2. How has Apple’s monopoly power changed over the years 2005-2016? Answer :-

Using Lerner’s Index for degree of monopoly the degree of monopoly for Apple from 2005 -16 can be easily calculated.

Monopoly power refer to a firm’s position to charge a market price higher than its marginal cost. It normally exists across industries where there is low elasticity of demand and significant barriers to entry to the market.

Determinants of Monopoly powers in a market are:-

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  When more number of close substitutes exist in the market, price elasticity of demand is high and as a result, it is difficult for monopolies to exist.
  
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  Economies of scale which causes a firm to maintain its production large at the entry level to keep the cost low.
  
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  Another source of monopoly power is the existence of legal entry barriers like patents, copyrights, licenses, etc.
  
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  Also if a firm has exclusive control over certain important physical and natural resource, it exercises Monopoly powers in the market
  

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  Significantly low barriers to the entry in smartphones market leading to increased competition and increase in close substitutes
  
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  India is categorized with low per capita income and hence a high price sensitive market
  
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  Lack of brand awareness in the Indian Market
  
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  Government policies favoring local manufacturers and other policies not going parallel with Apple company policies
  
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  Poor Internet connectivity and limited LTE and fast network services, limit many potential customers from buying smartphones in the premium range.
  
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  The unbeatable features and a wide range of low cost android phones has made the competition tough for iPhones.
  
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  Language used in the operating system is a major barrier. Being a country with 22 official languages, different customers look for different language configurations for their smartphones.
  

In 2016, due to the global slowdown and saturation level being reached in many prominent markets, Apple witnessed an 18 per cent year-on-year dip in revenue of iPhone in Q1 . The growth in 2016 was expected to be 7 % which was less than half of 2015. The reason for these were that the markets in North America, Western Europe, Japan, and the Asia pacific had saturated with a penetration of 90 per cent and also these markets had a weak replacement demand as even the premium consumers preferred not to upgrade their phone before 2.5 years. Market share of Apple was just 14.4 per cent which was far less than the market leader, Samsung at 20.5 per cent. The GDP growth rate of China slowed down to 6.7 per cent in first three quarters of 2016-17. This was the slowest growth rate in China in 7 years. Owing to these and also the presence of the local Chinese Smartphone makers added with some legal issues reduced market share of Apple in China to 9.6%. Even though presence of Apple in India was only 2.4% in 2016 yet a huge scope of penetration was available. Though this penetration might require time and different strategy to attract Indian population.