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Market Structure for Tablets and its Pricing Decision

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Imagine the market for tablets (e.g. iPads), with downward sloping demand curve and upward sloping supply curve.
a. Describe the market structure when iPad was introduced. In theory, how did Apple decide how much to produce and what price to charge? Describe in a simple framework, either graphically or in equations.
b. Compare the market for iPads with the market for shirts. How does a producer of simple shirts (NOT luxury shirts) set her price? Describe difference between this market structure and the one under item a.
c. How did the demand elasticity of Apple and thus its pricing power change as more providers of tables entered the market? Use graphs to illustrate.
d. How does the introduction of the iPad and tablets in general affect the market for laptops? Use again standard supply-demand graph to illustrate. What would you expect in the long- term to happen to production/producers of laptops?
e. Use the examples above on tablets and laptops to discuss the product life cycle. Use graph if necessary.

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Solution Preview

Please also refer to the attachment.

a) When iPads was just introduced, Apple was enjoying the monopoly power. It set quantity to produce by equating its marginal revenue and its marginal cost. That is Q1 in the graph (attachment). The price is set subject to demand, ie. at the price on the demand curve when quantity produced is Q1. The price is set at P1.

b) Assume the market for shirt is a perfect competition. Producers are price takers. They cannot set their own price but to take the market price as given. Price is determined whenever demand curve crosses supply curve. If we use the same ...

Solution Summary

The solution discusses the market structure for tablets and its pricing decision. It describes the demand elasticity.

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See Also This Related BrainMass Solution

Developing a Revised Strategy

It's New Year's Day, 2016. You just had a great New Year's Eve celebration; you finished analyzing the performance of Tablet Development and are ready to charge ahead into the future. As you turn on the TV and try to open your eyes, you notice something strange (again). The TV commentator is saying something about New Year's Day, 2012. You have a sinking feeling, and sure enough, it's back to 1/1/2012. You realize that you are in Time Warp 2.

This time you decide to do your decision making differently. You are going to use a technique that you became familiar with last year, CVP analysis. And you are going to decide all of your decisions at once. No feeling your way through it this time. You are going to make all of your decisions now, for the next four years and just cruise through it this time.

You analyze the results of your first set of decisions that you made in Time Warp 1, from 2012 to 2015. You have the data, you kept it all. But now you are going to use CVP analysis to help you determine your new strategy. And you have a tool to use, the CVP Calculator.

You analyze the results using CVP and develop your complete four year strategy. You decide to make notes about your analysis and your reasoning process; just in case you have to do this again (You are praying that you can finally move ahead this time when you get to 2016.)

You finish your report that shows your strategy that you are going to use these next four years during Time Warp 2. And stop and take a big breath before you move ahead into 2012.

(In other words, don't run the simulation, yet. Just turn in this report.)

After again reviewing and analyzing the results that you got in SLP2 (Time Warp 1 decisions), you develop a revised strategy and make a case for this new strategy using analysis and relevant theories.

The revised strategy consists of the Prices, R&D Allocation %, and any product discontinuations for the X5, X6, and X7 PDAs for each of the four years: 2012, 2013, 2014, and 2015.

You must present a rational justification for this strategy. In other words, you must Make a Case for your proposed strategy using financial analysis and relevant theories.

Use the CVP Calculator and review the PowerPoint that explains CVP and provides some examples.

You need to CRUNCH some numbers (CVP Analysis) to help you determine your prices and R&D allocations.

Make sure your proposed changes in strategy are firmly based in this analysis of financial and market data and sound business principles.

Present your analysis professionally making strategic use of tables, charts and graphs.

TIME LINE SUMMARY
SLP1

2015: 12/15 hired. 12/30 turned in first report to Sally a few days early. 12/31 - celebrated
SLP2

Time Warp 1 begins: 1/1/2016 WARPS INTO 1/1/2012
You freak out, and then realize you have to make decisions for 2012 - 2015, which you do.
12/31/2015 - you have gone through all four years, and you write your report to summarize how you did. You are hoping that you will wake up tomorrow and it will be 2016.
SLP3

Time Warp 2 begins: 1/1/2016 WARPS INTO 1/1/2012 (Again)
Now its 1/1/2012: you decide to use CVP analysis and develop a four year plan for your strategy. You analyze the results of your first decisions in Time Warp 1 and make notes. You use the CVP Calculator to help you develop your strategy and you make more notes explaining your logic and your analysis. Then you take a short breather before you start in again tomorrow.

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