The success of any organization in the market depends on factors such as the quality of its products and services, the relationship that exists between its consumers and the business models that it adopts. Apple operates in the Oligopoly market structure and its success is partially attributed to its innovative corporate culture and values. Some of the characteristics of oligopoly include barriers to entry, an existence of price rigidity and aggressive marketing and advertisement. With the technological advancements in the past ten years, the level of competition in the oligopoly where Apple operates has increased and this has forced the individual firms to change their strategies with the aim of meeting consumer needs.
Keywords
Advancements: Improving
Consumers: Customers
Introduction
Market structure is termed to as the characteristics of a market in the form of competition and pricing among other things. Companies tend to adopt various strategies with the aim of ensuring that they gain a competitive edge over their rivals in the market. There are various types of market structures and these include perfect competition, monopolistic competition, oligopoly, and monopoly. In this paper, an assessment of Apple Corporation will be conducted as well as the market structure in which the company operates.
Market structure
An oligopoly market structure is a market form that is primarily dominated by a small number of large firms. In as much as the companies compete against one another, they are also free to collaborate with the aim of maintaining their market sustainability. Apple is among the companies that operate in this market structure (Amason, 2018). The company produces high quality and unique electronic products designed to meet the needs of the consumers while giving it a competitive edge over the rivals in the tech sector.
Profit measurement
The primary goal of any organization is the maximization of its profits. Companies that operate in the oligopoly market structure emphasize the quality of their products and services and this is essential in that it meets the needs of the consumers (Amason, 2018). The profits of a company in the market structure are measured by deducting expenses incurred from the revenues generated. The consumer base of an organization is also essential in that it provides a clear picture of its financial performance. Other measures of profits include gross profit which is the difference between costs of goods sold and revenue, Earnings before interest and taxes and net income. The oligopoly structure also relies on retained earnings as a measure of profitability.
Levels of competition and impacts of market structure
There are few major players in the oligopolistic market structure and this implies that the level of competition is limited. However, Apple embraces innovative strategies to ensure that it maintains a high performance in the market (Bajarin, 2018). The level of competition in the market structure is dependent on factors such as the quality of goods that individual firms produces, the relationship that exists between a company and its consumers and the market regulations in the various countries where the companies operate (Kumar, 2018). Competition intensity in the oligopoly market structure has in the past decade been on the rise and this is majorly influenced by the advancements in the levels of technology (Amason, 2018). The market structure in which Apple operates is marred with various challenges. One of the major problems that affect the oligopoly market structure is the lack of a level playing field when it comes to competition. Companies such as Apple and Samsung are currently the dominant forces in the market and this makes it hard for the new companies to succeed. Another problem that is evident in the market structure is the risk of collusion that leads to price fixing. Cartels in the market structure join forces in promoting their interests and killing fair competition. Tight government and market regulations also make it hard for the firms that operate in the oligopoly structure to meet their goals because of the high costs that they have to incur (Amason, 2018). High taxations in a given country, for instance, negatively affect the financial performance of a firm in the market structure.
Description of the company
Apple Company
Apple is a tech company that has its headquarters in Cupertino, California. Since its founding in 1976, Apple has experienced immense growth and this is attributed to Steve Job’s leadership and its unique business models. Some of Apple’s founders include Steve Job, Ronald Wayne and Steve Wozniak (Apple Company, 2017). With the advancements in the levels of technology, the company’s ability to meet the needs of its consumers has also been strengthened. The company hires skilled and talented employees. Through regular training programs, the Human Resource department ensures that the innovative culture is maintained within the firm. Some of Apple’s products and services include Apple TV, the iPhone, Apple Pay and Apple Store. Other products include Apple TV, Home pod, and iPods. Currently, Tim Cook serves as the firm’s CEO and is tasked to steering it to success (Apple Company, 2017). As at 2018, the company has 500 retail stores around the world with an ever-increasing consumer-base. Apple, through its high-quality products and services, has over the years managed to maintain a strong relationship with its consumers around the world. The firm’s subsidiaries include Apple Sales International, Shazam and Apple Worldwide Video. Currently, the company has an estimated 123,000 workers.
Current issues
Currently, there are various issues that Apple struggles with. Firstly, the level of competition from firms such as Samsung is on the rise and this has a negative impact on the company’s operations. Aggressive competition affects Apple’s ability to meet its strategic goals and objectives. Another problem is that most consumers are shifting from the PC market to smartphones. In the modern day, smartphones are designed in such a way that they can effectively perform tasks meant for PCs (Apple Company, 2017). Consequently, this has a negative effect on the sales of mac-books and Apple desktop computers. In the future, it will be hard for the company to maintain its market sustainability regarding PC sales. Low employee retention rates are among the challenges that Apple is trying to address. The tech sector has various well-paying companies and this attracts some of Apple’s workers with the promise of improving their salaries and benefits. The firm’s assembling plant in China struggles with problems of poor working conditions and the lack of ethical codes of conduct that improves the productivity of its workforce (Robertson " Lineback, 2017). Finally, all the firm’s products have been a success, but the problem lies in coming up with the next big thing that will capture the attention of consumers in various parts of the world.
Current government regulatory issues
Government and market regulations affect the performance of companies. Apple Company abides by the government regulations in those countries where it operates. Some of these laws include promoting the privacy of consumer information, paying corporate taxes and practicing fair competition. As a part of its expansionary process, Apple is in the process of setting up various subsidiaries across the globe (Robertson " Lineback, 2017). The subsidiaries have to stick to the regulations of the host countries where they operate. In Europe, the EU has pressed charges against Apple for what is seen as tax evasion. The issue surfaced in 2016 when the European Union claimed that Apple was going through its regulation by evading taxes in some of the member countries (Robertson " Lineback, 2017). The organizational leadership of Apple, led by Tim Cook, on the other hand, argues that Apple is an organization that abides by tax laws in all its host countries.
Current financial state of Apple Company
Apple’s financial performance
Apple has a strong financial health and this contributed to its customer loyalty and the ability to produce high-quality products and services. The company has over the years succeeded in the market where it has its operations. Other factors that have a direct impact on the ever-improving financial performance of the company include unique risk management and cost reduction strategies, penetration into the emerging markets and a motivated workforce (Leahy " Neary, 2010). In the quest for funding its operations, Apple relies on various sources of finance including retained earnings, bank loans, and shareholders’ equity. In the year ending 2017, the firm’s revenues increased to $229.23 billion while its net profits improved to $48.35 billion (Apple Company, 2017). Apple’s total gross profit in 2017 was $88.19 billion while its pre-tax income was represented by $64.09 billion (Apple Company, 2017). The total current assets for the company increased to $128.65 billion an indication that it raised its investments into property and equity. Apple primarily increased its reliance on debt funding and this was evidenced by a significant rise in the total liabilities to $241.27 billion in 2017 (Apple Company, 2017). The company’s success is also attributed to factors such as its Corporate Social Responsibility and the diversification in its production.
Social and external factors
Various social and external influences have a direct impact on the performance of Apple. High levels of competition from firms such as Samsung and Google is one of these factors. The company also relies on Research and development that is useful in identifying the needs of various consumers in the market. Government involvement also affects Apple’s ability to meet its set goals. Some of the social factors that have a positive impact on the firm’s performance include engagement in various charitable events that are primarily aimed at supporting the needy in the society and environmental protection initiatives.
Stock performance
Apple’s stock price currently stands at $190.98 while its market capitalization is $944.07 billion (Yahoo Finance, 2018). In the past two months, Apple’s stock has varied significantly, with the highest share price during the period being $198. Factors such as company news, the number of investors that are willing to invest in the firm and revenues generated have an impact on the firm’s stock prices. Aggressive competition from Samsung and IBM affects the company’s market performance.
International trade opportunities and government involvement
Apple has also taken advantage of International Trade Opportunities in improving its revenue generations (Apple Company, 2017). The emerging smartphone markets in Asia and Africa will provide the company with an opportunity to further strengthen its financial performance. The governments in those countries where Apple has its operations are involved in the implementation of rules and regulations that directly impact the operations of both local and international companies (Sutton, 2015).
Relationships of the market structure with short-term and long-term profits
Limitations of the market structure
Apple, by the fact that it operates in the oligopoly market structure, implies that is faced with the challenge of intense competition from companies such as Google and Samsung (Loertscher, 2008). Consequently, this reduces its market share and limits the expansion of its consumer segments. The launching of various new smartphones by Samsung Company, for instance, has had a negative effect on the sales of Apple’s iPhone products.
In the quest for maintaining sustainability in the oligopoly market structure, Apple has to ensure that it invests heavily in technology, a skilled workforce and Research and Development. The decision by the company to channel its investments in the various aspects of strategies contributes to a significant increase in its costs (Myers " Tauber, 2011).
Barriers to entry
The barriers to entry in the oligopoly market structure are high. Companies such as Apple that operate in the oligopoly have exclusive resource ownership and are subject to government regulations in the countries where they operate (Myers " Tauber, 2011). Penetration into the oligopoly market structure is hard because of the dominance by the existing firms such as Apple Company. New entrants into the oligopoly market are faced with the challenge of high start-up costs that impairs their ability to match the financial muscles of companies such as Apple and Samsung. Moreover, the existence of patents and licenses affects the ability of the new entrants to establish an operational base and capture the attention of consumers (Loertscher, 2008). The several barriers in the Oligopoly market provide established companies such as Apple with an opportunity to increase their financial performance and strengthen their brands.
Micro-economic graphs on Apple’s oligopoly structure
Demand of iPhones
The graph above shows that the quantity of iPhone 5 demanded is dependent on its prices. Most consumers prefer purchasing the product when the prices reduce. An increase in the prices of the iPhone product from P1 to P2 contributes to a reduction in the demand of the product from Q2 to Q1. Based on the graph, an increase in the demand of the products leads to a significant increase in its supply.
Apple’s oligopoly
Based on the above oligopoly graph, it is evident that the profitability levels of Apple as a result of its computer sales are attributed to the strategies adopted by the firm. Before the implementation of the MacBook Wheel, the company’s economic profits were significantly low. However, with the integration of the MacBook Wheel, there was a reduction in the costs incurred by the company and an increase in its economic profits.
Apple Oligopoly
The graph above is a representation of the inefficiencies that arises as a result of the oligopoly market structure. An increase in the costs that Apple incurs has a negative effect on its marginal revenues (Myers " Tauber, 2011). As the price increases compared to the marginal costs, the company focuses on enhancing the quality of its outputs in such a way that it will meet the needs for its consumers.
Reasons for Apple’s success in the next years
In the next year, Apple will continue improving its financial and market performance. There are various factors that will contribute to its success in the tech sector and oligopoly market structure. Firstly, Apple maintains a strong relationship with its consumers by delivering high quality products that meet their tastes and preferences (Lashinsky, 2017). In the next year, Apple will continue developing unique and state of the art products and this will improve its organizational growth. In the quest for ensuring that the company maintains its sustainability in the market, the company, through regular training programs will have to strengthen its innovative culture.
The strengthening financial performance of Apple is another indication that it will succeed significantly in the next year. In the past three years, Apple has recorded a significant increase in its revenues and profits and it has been projected that the trend is expected to continue in the future. The stock prices for Apple, for instance, improved from $163 to $190 by mid-July and in the next one year, financial analysts have forecasted that the stock price will stand at $250 (Lashinsky, 2017). Aggressive competition exists in the industry where Apple operates. Through the integration of advanced technology and hiring a team of talented workers, the company believes that it will continue gaining a competitive edge over its competitors (Jacob, 2013).
The company is in the process of improving its Research and Development unit. By investing heavily in R"D, Apple will strengthen its relationships with the consumers by producing goods and services that meet their needs (Jacob, 2013). Moreover, the firm will gain an opportunity to identify the various emerging markets around the world. Subsequently, this will increase its market share and cut down on the costs of productions. The company is also expected to improve its market sustainability in the next one year.
Predictions of the future of Apple
Apple Company is a giant in the technology sector and its success is attributed to factors such as great in-store experience and customer services and its innovative cultures (Barac " Moner-Colonques, 2016). In the future, the company is expected to continue improving its performance in the future.
Marginal costs=Marginal revenues
Marginal cost refers to changes in the costs as a result of variations in the units of production. Marginal revenue, on the other hand, refers to the cost of producing an extra unit of a commodity. Profit of an organization or an industry is maximized when marginal cost is equal to marginal revenues (Carl, 2012).
Based on the above graph, the revenues that are generated by an industry increases when the volume of production is improved. At the point (Q) where the marginal cost of an industry equals to the marginal cost, profit is maximized. In the event of a shift in either the MC or MR, the industry may realize profitability but may not be at the optimal.
Economies of scale
Economies of scale exist in the oligopoly market structure. Scholars argue that economies of scale are the reason behind the existence of oligopolies. Firms that operate within the oligopoly market structure take advantage of economies of scale in improving their revenues. The fact that oligopolies have few large firms implies that their marginal costs of production decreases significantly as their output of production increases (Barac " Moner-Colonques, 2016). Another reason for the existence of economies of scale in the oligopolies is that an increase in output leads to a decline in the average total costs (Carl, 2012). Moreover, the few large companies in the market structure benefits from barriers to entry, thus maximizing on their profits.
Conclusion
After the financial crisis of 2008, the global economy has since been on the rise. Apple is among the companies that have benefited significantly from the growing international economy in the past decade. The company operates in the oligopoly market structure and this has given it an opportunity to penetrate into the emerging markets around the world. In the future, Apple will continue broadening its success due to factors such as strong financial performance and a collaborative and innovative workforce.
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