Essay: Mobile Phones Market - Analysis Of Price Changes And Factors Affecting Demand And Supply.

Mobile Phones Market

Discuss about the Mobile Phones in Market.

In today’s world mobile phones is a commodity or product that is exceedingly demanded by consumers keeping in consideration the growing use of the product because of the formation of new mobile companies, plentiful suppliers providing phones at reasonable prices which attracts buyers from all kinds of income classes who can easily afford a mobile phone of the price range they can want to buy. Just like other markets, demand and supply concepts are crucial to the mobile phones market but the extreme saturation of the market considering the large number of sellers supplying phones of wide price ranges which satisfies to people from all income classes the demand and supply of mobile phones may or may not be affected by the changing price. Below we see more into this theory of how mobile phones market gets affected due to changing prices, as well as look into the factors that affect the mobile phones market

As of the year 2009, as was noted by the ‘The Guardian’ more than half of the world population had mobile phone accounts which must have increased further after the growth of suppliers and units of the product in the market. The sale of mobile phones in the nations which are poorer rose considerably in the years from 2006 to 2010 (MegaEssays). As per the GSM association the mobile phones industry revenues were expected to go up to $1.9 trillion in 2015 as the number of mobile connections pitch to 9.1 billion (Bingemann, 2012).

If we consider the pricing strategies of mobile phones, then prices are fixed on differentiation of devices and the price point segments giving rise to different equilibrium prices based on demand and supply of different types of mobile phones. Pricing is also dependent on the competitor’s prices. Demand of the mobile phones differs as per geographical regions, distribution chain, local taxes, etc. (Lipsey et al, 2011). If we consider the differentiation between the devices and revenue obtained from those then we see that marginal revenue from a smart-phone which is considered of the higher segment is greater than a phone from the lower end. The market structure of mobile phones is unusual, as in there is no perfect completion but there is no oligopoly either even though the market is driven mostly by a fewer number of big players in the industry. If we consider demand for mobile phones then it also depends on the preference pattern of consumers based on brands (Saharan, 2013). Hence, a consumer’s reaction towards price changes of the product is very much dependent on the other factors related to the consumer. As we know in the growing mobile phones market, there are mobile phones of different price ranges. Some may be inexpensive and some towards the higher end pricing that can be said to be expensive, though the change in price is also reflected in the quality of the mobile phones. Hence, with phones available at different prices, phones of margins close to each other are often found to be pretty much as substitutes to each. Thus, if the price of  i-Phone rises beyond a consumer’s affordability, then he might switch to a mobile phone of some other company which would satisfy his preference as much as possible as i-Phone would do. But we can completely realize in that case the demand for i-Phones will fall as now consumers who are not able to afford i-phone at the higher price would be switching to mobile phones from other companies. In this case, we see that the law of demand does apply to individual companies. With increasing competition as well as availability of large number of sellers with products of different price ranges, it is expected that with rise in a mobile phone of one particular commodity may lead to the fall in demand for that company. Although, we should also consider the case of presence of almost substitutes of mobile phones in one company itself. In that case when the price of a particular model of i-phone rises, the consumer shall not be able to afford it but he can surely switch to some other model of i-phone which gives him a closer utility to what he would have achieved by purchasing the previous model. Then as we see a shift in the demand curve takes place both in the cases of competition between different companies each supplying close substitutes as well as availability of products of different ranges within one company itself. As we see in the figure below, with rise in price of a particular model/type of mobile phone from company A, the demand for another model in the same company rises. Thus with rise in price company A’s mobile phone of model 1, the demand for model 2 in the company rises, represented by the shift in the demand curve upward from D’ to D’’ (Mankiw, 2007).

Effect of price changes and pricing strategies on the mobile phones market

Similarly in the figure below we see, that as the price of company A’s mobile phone rises, it can lead to a rise in demand of company B’s phones shifting the demand curve of company B upwards, leading to rise in equilibrium quantity and price.

Now that was for the rise in price, for the fall in price of phones there can mostly lead to the rise in demand. That holds true even for within one company products, where a fall in price of i-phone of a higher quality model will push up its demand or between companies, like a proportionately higher fall in price of Samsung phones will make people demand more of Samsung phones and less of i-phone. We see this in the two diagrams below. In part a of the diagram we see that within company A, a fall in price of a mobile phone of a particular model will increase its demand and in b we see that as price of mobile phone in company B falls more that company A, its demand goes up and company A’s demand falls.

Now above we just saw the price change effects on demand which included price of one country as well as its competitor’s and how it affects demand on both ways. There are many other factors which affect the demand for mobile phones or causes shifts in it. Those factors are:

• Rise in income causes higher purchasing power of consumers which causes rise in demand for mobile phones (Samuelson et al, 2010)
• Preference patterns affect demand as some individuals may prefer a specific type of phone
• Expectations of future prices affect demand as customers expecting the i-phone’s price to fall in future will buy less now
• Marketing and advertisement done by company affects as with higher promotion of the phone will attract more customers
• Prices of complementary products like accessories, chargers, power banks also matter
• Prices of the other products the company produces also matter. Like Samsung produces TVs, laptops and tabs too.
• Prices of substitutes also matter, like that of tabs, laptops, etc.
• Macroeconomic factors like inflation, economic boom or recession affect the demand along with population changes since growing population would demand more of mobile phones. (UKEssays, 2015)
• Availability and the cost of credit matters as with higher costs of credit people may buy less phones
• Relationship with telecom partners matter. (Varian, 2010)

In all the above case either a demand shifts can occur as below:

Supply of mobile phones is also crucial. Apart from the law of supply which says with rise in price supply of a product increases other factors also cause changes in supply of mobile phones. The below factors cause a shift n the supply curve of phones:

• Rise or fall in input prices increases/decreases cost of producing phones hence affecting the supply of phones in the market. Input prices may include costs involving expenditures on marketing, advertisements, prices of softwares, etc.
• Advanced or progressive technology causes rise in supply of phones and vice versa (Sowel, 2010)
• Price of other goods that the company can produce affects supply of mobiles that the company produces. If the demand and price for some other product rises they might produce less of phones. For example if the company prefers to produce more of laptops ot tabs then it would produce less phones
• Future expectations by the company for demand to rise or fall may be reflected in the supply of phones in the present day
• Competition and hence market size affects the supply for phones tremendously. With growing no. of sellers in the market the overall supply of phones is increasing. (Pindyck et al, 2009)

For all the above supply affecting factors, there occurs either a fall in supply shifting the supply  curve leftwards or rise in supply shifting the supply curve rightwards as we see below.

Conclusion:

Over the next following years the mobile phone price is expected to fall because of the growing competition and the increased supply of mobile phones by many producers (Fig 2), which will soon lead the market to reach a point of saturation such that the demand would grown at a slower rate ( Knowledge@wharton, 2012). The prices would fall essentially because of the growing markets in developing economies like China and India (Pettinger, 2012).

Thus, we saw how the sale of mobile phones is increasing globally and soon would reach its saturation point where billions of users would own mobile phones and hence demand would be growing slowly. The growing demand and supply is also benefitting industries related to the mobile phone industry like the telecommunications industry or the ones which sell accessories that act as complementary goods for mobile phone. Growth in sale of mobile phones is also in a way boosting economic growth with its considerable contribution to the GDP of economies and helping citizens be more connected to the world through internet or mobile applications.

References:

Pindyck, R, Rubinfeld, D & Mehta, P 2009, Microeconomics, Pearson, South Asia

Varian, H 2010, Intermediate microeconomics, Affiliated East-West Press, New Delhi

Mankiw, G 2007, Economics: principles and applications, Cengage learning, New Delhi

Samuelson, P& Nordhaus, W 2010, Economics, Tata McGraw Hill, New Delhi

Lipsey, R & Chrystal, A 2011, Economics, Oxford, New Delhi

Sowell, T 2010, Basic economics, Basic books, USA

UKEssays, 2015, Factors that influence the demand for mobile phones, viewed 31 August 2016, https://www.ukessays.com/essays/economics/factors-that-influence-the-demand-for-mobile-phones-economics-essay.php

Saharan, P, 2013, Demand Supply analysis (Nokia), viewed 31 August 2016, https://www.slideshare.net/hooda_27/demandsupplyanalysis-nokia

MegaEssays, Evaluation of Supply and Demand of consumers use of mobile telephony, viewed 22 August 2016, https://www.megaessays.com/viewpaper/201845.html

Pettinger, T, 2012, Falling price of mobile phones, viewed 31 August 2016, https://www.economicshelp.org/blog/6279/economics/falling-price-of-mobile-phones/

Bingemann, M, 2012, The Australian, The mobile phone industry is growing at an incredible pace and not slowing down, viewed 31 August 2016, https://www.theaustralian.com.au/business/technology/the-mobile-phone-industry-is-growing-at-an-incredible-pace-and-is-not-slowing-down/story-e6frgakx-1226289763230

Knowledge@wharton, 2012, How forces that drive the mobile industry’s growth also threaten its future, viewed 31 August 2016, https://business.time.com/2012/06/28/how-forces-that-drive-the-mobile-industrys-growth-also-threaten-its-future/.