Rumors are floating around that Apple will introduce a new 60 gig iPod with color photo capabilities for the holidays. Some speculate that the cost will be around $500. Currently, the iPod ranges in price from $249-$350 depending on the size of memory.
Competitors are trying to catch up to Apple by introducing similar products, some even offer other features such as fm tuners. Noticeably, many of the competitors' prices for similar devices with the same memory or even more, are cheaper than the iPod. Yet, looking at sales, more than 4 million have been sold since its introduction. In the past quarter iPod sales accounted for 12.4 percent of Apple's overall revenue. It doesn't look like things will be slowing down, even if the rumor of the new iPod is just a rumor.
It would appear that the demand for the iPod is inelastic when it comes to cross-price elasticity. It would be interesting to survey if and why consumers prefer the iPod to other similar products. Maybe it is the brand-name that people trust or maybe it is the quality. A regression test could indicate if there is or isn't a relationship between the quantity of iPods sold and the price of competing products.
3 comments:
The reason why Apple has enjoyed so much success with the iPod is due to the fact that they came out of the gate so much faster and are currently so far ahead of competitors, that other firm's are constantly playing catchup to them. Apple has brand recognition going for them as well. Ipod is a product that everyone has heard of yet how many people know anything about what Microsoft has done or even if they have? By the way they have. It is known as the "Ipod Killer". Microsoft is definately trying hard to catchup.
Apple cannot lower their prices just to compete. This will ruin their image. You cannot introduce the iPod as a quality product and then make it seem affordable to anyone. Those who buy iPod, buy it for the quality. I personally do not have one but if Apple was to lower their price of the iPod it would make me think they were cheating consumers by putting such a high price on it to make money.
I agree with the idea that because Apple was first to the market they are more popular. With any product, you will trust the first one to introduce it rather than some company who "copied" them in order to make money for themselves. This is how the market works but yet deep down I feel consumers want the original versus a copy.
I don't think that Ipod's have truly inelastic cross-price elasticities; but you're right, it's suggestive enough that it would make an interesting estimate.
Apple has always positioned itself as a maker of distinctive products, and that is what gives them the ability to charge higher prices. To me this looks like monopolistic competition: competitors drive Apple's prices down towards average total cost, then they introduce a new product they can make monopoly profits from (I have heard that they no longer make profits on the IMac line).
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