Competition in the electronic sector may bring about lower tech prices across the board or lead to two different pricing models within the industry. Apple products controlled most of the market share of smart technology; yet, now stock prices fall out of fear that new Indian and Chinese producers have entered the market with lower marginal costs to production.
With the entry of these new producers prices are expected to fall; marginal revenue should shift closer and closer to the demand curve until eventually they are one and the same. If this occurs, MR=MC for profit maximizing firms.
As the graph I drew shows, entry into the market leads to prices falling and quantity produced increasing over time. Apple’s CEO argues against this happening to Apple. Apple foresees two markets developing. Apple views the market splitting into a cheap “junk” end of the market and the high end “added value market”. Brand names can keep companies from entering the market and Apple hopes to do this. Quality, customer support, and environmentalism could keep Apple from being overtaken in this “added value market”. Apple expects to loose their customers who focus on price but retain those consumers whose preferences for quality outweigh the difference in cost between companies. Even within this “added value market” Apple is no longer alone. Nokia, Motorola, and Microsoft likely will move into this section of the market and factor in to Apple’s pricing strategy.