Economics Assignment

Case Analysis on

Apple’s iPhone in India: Ringing in new fortunes

By -Working Group A1

Name Roll Number

1. Anukriti Gomber 21H104
2. Burhanuddin Shabbir Shikari 21H106
3. Jos Manual Jolly 21H108
4. Lalitha Santoshi Varanasi 21H111
5. Nishtha Garg 21H113
6. S Sukanya Shenoy 21H122

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Ques- What are the likely constraints on Apple’s monopoly in the Indian smartphone
market?

Apple never had a monopoly in the global smartphone industry, but it emerged out to be a
monopoly in a few developed countries like the United States and European nations. In India, in
the smartphone brand competition, it maintains an oligopoly market structure. Apple phones
were regarded as luxury phones due to their excellent build quality and user-friendly iOS
operating systems. Apple wanted to maintain a brand image that reflected excellence while
still protecting consumers' privacy. It is perceived as a status symbol owing to its brand value
and the build quality and features and therefore grew in popularity in nations with high per
capita income where the population is not sensitive to the pricing.

Here are few characteristics of Oligopoly market structure:

5 firm Inter-
Possibility of Some barriers Product
concentraion dependence
collusion to entry Differentiation
ratio > 60% of firms

Following are the likely constraints on Apple’s monopoly in the Indian smartphone
market:

 Growing Competition and Large Number of Firms

The entry barriers in the Indian smartphone market were low and this accelerated the ever-growing
competition in Indian market which played a crucial role in determining the monopoly of Apple.
Indian smartphone market had more than 100 brands with a stiff competition among them. Small
companies which had differentiating price and other features had a good chance of growth in the
Indian market as these brands focused on cheaper phones targeting every need of the Indian
customers. They provided cheap phones with almost same features as iPhones with the latest
technology. Apple was able to evolve as a monopoly in a few developed nations like the United States
and European nations. This was because these nations have fewer firms as compared to Indian market.
Samsung was the market leader in the Indian smartphone market followed by Micromax with a
market share of 29% and 17% respectively. Apple, which had a market share of 1.9% was not even
among the top 5 companies in the terms of market share.

 Preference for Android Phone

Android phones dominated the Indian smartphone market. Android smartphones accounted for about
97% of the smartphones in the Indian market compared to Apple’s iOS which accounted for only
2.4%. Android dominated the Indian smartphone market and looked unbeatable, owing to its deep
portfolio of hardware partners, extensive distribution channels and a wide range of low-cost apps like
Gmail. Also, talking about the growth in the market for

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apps and gaming, majority of the downloaded apps were Android based. In the terms of number of
iOS downloads or the average time spent on iPhones, India was not in the top 10 countries in the
world. Therefore, preferences of people for Android were one of the major constraints for Apple’s
monopoly.

 Low Per Capita Income and High Price Sensitivity

Owing to Apple’s higher brand loyalty in developed nations, Apple phones were price inelastic, i.e, a
change in price did not really affect the demand of the customers and this gave Apple an advantage to
charge high prices and gain higher profit. This may seem to be like a monopolistic power but
unfortunately this was limited to high income classes. But, if we look at the markets like India and
China, price played a significant role and due to this reason Apple could not dominate Indian and
Chinese market. In India, Apple products are considered as premium and expensive products and are
regarded as status symbol. Due to low per capita income of Indian consumers, majority of the smart
phone users can not afford it as Indian population is high price sensitive. This reduced Apple’s
capacity to capture a large market share in India. Apple believes in capitalising its market power to its
full potential by pricing three to four times its manufacturing costs. There are multiple competitors
who provide similar functions and features which proved to be a better substitute of iPhones as they
price their products on much lesser profit margin as compared to Apple. This in turn cost the
customers less than a third of Apple’s product price.

 Indian Government Policy

The 'Make in India' campaign was started by the Indian government in 2014 with the purpose of
encouraging national and global companies to manufacture their goods in the country. With this
endeavour, the government hoped to transform India into a global design and manufacturing hub. In
the Union Budget 2015-16, the government imposed a 12.5% countervailing duty on mobile phone
imports and a 1% excise levy on domestic mobile phone manufacturers. The differential excise rate
was aimed to level the playing field between domestic and imported smartphone producers, who faced
fierce rivalry. These policies caused a setback for Apple, as they resulted in a sharp increase of
smartphone manufacturing facilities in India, as well as a nearly threefold increase in the value of
handset manufacture in India between 2014-15 and 2015-16, resulting in a further fall in Apple's
market share.

 Brand Awareness

Brand awareness of Apple was one of the vital factors affecting growth in the smart phones market. In
a brand awareness survey of 2626 smart phone buyers in India, conducted by Morgan Stanley, it was
found out that half of the respondents were not even familiar with the Apple brand. Apple ranked 10 th
in the brand awareness out of the 12 smart phones companies in India. Apple was just ahead of
Motorola Mobility and HTC Corporation. Hence, this lack of awareness about Apple in the Indian
smart phone market could prove to be a constraint on Apple’s monopoly in the Indian smartphone
market.

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