Research Papers

Supply and Demand Research Paper

Supply and Demand of the MP3 Player Market Research Paper:

A brief research report along with an analysis of data of: the supply and demand of the MP3 Player market. This report includes statistics in regards to target market, market share, as well as elasticity of demand and supply of this good. The paper also details the affects of some complements and some substitutes for in market.

In this research paper we will analyze the supply and demand of the MP3 Player market. We will start by getting acquainted with the general scope of this market by looking at characteristics such as the state of the market, the competition, and market share. When analyzing supply, we will consider certain market trends and economic principles such as the various determinants of supply and its elasticity. Likewise, we will consider variables and statistics when discussing demand. We will also analyze the differentiation between a complement and a substitute in this market, and why it is important to consider various interpretations in this regard.

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The MP3 Player market has been growing steadily over the past decade. As of 2006, 20% of Americans over the age of 12 own an MP3 Player and 6% of people own more than one. Over a five year period, ownership of MP3 Players has almost doubled ( Because of the great demand, many firms have been working hard to establish their brands using unique selling propositions. These firms include Apple (iPod), ScanDisk (Sansa), Creative (Zen), Sony (Walkman), Microsoft (Zune), Archos, and Samsung. Competition amongst these brands has been competitive yet imperfect. Because of the large number of firms and the different sizes of each one, one may consider activity in this market an example of both oligopoly and monopolistic competition. As of 2008, Apple is dominating the market owning 71% of the total market share(NDP Group). Due to this fact, we will refer to the iPod and iTunes line of products frequently throughout this essay.

The market of MP3 Players has been segmented into different submarkets. Some people prefer smaller devices that hold less capacity and some people prefer larger devices that have greater capabilities. Because of this, there is a large amount of new supply and suppliers appearing each day. Devices can cost anywhere from $30-$300. According to iSuppli Corp, over 230 million units of MP3 Players are forecasted to shipped worldwide in 2009(ISPOS, 2006).

In general, manufactured goods are considered elastic in terms of supply because the producer can easily change the amount they wish to produce (Mankiw, 105). In the MP3 Player market, this is evident by looking at variables such as technology and expectations which can have a key affect on supply. For example, advances in technology that allow for cheaper production of flash memory can ensure that the cost of producing a certain MP3 Player lowers dramatically over time. Because of this, a firm can expect that the once normal good that leads the market will be considered an inferior good in just a matter of time. When Apple launched its iPod Touch, competing brands had to lower the quantity supplied and the price of their less capable players. This fits in with the law of supply, which states that the quantity supplied of a good rises when the price of the good rises (Mankiw, 75).

The demand of MP3 Players in America is greatest among males aged 12-17 (ISPOS, 2006). Demand is generally affected by price, income, price of related goods, tastes, and expectations. In this market, taste and habits of the consumer and price of related goods such as MP3 downloads, CDs, smart-phones, and satellite radio are a couple of prevalent variables. The release of new MP3 Players creates less demand for older versions, which causes a change in the equilibrium price, in order to avoid surplus. The demand for MP3 Players that support FM radio, song lyrics, TV shows, and full-length motion pictures has increased.

Elasticity of demand in this market is affected by time horizon and the availability of close substitutes. As time progresses, the luxury status of certain products diminishes and the quantity demanded significantly lessens. The demand is elastic as there are many similar products in this market, all of which have different price points. Whether it is an iPod Shuffle or an iPod Touch, it is easy for consumers to find a substitute in another brand if they are not satisfied with the price. To combat this, Apple created the immensely popular called ‘Tunes’, which is a complement program which is provided for free in order to create a less elastic demand. With the iTunes business model, Apple has created a medium beneficial to all parties (consumer, retailer, and artist).

Complements and Substitutes
As is every other market, the MP3 Player market is influenced by complements and substitutes. Products which are clearly considered as complements to this good include headphones, carrying cases, MP3 downloads, and the music itself. An increase in the price of these types of products will lead to a decrease in the demand for MP3 Players (Mankiw, 68) One may even assume that an increase in the amount of music released by popular musicians within a given year will lead to an increase in demand of MP3 Players in that year as well.

Contrary to popular belief, CDs are also a complement to MP3 Players. Although CDs are a complement to CD players, which is a substitute, it is important to consider that almost half (44%) of the data stored on MP3 Players is ripped from CDs (, 2006). It is common thought that CDs are more secure and reliable in the case of data loss. Other products, such as satellite and FM radio, once considered substitutes, are now considered complements due to technological advances.

Products such as smart-phones and CD players are apparent substitutes for MP3 players, CD players being predecessors to MP3 players and smart-phones being the more immediate thread. The increase in the price of either one of these three goods leads to an increase in demand of the other (Mankiw,68). This concept is illustrated by the coupling of mobile phone service with the phone (the hardware), which allows for the illusion of a decrease in price of smart-phones and therefore may cause a decrease in the demand for MP3 Players.

Through research and analysis of the supply and demand of the MP3 Player market, we can conclude a few things. The MP3 Player market has been experiencing growth over the past decade. Demand of CD Players has lessened due to tastes, habits, technology and convenience, but the innovative marketing, technology, and price of smart-phones can be considered a threat to MP3 Players. The supply and demand of this market depends on many factors such as price of complements and substitutes. The market has a clear leader in Apple, however, the nature of the market dictates that there is a possibility the market will return to perfect competition.

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