Pricing power and policies depending on the market structure iPad is a brand new category of product for the market; which is in between MacBook and iPhone. It provides entertainment such watching movie, photos and playing game, reading e-book, web browsing and simple task of computing. The target customer for iPad is anyone. It is a perfect replacement of Netbook, which is a cheap and low end notebook for web surfing, watching media and carrying simple computing as well. For iPad, it means high end technology and good taste.
Moreover, while connecting to iTune, it provides tremendous digital books, software, media and games etc. for your downloading. By observation, the market structure for iPad is oligopoly, where only very few companies such as Dell, HP, Lenovo and Samsung could compete with Apple in future. It is because iPad is built up with sophisticated patented technologies including hardware, operating system, software and application. These highly integration of hardware and software design furnish iPad’s way to success, and that’s why there are no similar product in the marketplace right now to rival with Apple’s media tablet.
For now, Apple is a dominant oligopoly that has a significant cost advantage over the followers companies. It certainly takes a lead for the market of media tablet and operates as a monopoly to set price and output of iPad for obtaining maximum profit. Apple produces varieties of iPads for targeting different categories of customers for maximizing market base and profit. It also cooperates with telecom companies for providing bundling service with iPad to customer. Moreover, in combining with its unique iTune, iPad serves as device for generating continuous revenue device.
Factors affecting price, demand and supply Apple could have led the market in the media tablet field for couple of years. Therefore, it could set the price of iPad for maximum profit as high as $1000 us dollar as many analysts forecast. But that’s just not the case. The iPad is quite cheap with a starting price of $499 to $899 depending of the storage size ranging from 16GB to 64GB and with or without 3G-enabled. Why? First of all, it aims to replace the netbook, which had been a heat product for awhile ago.
If the price is too high in compare with netbook, substitution effect may not take place. That’s why the price sets closely with netbook and consequently results in a sharp drop of netbook’s price. On the other hand due to law of demand, as the price decreases the quantity of demand increases. That means low entry price for iPad may absorb and widen the base of customers and thus maximizes demand. Moreover, the manufacturing cost for iPad was as low as around $229 for the cheapest one, which could still make a margin of over 85%.
In addition, selling iPad is not one time revenue, generating continuous revenue from selling digital product such as e-book, media, application and software via iTune, advertisement, accessory and complement products for iPad is the beauty of it. On the other hand, there was financial tsunami not long ago; which is still adversely affecting the economy. Many people are still unemployed or are working under paid. Due to income effect, if the price for iPad is lower, more people can afford it, so the quantity of demand increases. However, as other companies entering the market, the demand of iPad would decrease due to substitution effect.
Apart from income of customers, number of consumers and the price of related products as aforesaid, the preference of consumer would also affect the demand of iPad. That’s why Apple creates an image of iPad as high-end and good taste product that everyone should have one in hand. Price on the hand would be affected by supply. Supply of iPad was affected by the price and demand. More demand leads to more supply and price increases. At present, no perfect substitution for iPad means Apple has to supply more iPad in order to satisfy the demand.
Manufacturing cost such as the cost of multitouch screen, licence fee for software and labor cost may also affect the supply. On the hand, better technology such as introducing automation by machine would boost supply of iPad and that’s Foxconn, the manufacture of iPad is doing right now. Moreover if you know the economy is getting worse and the price of iPad will be decrease, you would certainly postpone purchasing of iPad. In all, supply of iPad is affected by number of suppliers, technology, resource prices and future price and economic activity.