Essay On Samsung Launches New Phone To Raise Its Profit Margin

Introduction

There different market forms that is analyzed in microeconomic theory. Among these market forms the Monopolistic Competition market is mostly found in the real world situation. In a perfectly competitive market the sellers sell homogeneous products to the numerous buyers. So the sellers are price takers and face a perfectly elastic demand curve and earn normal profit. In a monopoly the single seller has absolute market power and enjoys super-normal profit. In case of monopolistic competition there are elements of both monopoly and perfect competition. The seller in such a market situation sells products differentiated from the competitors’ products. In this way the seller in a monopolistic competition gains some market power and can earn super-normal profit.

Summary of the Article

The article that is being reviewed here discusses the possible increase in the profit margin of Samsung due the launch of its new product. The article presents the opinion of some economists. Some express their opinion that the profit of the company will increase due to the new product. Others feel that the new product will not be very popular with the consumers and will not boost the profit. It should be noted here that Samsung operates in a market that is characterized by monopolistic competition. So we analyze this article to get important ideas about the competitive and monopolistic elements of the market.

Analysis

Monopolistic competition is a market where there are a large number of buyers and a large number of sellers. The sellers tend to sell a product that is to some extent different from her competitors’ products. The seller tries to make the product unique in the eyes of the buyer so that the buyer prefers the product over the other products in the market. In this way the seller gets some market power and earns super normal profit. But in the long-run in a monopolistic competition, the sellers earn normal profit as more firms enter into the market, thereby increasing the supply and reducing the price of the product. In this market new innovations are very important.

Short Run: Super Normal Profit

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Long Run: Normal Profit AC

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The article that we are reviewing informs us that Samsung has launched a new product, the Galaxy S6 and along with its variant the Galaxy S6 Edge . The company was facing very low profits in the recent past. To tide over the problem it has introduced this new product which is believed to appeal to the style lovers. The phone has metal frames and curved edges. The innovation is more in the design of the phone and not in its functions. Some experts feel that it will be a popular product and raise the profit of the company while some marker specialists feel that it will not withstand the stiff competition and earn Samsung no extra mileage.

Evaluation

In a monopolistic market the seller tends to lose her market power in the long-run due to increase in competition. To retain its market power the seller must go through constant innovations in its products. In that way the seller can earn super normal profit. In this case also the Samsung has launched a new product to attract its customers and raise the profits. But the product is only unique in its looks but not in its functions. It will be popular to a particular section of the population who prefer good looking phones. But those who seek advanced features will not be attracted. The company should concentrate more on research to come up with a phone that has attractive new features and technology to really make high profits.

Works Cited

Cheng, Jonathan and Min Jeong Lee. "Samsung Looks to New Phones to Lift Mobile Profit Margins." Wall Street Journal 7 April 2015. English.