Price Elasticity Of Demand: Apple products are Luxurious, meaning that they are Elastic. Apple total revenues moves directly with the demanded quantity.
Own Price Elasticity=-0.1 meaning that for 1% increase in own prices, there will be a 0.1% decrease in the quantity demanded.
Cross Price Elasticity (Substitutes)=0.5 meaning that for 1% increase in competitor’s prices (Samsung, Blackberry), there will be a 0.5% increase in the quantity demanded.
Mobile Phone Market Structure: The mobile market characterized by its imperfect competition meaning that companies like apple can influence the market by controlling their prices.
In Imperfect competition, P is a function of Q. we can maximize our Profit by having the Marginal Cost equal to the marginal Revenue.
Apple don’t produce above the Q* point where the MC=MR, that’s why its showing high net income in their balance sheet.
Apple is using a Cost-Plus pricing technique. Since the demand is less-elastic, the profit-maximizing markup factor is high. Apple is not following any natural monopoly or oligopoly Pricing.
Pricing Strategies used by Apple:
Skimming: Apple products are sold at high prices, sacrificing sales to gain high profits.
Temporal Price Discrimination: Apple are not discriminating their prices in terms of geography or users but in terms of versions where it proposes many versions of products according to the needs and prices of their customers.