Mentor: Dr. Roger Blair
Warrington College of Business Administration
"I wanted to become a University Scholar to gain a greater understanding of microeconomic theory, namely the monopolistic market structure. I have always found it fascinating that not only was Apple Inc. able to charge over $600 for a phone during the height of the recession of 2007, but also that people were actually willing to purchase one. I wanted to understand the processes at work that enabled this seemingly implausible phenomenon, most notably the existence of any monopoly power or changes in consumer demand due to the enticing new technology. I wanted to discover if Apple did indeed monopolize the relevant smartphone, tablet and portable audio player markets during each products inception, and if so, how it has contributed to Apple's tremendous success during the recent recession."
- Microeconomic Theory
- Monopolistic Market Structures
- Antitrust Economics
Hobbies and Interests
- Riding Motorcycles
How Apple Managed to be Recession Proof during the Recession of 2007
Many technology firms such as Microsoft, Samsung and Dell haven taken enormous profit losses during the recession of 2007. Apple, however, has managed to more than triple its net income from 2009 to 2011. The purpose of this research is to conduct a single firm analysis of Apple from 2008 to 2011 to determine the effects of various business practices and strategies on Apple’s costs and revenues, and to what extent this has enhanced profitability, growth and monopoly power. I believe Apple managed to be recession proof over the last few years due to cost savings from outsourcing, a limited number of retail outlets, increases in the range of its production and implementation of a just in time inventory system while simultaneously experiencing robust revenue growth do to factors such as innovations in the iPhone, iPad and iPod lines, existence of monopoly power, superior brand loyalty and consumer preference. I will analyze Apple’s cost structure to observe marginal and average cost behavior over time while also discerning cost savings associated with factors such as manufacturing in China and elsewhere versus the United States, how a limited amount of retail stores has decreased labor, manufacturing overhead, and selling, general and administrative expenses and if the surge in Apple’s range of production has led to economies of scale and economies of scope and a declining average cost. I will then proceed to evaluate Apple’s rapid revenue growth by assessing how the exclusive control over iTunes, the elegant design and simplicity of use of its products and how the creation of the iPhone and iPad product lines have decreased competition and enhanced Apple’s monopoly power, thereby contributing to Apple’s bottom line. I seek to answer to what degree the control of iTunes, which created a centralized marketplace tailored to Apple products for consumers to purchase music, movies and applications, has influenced consumers to purchase Apple products for the convenience, and to what extent this brand loyalty has decreased competition and contributed to Apple’s monopoly power. Just as Starbucks created the coffee bean culture, I believe there has been an emergence of the Apple culture driven by a consumer base that values their efforts in innovation, simplicity and product synergy, which enhances brand loyalty and decreases the elasticity of Apple’s products, allowing it to attain monopoly power. The important questions to answer are what factors have contributed to Apple’s declining expenses and revenue growth and to what extent this has allowed Apple to thrive during the recession of 2007.