apple and samsung
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Apple and samsungTRANSCRIPT
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Competition between Apple and Samsung in the smartphone market introduction into some key conceptsin the smartphone market introduction into some key concepts
in managerial economics
Collge des IngnieursStuttgart, June 21, 2013
Dr. Markus Thomas Mnter
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SNORKELING VS. DOING THE DEEP DIVE
COMPETITION BETWEEN APPLE AND SAMSUNG - CASE STUDY / Dr. Markus Thomas Mnter 1
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GLOBAL SMARTPHONE MARKET
Smartphones are on the rise
Apple and Samsung, by now and increasingly, dominate the market for smartphones capturing more than 50% of the global market (with
COMPETITION BETWEEN APPLE AND SAMSUNG - CASE STUDY / Dr. Markus Thomas Mnter 2
global market (with regional variations)
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APPLE VS. SAMSUNG PROFITS
But: they do not only take 50% plus of the market Apple and Samsung also capture 100% of the industry profits, all firms making zero or negative profit
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APPLE VS. SAMSUNG: KEY ISSUES
Where do profits come from ? What is a profit function?
Which strategies are possible? What is Apples and Samsungs respective strategy?Key issues in
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Which strategies are possible? What is Apples and Samsungs respective strategy?
How can Apple and Samsung derive the best strategy using game theory?
How does strategic behavior affect market shares, profitability and prices?
Key issues in understanding
Apple vs. Samsung
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OBJECTIVES AND FOCUS FOR TODAY
gain some basic understanding why economics can prove quite helpful for managers assessing situations of strategic competition
get some idea how to analyze the battle between Apple and Samsung in
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today, you will
get some idea how to analyze the battle between Apple and Samsung in the smartphone market using game theory (of course, there are other perspectives )
(hopefully) become curious in learning more about real-life applications in managerial economics
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AGENDA
What is managerial economics?1
Where do profits come from? 2
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Deriving optimum competitive behavior using game theory3
Application to the Apple vs. Samsung case4
Key learnings & discussion5
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Economics is a social science that analyzes the production, distribution, and consumption of goods and services a focus of the subject is how economic agents behave or interact and
WHAT IS ECONOMICS, WHAT IS MANAGEMENT?
economics
Management encompasses all business and organizational activities that coordinate the efforts of people to accomplish desired goals and objectives using available resources
management
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how economic agents behave or interact and how economies work.
Microeconomics examines the behavior of basic elements in the economy, including individual agents (such as households and firmsor as buyers and sellers) and markets, and their interactions.
Macroeconomics analyzes the entire economy and issues affecting it, including unemployment, inflation, economic growth, and monetary and fiscal policy.
and objectives using available resources efficiently and effectively.
Management comprises planning, organizing, staffing, leading or directing, and controlling an organization or effort for the purpose of accomplishing a goal. Resourcing encompasses the deployment and manipulation of human resources, financial resources, technological resources, and natural resources.
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Managerial economics is concerned with application of economic concepts and economic analysis to the typical problems in managerial decision making
applies mainly microeconomic analysis to decision problems trying to optimize business decisions given the firm's objectives and given constraints imposed by scarcity, for example through the use of differential calculus, mathematical programming and game
WHAT IS MANAGERIAL ECONOMICS?
economics management
COMPETITION BETWEEN APPLE AND SAMSUNG - CASE STUDY / Dr. Markus Thomas Mnter 8
example through the use of differential calculus, mathematical programming and game theory for strategic decisions, most commonly applied to:
production analysis microeconomic techniques are used to analyze optimum output and production, costs,
pricing analysis microeconomic techniques are used to analyze various pricing decisions including transfer pricing, price discrimination, .
risk analysis various models are used to quantify risk and asymmetric information and to employ them in decision rules to manage risk
organizational analysis model are used to determine optimum internal structure of the firm, make-or-buy and outsourcing, governance and internal control, and incentive schemes
managerialeconomics
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AGENDA
What is managerial economics?1
Where do profits come from? 2
COMPETITION BETWEEN APPLE AND SAMSUNG - CASE STUDY / Dr. Markus Thomas Mnter 9
Deriving optimum competitive behavior using game theory3
Application to the Apple vs. Samsung case4
Key learnings & discussion5
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APPLE VS. SAMSUNG
Apple and Samsung dominate the market for smartphonescurrently with their models iPhone and Galaxy
Both models are offered as (subsidized) packages from telcos
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packages from telcosas well as unlocked stand alones
From a consumers perspective what is your willingness to pay for any of these two alternatives?
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WILLINGNESS TO PAY
The willingness to pay describes, how much money an individual would pay at the maximum to purchase some product
Most often, this sum varies considerably across individuals
maximumwillingnessto pay
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across individuals
number ofindividuals
0
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PRICE DEMAND SCHEDULE
The willingness to pay can be translated easily into a demand curve also termed price demand schedule
price p
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quantity q0
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PRICE DEMAND SCHEDULE
the price demand curve is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price
price p ( ) bqaqpp ==
a
SSSS
AAAA
qbap
qbap
=
=
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at that given price
p: price
q: quantity
a: maximum willingness to pay
1/b: measure for size of the market
Price demand schedule can be identified doing market research
quantity q
-b
0
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REVENUES
Revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers
Revenue is often referred to as the "top
revenues R ( )
( ) 2bqaqqbqa
pqqRR
=
===
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referred to as the "top line" due to its position on the income statement not to be mixed up with profits, which is bottom line
quantity q
a
-b
0
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COST STRUCTURE
Costs are the sum of fixed and variable costs
marginal cost is the change in the total cost that arises when the quantity produced changes by one unit
variable costs are expenses that change in
costs C ( ) FcqqCC +==
costs C
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expenses that change in proportion to the activity of a business, i.e., production
fixed costs are business expenses that are not dependent on the level of goods or services produced by the business
Costs can be identified analyzing P&L statements and balance sheets
quantity q
fixed costs F
variable costs cq
0
costs C
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PROFITS (1) SINGLE FIRM
in managerial economics, profit is just revenues minus costs (cash flow perspective)
in business, there are lots of other profit-concepts (Earnings Before Interest, Taxes,
profits
Fcqbqaq
CR
==2
revenues R
costs C
costs C
revenues R
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Before Interest, Taxes, Depreciation, and Amortization EBITDA, Earnings Before Interest and Taxes EBIT, etc.) mainly for tax and depreciation issues
quantity q 0
CR =
costs C
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STRATEGY, PROFITS, SHAREHOLDER VALUE
profits as revenues minus costs measure success of an organization and guarantee
the direction and scope of an organization over the long term
which achieves competitive advantage for the organization through its configuration of resources (aka strategic variable) within a changing industry environment to meet the needs of markets/customers and to fulfill stakeholder expectations
strategy
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Shareholders are the owners of a company, hence they own all equity and receive all profits as dividends
Shareholder value is simply the discounted sum of all future profits and measures the value of a company
shareholder value
profits as revenues minus costs measure success of an organization and guarantee survival
for simplicity and tractability, it is assumed that firms strive to maximize profits (however, there lot of other objectives, )
profits
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PROFITS (2) SINGLE FIRM
Maximum profits are derived choosing a strategy (a strategic variable), here: quantity
FOC and SOC give optimum profits
Solving for strategic variable (6) denotes
max!)4(
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)2(
)1(
2 ==
+=
=
=
FcqbqaqCR
FcqC
pqR
bqap
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variable (6) denotes necessary action to realize optimum profits
For (6), there is a straight forward economic interpretation: (a-c) is a measure for competitiveness, (1/b) is a measure of market size
.0*
,0*
,0*
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max!)4(