Q1: Explain distinction between “industry” and “market” using

example from your own industry or market

According to Olivia (2011), ‘market’ is a large place where there

are both sellers as well as buyers exchanging goods and services,

‘industry’ refers to sum total of companies engaged in the same

kind of business, making similar type of products and in fact

competing with each other.

In short-term, ‘industry’ has function of creating

products/services and the function of ‘market’ is to consume the

products/services from industry.

In case of Apple, the company offers different ranges of product

including smartphone, tablet, computer, and music player (as well

as a variety of related software and services). According to

Apple’s annual report 2012, net sales of iPhone and related

products and services were 51% of the company’s total net sales

while net sales of iPad, Mac, and iPod with related products and

services each accounts for 21%, 15%, and 4%, respectively. So, it

can be said that Apple operates mainly in smartphone area.

The set of Apple and companies which are in business of making

smartphone like Samsung, Nokia, Blackberry, HTC, etc. is called

smartphone industry. And smartphone market is place where Apple

sells its iPhone (Samsung, Nokia, Blackberry, and etc. sell their

smartphones), and buyers come to exchange money for those ones.

Q2: With references to Industrial Classification Benchmark,

explain which category Apple sit in:

The Industrial Classification Benchmark (ICB) is a classification

system covering over 60,000 companies and 65,000 securities

worldwide. Developed by Dow Jones Indexes and FTSE in 2005, it is

used globally to divide the market into increasingly specific

categories, allowing investors to compare industry trends between

well-defined subsections (NYX Indices, n.d).

The ICB contains 4 levels of classification: industry,

supersectors, sectors, and subsectors. There are 10 industry, 19

supersectors, 41 sectors, and 114 subsectors.

According to NYSE Euronext (2012), Telecommunications equipment

subsector includes makers and distributors of high-technology

communication products including satellites, mobile telephones,

fiber optics, switching devices, local and wide-area networks,

teleconferencing equipment and connectivity devices for

computers, including hubs and routers. Thus, Apple will sit in

the Telecommunication equipment category which is a subsector of

Technology hardware and equipment sector in Technology

supersector and Technology industry.http://www.nyse.com/about/listed/lc_all_industry_10.html?

supersector=28&sector=139&subsector=1120128534223

Q4: Market structure

Apple provides various kinds of products therefore they also work

in many markets and each of them has different characteristic.

In term of smartphone, laptop, tablet and music players market,

those are monopolistic competitions. There are many competitors

in the market and they sell slightly differentiated products. Not

only Apple or Samsung produce smartphone, customers also could

purchase smartphone from Lenovo, LG, Nokia or Blackberry. There

are also some cheap smartphone from China companies such as

Dopod, Zopo, Goophone and so on for customers cannot afford for

big brand smartphone. According to Gartner till the end of second

quarter of 2013, market share of Samsung was 31.7%, Apple was

14.2%, LG was 5.1%, Lenovo was 4.7% and the rest for the others.

Moreover, even Apple and Samsung dominate smartphone market with

the higher sales than other competitors; it’s still hard to say

Apple is monopoly. According to a comScore (SCOR) survey of 234

million American mobile subscribers age 13 and older, Apple

controls just five percent of the mobile phone market in the

United States–hardly enough to be considered a monopoly.

Meanwhile, company’s got to be at least 40% to be within shouting

distance of an attempted monopolization claim. Besides, this

market has diversity in consumers – businessman, students,

teachers or even workers can afford for a smartphone. Another

point is, there are non-price differences among the competitors'

products. An Iphone 5S gold 16G world version costs $649 and full

retail price of Galaxy S4 world version is $600.

On the other hand, in computer operating system market, it could

be assumed as oligopolies when the companies provide unique

products that are supported by an ecosystem of supporting

technology. Computer operating systems in 2012 are dominated by

Microsoft's Windows, Apple's Mac OS and the open source Linux

operating system. These three systems capture close to 100

percent of the computer operating system market due to their

established positions, according to the StatOwl website. All

other software providers make programs that are compatible with

these systems, further reinforcing the dominance of the major

players.

In general, the best suitable market structure for Apple is

monopolistic competition.

Question 5

Knowledge: Structure-conduct-performance (SCP)

- Assumes market structure would determine firm conduct which would

determine performance. 

- The term structure in this model refers to industry structure,

measured by such factors as the number of competitors in an

industry, the heterogeneity of products, and the cost of entry

and exit. Conduct refers to specific firm actions in an industry,

including price taking, product differentiation, tacit collusion,

and exploitation of market power. Performance in the S-C-P model

has two meanings: the performance of individual firms and the

performance of the economy as a whole. (Barney on SCP)

- Instead of seeking ways to increase the competitiveness of

industries, strategy researchers have used the S-C-P model as a

way to describe the attributes of an industry that make it less

than perfectly competitive, and thus help firms find ways to

obtain competitive advantages.

- Industry is known as classified into Market structure range.

Industries can be described as perfectly competitive,

monopolistically competitive, oligopolistic, or monopolistic. The

regulatory implications of the S-C-P paradigm depend on the level

of social welfare associated with each of the types of

competition presented. Social welfare is maximized in perfectly

competitive industries, it is somewhat lower in monopolistically

competitive industries, it is somewhat lower still in

oligopolies, and it is very low in monopolies.

Relevance

- The logic that links industry structure to conduct and

performance is well known. Attributes of the industry

structure within which a firm operates define the range of

options and constraints facing a firm. In some industries,

firms have very few options and face many constraints. Firms

in these industries generate, at best, returns that just

cover their cost of capital in the long run, and social

welfare (as traditionally defined in economics) is

maximized. In this setting, industry structure completely

determines both firm conduct and long-run firm performance

(normal).

- In other less competitive industries, firms face fewer

constraints and a greater range of conduct options. Some of

these options may enable firms to obtain competitive

advantages. Even when firms have more conduct options,

industry structure still constrains the range of those

options. Also, other attributes of industry structure-

including barriers to entry-determine how long firms in an

industry will be able to sustain their advantages. Without

barriers to entry, any competitive advantages by firms in an

industry will be quickly competed away by new entrants.

Thus, even in this case, industry structure still has an

important effect on firm conduct and firm performance even

though firms in these industries can sometimes have

competitive advantages.

- One way of describing the competitive structure of different

industries is presented in Table 3.1. As shown in this

table, industries can be described as perfectly competitive,

monopolistically competitive, oligopolistic, or

monopolistic.

- Industries are perfectly competitive when there are large

numbers of competing firms, products being sold are

homogeneous with respect to cost and product attributes, and

entry and exit are very low-cost. Examples of such perfectly

competitive industries include the spot market for crude

oil. As is well known, firms operating in perfectly

competitive industries can act only as price takers. A firm

is a price taker when it responds to changes in industry

supply or demand by adjusting prices rather than attempting

to influence the level of supply or demand. Price-taking

firms can expect to gain only competitive parity.

- Other industries can be described as monopolistically

competitive. In these industries, firms carve out market

niches within which they act as quasi-monopolists. However,

these monopoly positions are always threatened by the

competitive actions of other firms in the industry. In

monopolistically competitive industries, there are large

numbers of competing firms and low-cost entry and exit into

and out of the industry. However, unlike the case of perfect

competition, products in these industries are not

homogeneous with respect to costs or product attributes.

Rather, firms in this type of industry are successfully

implementing product differentiation strategies-strategies

that will be discussed in more detail in Chapter 7. Examples

of monopolistically competitive industries include

toothpaste, shampoo, golf balls, and automobiles. Firms in

such industries have a variety of conduct options and can

gain competitive advantages.

- Still other industries can be described as oligopolies.

Oligopolies are characterized by a small number of competing

firms, by either homogeneous or heterogeneous products, and

by costly entry and exit. Examples of oligopolistic

industries include the U.S. automobile and steel industries

in the 1950s and the U.S. breakfast cereal market today.

Currently, the top four producers of breakfast cereal

account for about 90 percent of the breakfast cereal sold in

the United States, and the top eight account for almost 100

percent of the breakfast cereal sold in the United States.

Firms in such industries also face a variety of conduct

options, including tacit collusion, a strategy described in

more detail in Chapter 10. Firms in oligopolistic industries

can earn significant economic profits.

- Finally, a few industries can be described as monopolistic.

Monopoly industries consist of only a single firm. Entry

into this type of industry is very costly. There are few

examples of purely monopolistic industries. However, one

industry that comes close to being a monopoly is the

personal computer operating systems industry-an industry

almost completely dominated by Microsoft. One of the

critical conduct options facing firms in this kind of

industry is the use of market power to set prices that

generate significant economic value.

Application

Apple company produces many kinds of high-tech products as

smartphones, TV, personal computer, laptop, tablet, music player.

Each line of products are in different separated markets having

dissimilar natures and characteristics. Each of those will be

analyzed under SCP model.

- Smart-phone market: perfect competition. This industry has a

lot of buyers and sellers: Samsung, HK Phone, BlackBerry,

LG… launched many lines of multi-touch smart phones as

Samsung Galaxy S in 4 versions, HTC One… and the huge growth

of smart-phone consumers. In US, a survey was administered

to 517 students at the University of Colorado and several

other colleges and universities around the U.S. From this

group, 272 (53%) students owned a smart-phone and 242 (47%)

owned a feature phone. Figures were collected in 2011 and

2012 in home of Apple – USA, it grew 13% from 31% to 41% of

smart-phone penetration. In this market, Apple needs to

gain more competitive advantage of having differentiated

features for iPhones and it’s doing. It uses iOs for all

their products, not Androi for all other products of

competitors like Samsung, HTC, Sony… It happens also in the

other conducts of Apple in other industries as tablets

(using iOs for iPad) and personal computer (using iOs for

Macbook). This out-standing feature resulting from Apple is

in perfect competition markets of smart-phones, tablets and

pc – the products are homogenous, many competitors as

Samsung, HTC, Sony…, easy entrant for new entry as Xero,

Vend…

Let’s see the performance of Apple when using differentiated iOs

for its products. Latest version of iOs is iOs7 having many

innovated changes than the others before had a gorgeous

performance. A few hours after the launch of Apple iOS 7, the

rate of adoption on the active devices has already set a new

record and reached at 35% in first 24hrs. Apple CEO Tim Cook

started today's iPhone keynote in traditional fashion with an

update on how the company's mobile business is faring. In terms

of sales, the company says it is on track to sell its 700

millionth iOS device by the end of next month. The company had

last announced in June of this year that it had sold 600 million

iOS devices in total, which includes iPhones, iPads, and iPod

touches. For comparison, Google just announced that it had one

billion Android activations, but, of course, multiple

manufacturers create products that use the open source operating

system. 26.9 million iPhones (up from 17.01 million a year ago), 14 million iPads (up

from 11.12 million) and 5 million Macs (up from 4.89 million) in this quarter. As for

the waning iPod business? Predictably, it sold just 5.3 million of those, representing a

19 percent drop from the year-ago quarter, earning $36 billion (compared to estimates

of $35.08 billion), with net profit at $8.2 billion until Q4 in 2012. While, Samsung gain

$8.27 billion) in operating profits, Galaxy S III and Galaxy Note II, which were last seen

crashing through the 30 million and 5 million sold. It can easily see that

it’s the huge different number of profits.

Q6 Explain how the measures of industry concentration (CR3 and

CR5) are calculated. Which is the more appropriate measure for

your chosen industry or the industry in which your chosen

organization operates?

NHOM CUA GIN LAM – XEM THAM KHAO

Concentration ratio

To measure the concentration ratio, we can use the formula:

∑ ofthemarketshareoftheLeadingFirmsTotalmarketshare

×100%

CR3 is calculated with three largest firms’ market share and CR5

with five leading firms’ market share.

0%: No concentration – Perfect competition

1% - 50%: Low concentration – Monopolistic competition

51% - 80%: Medium concentration – Monopolistic competition/

Oligopoly

81% - 100%: High concentration – Oligopoly/ Monopoly

Herfindahl-Hirschman Index – HHI

Another measure of concentration in an industry can be expressed

using the Herfindahl index. The Herfindahl-Hirschman Index – HHI

is simply the sum of the squares of the market shares for each

firm within the industry and is always less than one.

Formula

A HHI below 0.01: highly competitive market

A HHI below 0.1: unconcentrated market

A HHI between 0.1 to 0.18: moderate market concentration

A HHI above 0.18: high market concentration

Apply in the case of smartphone industry

Concentration ratio HHI

CR3:33+17+5100

×100%=55% (0.33)2 + (0.17)2 + (0.05)2 +

(0.05)2 + (0.04)2= 0.1444

CR5: 33+17+5+5+4100

×100%=64%

Both calculations of CR3 and CR5 all lead to the same result.

Therefore, all of them are appropriate to measure the

concentration of the industry.

Based on the calculations, the concentration of the industry is

medium concentration or moderate market concentration means the

market structure is Monopolistic competition.

Q7: In recent decades many previously state-owned industries have

been privatized. To what extent has Apple been affected?

Governments on every continent have sold off state-owned assets

to private investors in recent decades. Airports, railroads,

energy utilities, and many other assets have been privatized. The

privatization revolution has overthrown the belief widely held in

the 20th century that governments should own the most important

industries in the economy. Privatization has generally led to

reduced costs, higher-quality services, and increased innovation

in formerly moribund government industries.

According to wisegeek.com, privatization describes a situation

where a government decides to transfer control of a government,

and thus public owned, resource to the private business sector,

either partially or totally. Before World War II, venture capital

investments (originally known as "development capital") were

primarily the domain of wealthy individuals and families. One of

the first steps toward a professionally managed venture capital

industry was the passage of the Small Business Investment Act of

1958. Venture capital played an instrumental role in developing

many of the major technology companies of the 1980s. Some of the

most notable venture capital investments were made in firms that

include Apple Inc

Q8: Most countries have anti-monopoly / pro-competition laws. For

one or more countries, explain briefly how such laws impact on

your chosen firm or industry.

The United States Antitrust laws seek to prohibit anticompetitive

behavior and unfair business practices while encouraging

competition in the marketplace. As a result of the fear that

monopolies dominated the market in the late 1800s, the Sherman

Antitrust Act was passed in 1890, and, though it has been

expanded and amended by subsequent legislation, still forms the

basis of most antitrust law today. Since the Sherman Act is

grounded in the commerce clause and applies only to interstate

commerce, many states have adopted statutes that mirror the

Sherman Act to govern intrastate trade according to Elizabeth

Killingsworth (2010)

According to CNN, on July 10, 2013, the Southern District of New

York held that Apple conspired to raise e-book prices by playing

a central role in “facilitating and executing [a] conspiracy”

among five major book publishers to “eliminate retail price

competition” in the e-book market. The e-book publishers at issue

-- CBS's Simon & Schuster, Hachette Book Group, Pearson's Penguin

Group, Macmillan and News Corp.'s HarperCollins -- settled and

didn't go to trial. Apple held out, and the U.S. Department of

Justice brought a civil antitrust suit against the company in

2012.

The DOJ alleged that Apple and the publishers engaged in a

"conspiracy" to team up against Amazon and fix the price of e-

books -- and Apple was the ringleader of the deal. U.S. District

Judge Denise Cote agreed after hearing three weeks of arguments

in June: "Apple not only willingly joined the conspiracy, but

also forcefully facilitated it," Judge Cote wrote. "This price-

fixing conspiracy would not have succeeded without the active

facilitation and encouragement of Apple."

Based on New York Times, As punishment for engaging in an e-book

price-fixing conspiracy, Apple will be forced to abide by new

restrictions on its agreements with publishers and be evaluated

by an external “compliance officer” for two years, a federal

judge has ruled.

Q9: What firms exist in your chosen industry/market and which of

them are your firm’s closest competitors? Which other more

distant competitors could give useful information and ideas for

future development in your own industry/market?

Apple has many competitors in the business world. When it comes

to smart phones, one of their biggest competitors is Samsung who

produce the popular Samsung Galaxy line of smart phones. In the

world of laptops and PC's/Macbooks, Apple is in direct

competition with Microsoft, Acer, HP and many others. In the

portable music device market, one of iPods biggest competitors is

Microsoft's Zune.

All of Apple's competitors are all transnational corporations so

the level of competition is very high requiring Apple to take a

lot of effort to attract customers as well as the introduction of

new products

Distant competitors of Apple can be Kodak and Fuji, Canon, Sony

because Apple can learn from their technology, information and

use for their digital cameras as an integrated feature, upgrade

it in a high level like a professional camera with high quality

of picture more competitive.

Q10: Give an outline of Porter’s Five Forces analysis based on

your chosen organization or a firm in your chosen industry.

- 5 forces

Threat of new entrant

Bargaining power of suppliers

Bargaining power of customer

Substitutes

Competitive Rivalry

- Element can be affect Apple

Threat of new entrant: time and costs of entry, knowledge,

technology

Buyers: differentiation, switching costs

Suppliers: ability to substitute

Substitutes: buyer willingness

Rivalry: diversity competitors

- Apple Company

Threat of new entrant: streaming audio (Verizon), Google glass

Suppliers: computer memories as IBM or music as Sony, Warner

Customers: use peer to peer network, do not want to pay for

itunes

Substitutes: alternative from music, video as well as media

Q11: Within the context of Porter’s Five Forces Analysis and in

relation to your chosen organization or industry, explain one of

the following forces:

- Competitive Rivalry

Rivalry among Existing Players: The IT industry is known for its

rapid growth, effectiveness and competition. A main reason why

many new entrants are not successful is the intense rivalry

between existing players. Large companies in this industry

benefit from economies of scale, which is valuable and something

they try very hard not to lose. Products in this industry are

well branded and tend to have a strong customer base. Market

share is unevenly distributed among existing players, who are

often in various kinds of legal and advertising battles with one

another.

- Explanation

According to Porter's Five Forces, it seems that the computer

industry is more attractive to incumbents than new entrants. On

the next page we will be focusing specifically on comparing Apple

and Dell, two top companies within the computer industry. On that

sme note, the five forces model also demonstrated that this

industry is more attractive to certain incumbents that others

(more attractive to Apple currently, but Dell seems to have some

new ideas in the works that may make them more competitive).

- Apple

Company should continue improving innovation expand as well as

maintaining quality in order to compete with others competitors

as Samsung.

Q12: Porter’s Five Forces Analysis identified five major forces

which affect the competitive environment. What other important

force or forces could be included and how do they affect your

chosen organization or industry/market?

- Most important is competitive rivalry

It can be affected to Apple. If competitors of Apple are all

strong, company will get out of the market as well as loss

revenue and customers.

- Apple

Several factors determine the intensity of competitive rivalry in

an industry. If the industry consists of numerous competitors,

Porter rivalry will be more intense. If the competitors are of

equal size or market share, the intensity of rivalry will

increase. If industry growth is slow, the intensity of rivalry

will be high. If the industry’s fixed costs are high, competitive

rivalry will be intense. If the industry’s products are

undifferentiated or are commodities, rivalry will be intense. If

brand loyalty is insignificant and consumer switching costs are

low, this will intensify industry rivalry. If competitors are

strategically diverse – they position themselves differently from

other competitors – industry rivalry will be intense. An industry

with excess production capacity will have greater rivalry among

competitors. And finally, high exit barriers – costs or losses

incurred as a result of ceasing operations – will cause intensity

of rivalry among industry firms to increase.

And of course, if the opposite is true for any of these factors,

the intensity of Porter rivalry among competitors will be low.

For example, a small number of firms in the industry, a clear

market leader, fast industry growth, low fixed costs, highly

differentiated products, prevalent brand loyalties, high consumer

switching costs, no excess production capacity, lack of strategic

diversity among competitors, and low exit barriers all indicate

that the Porter intensity of rivalry among existing firms is low.

Q13: What are the differences between the Concentration Ratio

(CR) and the Herfindahl-Hirschmann Index (HHI) methods of

measuring industry/market concentration? How would these

different measures give different results for your chosen

industry?

Industry Concentration

The concentration of firms in an industry is of interest to

economists, business strategists, and government agencies. Here,

we discuss two commonly-used methods of measuring industry

concentration: the Concentration Ratio and the Herfindahl-

Hirschman Index.

Concentration Ratio (CR)

The concentration ratio is the percentage of market share owned

by the largest m firms in an industry, where m is a specified

number of firms, often 4, but sometimes a larger or

smaller number. The concentration ratio often is expressed as

CRm, for example, CR4.

The concentration ratio can be expressed as:

CRm  =  s1  +  s2  +  s3  +  ... ... +  sm

where  si  =  market share of the ith firm.

If the CR4 were close to zero, this value would indicate an

extremely competitive industry since the four largest firms would

not have any significant market share.

In general, if the CR4 measure is less than about 40 (indicating

that the four largest firms own less than 40% of the

market), then the industry is considered to be very

competitive, with a number of other firms competing, but none

owning a very large chunk of the market. On the other extreme, if

the CR1 measure is more than about 90, that one firm that

controls more than 90% of the market is effectively a monopoly.

While useful, the concentration ratio presents an incomplete

picture of the concentration of firms in an industy because by

definition it does not use the market shares of all the firms in

the industry. It also does not provide information about the

distribution of firm size. For example, if there were a

significant change in the market shares among the firms included

in the ratio, the value of the concentration ratio would not

change.

Herfindahl-Hirschman Index (HHI)

The Herfindahl-Hirschman Index provides a more complete picture

of industry concentration than does the concentration ratio. The

HHI uses the market shares of all the firms in the industry, and

these market shares are squared in the calculation to place more

weight on the larger firms. If there are n firms in the industry,

the HHI can be expressed as:

HHI  =  s12  +  s2

2  +  s32  +  ... ... +  sn

2

where si is the market share of the ith firm.

Unlike the concentration ratio, the HHI will change if there is a

shift in market share among the larger firms.

The Herfindahl-Hirschman Index is calculated by taking the sum of

the squares of the market shares of every firm in the industry.

For example, if there were only one firm in the industry, that

firm would have 100% market share and the HHI would be equal to

10,000  -- the maximum possible value of the Herfindahl-Hirschman

Index. On the other extreme, if there were a very large number of

firms competing, each of which having nearly zero market share,

then the HHI would be close to zero, indicating nearly perfect

competition.

The U.S. Department of Justice uses the HHI in guidelines for

evaluating mergers. An HHI of less than 1000 represents a

relatively unconcentrated market, and the DOJ likely would not

challenge a merger that would leave the industry with an HHI in

that range. An HHI between 1000 and 1800 represents a moderately

concentrated market, and the DOJ likely would closely evaluate

the competitive impact of a merger that would result in an HHI in

that range. Markets having an HHI greater than 1800 are

considered to be highly concentrated; there would be serious

anti-trust concerns over a proposed transaction that would

increase the HHI by more than 100 or 200 points in a highly

concentrated market.

Apple