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College of Engineering and Computer Science

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ECO533 - Managerial Economics

Demand and Supply of Smart Phone in UAE

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Index

Table of Content

Page

1. Introduction 2

2. Objectives of the Project 4

3. Market mechanism and the Demand and supply 4

4. Demand and supply of iPhone 7

5. iPhone 4 in UAE 12

6. Conclusion 20

7. References 21

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Demand and Supply of Smart Phone (iPhone4) in UAE

1. Introduction

The technology is changing very fast since the telecom revolution occurred across the

globe. Similar to the change in other sectors, the change in mobile phone technology has

changed and improved drastically in terms of quality of the product and the price. The

competition in this sector amongst the suppliers (producers) has resulted into great

benefits to the consumers. The market mechanism of demand and supply, i.e. Adam

Smiths market mechanism Laissez Faire has proved very practical and played a

major role in growth of this sector. During this period the technology used in mobile

phone industry has grown and continuously growing as demand for the product is

growing. Most of the mobile companies in this industry have produced such product

which is creative and competitive, commensurate with the consumer demand of mobile

phone. This phenomenon was very common not only amongst the developed countries

but also in the developing countries. The demand for the iPhone in UAE has also

increased substantial since last a little less than a decade. Amongst the other firms

producing mobile phones, the Apple Company is the largest mobile phone producer

company in the world, which has also experienced a great technological progress

compared with other mobile producing companies. The production of iPhone, and its

various versions such as iPhone3G and iPhone GSs, and the iPhone4 which was very

much in demand has arrived. Now in UAE, iPhone4s has launched officially on15th

December,2011. It has attracted a large number of customers which are very much

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fashionable and technology savvy. The unique design and appearance of the product, its

image and the sound quality powerful iTunes store, has lured many more consumers of

the product. The model of iPhone 4 which is in two colors of black and white, with the

capacity of huge memory, i.e 16Gb and 32 GB flash drive has attracted more consumers.

In the market equilibrium, there is demand and supply of the product. If the demand

exceeds supply there would be shortage. On the other hand, if supply exceeds demand

there would be surplus. In the case of this product of iPhone, there is a market

mechanism. As the product was very much attractive due to its advanced features, the

demand of the product has exceeded the supply and created a shortage of the product in

the market. (see: http://www.iPhone4-converter.com/iPhone-4-review.htm).

Amongst the other features, iPhone-4 also has many attractive and advanced features.

The most important amongst them is that its users can communicate with each other by

video calls and with no charges or very low indirect charges, if any. The users of the

iPhone just need a wireless connection. The second important feature of the product is

that Retina display to make navigation more clear and precise exposure of retina, most

dynamic and highest resolution phone screen. The basic aim of the product is to get the

best navigation. The third feature is HD video recording and editing with advanced

sensor and integrated rear LED lighting. The users can comfortably capture high-

definition video, and then use the new iMovie application to create a custom movie.

Another important feature of iPhone is Apple A4 processor, which is very powerful

mobile processor. The chip is selling A4, iPhone4 can easily perform complex functions,

and at the same time it does not consume too much power, which is an important point

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from the view of energy and the environment. (see: http://www.iPhone4-

converter.com/iPhone-4-review.htm). The next section would focus on the basic concept

of demand and supply of the product through market mechanism.

2. Objectives of the Project

In this section, the basic concept of market mechanism, that is, demand, supply, shortage

and surplus has been discussed. The market equilibrium, law of demand the also forms

the parts of the objectives. In the study, the concept of market mechanism, demand,

supply and the law of demand along with the market equilibrium has been applied in

practice to iPhone 4. The analysis pertaining to the demand and supply of the product has

also been undertaken.

3. Market mechanism and the Demand and supply

The concept of demand is generally defined as the willingness and the affordability of the

product by any consumer. The demand takes place when consumers exchange a product

with money. As per the law of demand, there is negative relationship between the

demand of a product and the purchasing price of the product. If the price decreases, the

demand of the product would increase. Most of the books on Microeconomics have

discussed this concept in greater detail, as the basic concept of the economy. (Schiller,

2010 and Hubbard 2008).

Law of Demand: Price and quantity demanded are inversely related, that is, as the price

of a good rises (falls) and ceteris paribus (all other things remain constant), the quantity

demanded of the good falls (rises).

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Basic characteristics of Demand and demand curve

The demand curve is downward sloping.

Negative relationship between price and quantity.

Which reflects the law of demand, and that all other factors that influence demand are

held constant at each point on the line.

In addition of to the price of product, there are many other determinants of product which

affects the demand of product, these are, income, population, preferences and the

expected price of the product. These factors affect the quantity demanded and the demand

will increase / Decrease and the demand curve will shift right/ left side.

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Law of supply The supply is generally defined as the willingness and ability of the producers (suppliers)

to supply the product at the given price, ceteris paribus.

Basic characteristics of Supply

The supply curve is upward slopping and there is positive relationship between quantity

supplied and the price of product.

Law of Supply- The quantity supplied is directly related to its price and there is positive

relationship between quantity supplied and the price.

The determinants of supply are: input price, technology, expected future price, number of

firms in the market.

These factors would affect the increase in supply or decline in supply. For example, If

there is improvement in technology, there would be increase in supply of product.

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Whenever one or more of these variables changes, the position of the entire supply curve

shifts. Such a shift is known as a change in supply (Schiller 2010 and Hubbard 2008).

4. Demand and supply of iPhone

Demand of iPhone4

As the product was highly publicized and advertised heavily, the demand for the

product has created and increased before the release of the product. The consumers

had started placing the order before its release. Pre-orders started on the Apple

website from every corner of the world. It was most surprising that the company has

received 600,000 orders when they opened the pre-order in the first day of the pre-

order (Warwick Ashford, 2010). It is observed that the most common site in the UAE

for a pre-order of iPhone4 was http://www.emiratesavenue.com/shop/index.php.

Through this site most of the pre-orders were booked for the demand of iPhone4. It

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was further noticed that the demand for the product for the newest model was 10

times more than the oldest one (Warwick Ashford, 2010). At that time of booking the

price for the iPhone4 was $199 (AED 733 approximately) for 16GB and for 32GB it

was $299 (AED 1097 approximately) (www.apple.com). It was interesting to note

that price of iPhone4 was higher than the other cell phones, but apple iPhone4 has

exceeded in their demand compared to other cell phones.

Law of demand and iPhone4

As per the law of demand the price would increase when the demand goes down. In

case of iPhone4 it was observed that when the iPad product has been increased in it

price, iPhone4 still lower sales, indicates laws of supply. iPhone4 has low demand

because of its production, it was taking a long time to get the orders released from

Apples US site, which has slowed down sales of product, about three weeks of delay

in transportation. Similarly, other companies were taking about 5-10 days for

delivery. (see http://www. Intomobile.com/2010/08/19/iPad-production-close-to-

meeting-demand-iPhone-4-levels-to-follow-soon/.

Law of Supply and iPhone4

The law of supply has also applied to the iPhone4. It was observed that Apple

Company has sold more than 1.7 million units of iPhone4 in the very first three days

since the iPhone was introduced (Neil Huges, 2010). As the demand of the product,

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there were many people in the queue, who were waiting for the iPhone to get their

order released. As per the supply of the iPhone, there was not enough supply of the

product in the market. It was a threat for the Apple Company, if they were not in a

position to supply, the consumers may switch to other companys product. Their

waiting time loses its excitement and charm to get the latest technological advanced

version of the mobile phone. The Apple company had not expected such high demand

and they were not prepared to supply this much demand.

The Demand curve of iPhone 4

As per the law of demand, there is negative relationship between quantity demanded

and the price. It also applied to the demand and price of iPhone4. Apples new

iPhone 4 is a smart phone, the demand for this product declined as price increased.

The demand for iPhone decreased due to its high price and the demand curve of

iPhone shift towards left, simply the law of demand applied. It implied that

consumers were buying fewer number of iPhone 4 at high price or same price.

Another factor, people liked iPhone4 more than iPhone 3Gs because of its advanced

features. So this has added to shift the demand curve to left and a decline was

registered in the demand for iPhone4. So, there was a shift in demand curve for

iPhone4.

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Law of Supply and iPhone 4 As per law of supply, the supply will increase, when price will go up. When iPhone 4 was

launched in the market, every consumer wanted to get its order released. In

commensurate with the demand, the Apple Company was trying to produce more of the

product while its price was very high. The consumer wanted to buy the iPhone 4 as early

and quickly as possible as it was introduced in the market. However, at that time

consumers were not bothered much about the prices. So the supply of iPhone 4 curve

shift right side as supplied increased. Similarly, the law of supply applied, as the price of

iPhone decreases and the cost of production increased, in such case supply curve shift to

left and it would shift right when supply increases.

Market Equilibrium The market equilibrium takes place at the price when demand of the product and supply

of product equals at the market established price.

In other words, quantity demand equals quantity

supplied. The demand and supply of iPhone 4

reached equilibrium in at some stage, when

demand for iPhone 4 becomes equals to the

supply of iPhone4. So market mechanism of

Adam Smith applied.

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Surplus and Shortage of iPhone 4 When demand and supply is equal at the equilibrium price, is called market equilibrium.

When there is more supply and less demand then there would be surplus, or when price is

above equilibrium price, there would be surplus. On the other hand, when demand is

more than the supply, there would be shortage and the price would be below the

equilibrium price.

The above figure indicates the surplus and shortage of quantity demanded and supplied.

In case of iPhone 4, shortage occurs when demand of iPhone exceeded its supply, and the

price is set below equilibrium. Similarly, when price is set above equilibrium, there

would be surplus. In case of iPhone 4, shortage occurs when the price is set below the

equilibrium price. The sellers are in equilibrium because they think to sell many products

at the same price and buyers do not want to buy these products. In such situation some

buyers are willing to offers more price and sellers would accept this increased price. So in

such case, this condition would drive marketing price upward in the equilibrium. For

iPhone 4 in China, the sellers wanted to sale more of this product but they had to wait in

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line because it was not satisfying the demand of consumers. China has more than 200,000

of iPhone 4 when it had introduced iPhone 4 in the market. It has just sold 100,000

number of iPhone 4 in six weeks which means there was shortage in the market. (see

Figure above for illustrative purpose).

In case of iPhone 4, the surplus occurs when the market price is set above the equilibrium

price. When there is surplus, buyers would buy more of product when the price is going

up. In such case sellers would offer more products at lower price and buyers are willing

to buy less of product which means the market equilibrium move downward. The iPhone

4 had surplus in Hong Kong market because there was more distribution for this product

and the buyers wer less to buy this product.

(http://www.ouriphones.com/index/php/archives/iphone4-account-surplus-hong-kong-

gold-prices-65.htm) .

5. iPhone 4 in UAE

In case of UAE, the iPhone 4 was officially on sale at the time of its introduction, the

demand was expected to exceed the supply, as both distributors, that is, du and Etisalat

had declared that they had limited supply of iPhone 4s in their stores. Regarding the plan

and prices of iPhone 4, were not declared to customers much in advance, the details were

made available just only two days in advance.

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Supply of IPhone 4 in UAE

Of the two major suppliers, the du offered the iPhone 4 with 16GB capacity in US $666

(AED 2449) and another model having capacity of 32GB model for the price of US$ 775

(AED 2849). At that time the customers had range of option plans, including different

amounts of voice minutes, SMS and the data, to buy this product. There were also pre-

paid plan available to the customers, in the same line, another plan was pay-as-you-go,

and in this case there was not commitment for buyers after buying the product of iPhone

4 from their supplier. Another supplier of iPhone 4 was Elisalat. It had offered a different

plan to its customers. The Etisalat had offered to its customers a plan, that they offered

iPhone 4 on a 12 month contract basis by which customers can pay different amounts for

iPhone 4 at upfront cost. The upfront cost varied in the range of AED zero to AED 2399

and each option was offered with a different monthly cost and different charges for voice

minutes, SMS and the data. Under this plan, the customers were getting cheaper up-front

cost, if they were willing to pay more monthly amount. In the case of absence of transfer

plan, the customers having the iPhone plans of du have to buy a new iPhone 4, where as

the customers with Etisalat iPhone plan, were offered a tailor-made option so that they

can upgrade their existing iPhone 4 plan. Apple's iPhone 4 has been available on the gray

market in U.A.E. since shortly after the company announced their latest Smartphone in

June 2010. Prices were initially very high and have come down only a small amount

since then. The prices offered by, in particularly, du represent a significant saving over

the gray market alternatives. In addition, all iPhones sold officially in the U.A.E. are

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factory unlocked including iPhone 4. In many gray markets iPhones were factory locked,

leading to potential problems for users to upgrade them when new versions of iOS are

introduced. Etisalat was the first telecommunications company in U.A.E. to offer iPhone.

They introduced iPhone 3G in February 2009. Both du and Etisalat started selling iPhone

3GS in October 2009. (By Magnus Nystedt, http://www.macworldme.net/ Sep 26,

2010 4:35 pm).

About the growth of sale of Smartphone in UAE during 2009, one of the leading retailer

company indicated that there was overall increase in sale, about 30%. (Jacky

Electronics). The top leading brands in the Smartphone segment are the BlackBerry,

HTC, Nokia and Imate.

The demand for Smartphone is UAE was also due to the consumer demand for innovative

and cutting-edge multimedia capabilities, and increased, cost-effective data packages

offered by domestic telecom providers. "The UAE's Smartphone penetration rates have

improved because of better and more affordable data packages offered by local telecom

providers such as Etisalat and du, which were offering various subscription plans that

were cost-effective, convenient and included international roaming services to suit the

needs of business executives who were wanting to access their emails anywhere in the

world,". (Jimmy Patel, General Manager, Jacky's Electronics).

Another reason for the demand and popularity of Smartphone was result of availability of

portable computers with top-of-the-line capabilities. Most of the new offers included

unique touch screen, interfaces or full QWERTY keyboards and excellent features such

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as messenger, internet surfing, MP3 players and portable video devices. Some more

features has also enhanced the demand for Smartphone, were, sleek model, convenient

designs, unique touch screen interfaces and wide network support, along with high speed

data synchronization and GPS capabilities.

Growth of Smartphone in UAE

The mobile service application provider, Info2cell.com, has revealed that the use of

mobile phones in the UAE, a technology-oriented country with majority of its residents

among the most tech-savvy in the world, is expected to grow by 11 per cent over the next

three years. The Dubai-based company, quoting figures from the International Data

Corporation, said that 1.7 million Smartphones were shipped in the UAE in 2010, a 46

per cent increase over the previous year.

The continued rise in the future is attributed to demand from more users looking to keep

in step with data and information on the go, especially in the business and social

networking sectors.

Aside from user benefits, the rising popularity and adoption of smartphones in the UAE

is also creating opportunities for mobile application developers, as evidenced by the fact

that the UAE controls a majority share of the development of mobile phone applications

in the region.

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The UAEs market dynamics, young demographic, strong government support and

excellent telecom infrastructure make it a flourishing market for mobile application

content developers. (Khaleej Times)

It was observed that the mobile value-added services playing an important role in

consolidating the UAEs position as one of the regions leading telecommunications

markets and as such, the company is pushing for the development of this particularly

in the non-voice segment as a means to help the telecom industry, maintain revenue

increase and growth. (Khaleej Times)

Launch of iPhone 4s in UAE

Much awaited desire of the tech savvy or fonder of iPhones people are likely to be

fulfilled shortly. Before Christmas, it would be a festival gift to UAE people. Apple has

officially launched the iPhone4S in the UAE on Friday, 16th December ,2011, offering

the handset on its website at prices far below local retailers. (gulfnews.com , 15th

December,2011)

As the demand for iPhone 4 is increasing every day, apple has offered iPhone 4s with

different price package with different price model. Apple site offered the device for

Dh2,599 for the 16GB model, Dh2,999 for the 32GB model and Dh3,399 for the 64 GB

model. Another incentive given by the Apple Company that Delivery of purchases on the

site (www.apple.com/ae) is also free.

The supply of iPhone4s has to be commensurate with the demand of the product. If the

customers who can wait a little, such price package requires patience, would be able to

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get the delivery of iPhone4s with in one-two weeks. Still there is question of supply,

whether the sale stores has that much supply matching with the demand? However, a

number of local retailers who began to offer the new iPhone4s last week still had the

devices in stock. Many did not move to immediately match Apple website prices released

very recently, for the launch of the iPhone 4S.

There is price difference between the Apple web site and the retailers. It was found that

retailers are often charging hundreds of dirhams more than the Apple.com/ae website.

Coverage of iPhone4

The Apple company, in its last statement on the iPhone4S issued on November 1, 2011,

from Cupertino, California head offices, said at the time that the phone was available in

"29 countries around the world and will be available in more than 70 countries by the end

of the year".

Matching prices

There is price differentiation charged by the different retailers in comparison to the Apple

price. One of the outlet (Jumbo electronics) prices were Dh3,599 for the 16GB model,

Dh3,799 for the 32GB model and Dh4,199 for the 64 GB model. It was informed by the

outlet person that the store has ample stock on hand and would have enough models for

the days ahead, if sales surge.

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Therefore, in the market, there is future expectation of sale. It was observed that the

lower Apple website-advertised prices would force data-package phone prices lower.

The only major telecom players, both, du and Etisalat, also launched the phone iPhone 4S

very recently at a variety of prices packaged with data and voice plans.

The Du has informed its customers that "for the first few days, only post-paid du

customers or those who received an invitation by du can purchase the new iPhone 4S

models". The prices for selected du customers are Dh2,749 for the 16GB iPhone4S,

Dh3,199 for the 32GB model and Dh3,599 for the 64GB model. Another leading

competitor of du, that is Etisalat, has already gone public with its official iPhone4S deals

available through pre-order sales which are slightly cheaper in some cases than du.

Etisalat's prices, as announced, are Dh2,749 for the 16GB model, Dh3,149 for 32Gb

model and Dh3,549 for the 64GB device. (Source: Scott Shuey, Deputy Business Editor)

Demand and Revenue of iPhone 4s

It was informed by the head of Apple company that the company has earned a quarterly

revenue of $28.27 billion (Dh104 billion) with a net profit of $6.2 billion resulting in

$7.05 per diluted share up from the same period last year when Apple posted fourth-

quarter revenue of $20.34 billion with a net profit of $4.3 billion for $4.64 per diluted

share.

An historic surge in demand for the newly released iPhone4 witnessed four millions sales

in the first days after its release on October 14, 2011, paving the way for an expected

record first quarter of 2012.

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In total, Apple sold 17.07 million iPhones in the fourth fiscal quarter which ended

September 24, 2011, and registered a 21 per cent increase in sales of the device.

In a small survey of 50 responds (50 male and 50 female)undertaken before the launching

of iPhone4s, it was found that, amongst the male, a little less than half (48%) were

interested in iPhone4s, whereas inclination for iPhone4s amongst the women was high.

Amongst the 50 women surveyed, about 72% were very much interested to have this new

device, indicated the high tech savvy of women in the region.

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6. Conclusion

In this project it was endeavored to understand the concept of market mechanism and

demand and supply concept along with the equilibrium price and surplus and shortage of

demand and supply. The attempt was made to apply this concept of demand and supply to

the iPhone 4 in general and UAE particular. It was observed that demand goes with the

price of iPhone4. However, the UAEs market dynamics, young demographic, strong

government support and excellent telecom infrastructure make it a flourishing market for

mobile application content developers. The two major telecom company in the region,

that is, Etisalat and du has indicated some control over price, as their prices were more

than the Apple company price (some indication of characteristics of oligopoly). In a

survey, it was revealed that the inclination for this device amongst the women and men, it

was observed that the women are more tech savvy than their counter part (men),

indicated their interest for this new product.

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7. References

iPhone 4 supply and demand issues could hurt Apple brand, BY Suzanne Deffree,

Managing editor, news-EDN, June,2010.

http://www.edn.com/article/509611-iPhone 4 supply and demand issues could hurt

Apple b rand.php.

The Law of Demand and iPhone Maxs Blog. Maxs Blog.Web05Jan2011.

http://12jostma.wordpress.com/2010/09/16/the law-of-demand-and-iPhones/.

Scheller R. B. (2010). The Micro Economic Today (12th ed.). New York: The

University of Neveda-Reno.

Asford, W. (2010). iPhone 4 demand exceeds expectations. Retrieved from :

http://www.computerweekly.com/Articles/2010/06/17/241629/iPhone-4-demand-

exceeds-expectations.htm

Huges, N. (2010). Limited iPhone 4 stock viewed as competitive risk for Apple.

Retrieved from

http://www.appleinsider.com/articles/10/06/29/limited-iPhone-4-stock-viewed-as-

competitive-risk-for apple.htm/

China Unicom Parent: iPhone 4 Demand Stll Exceeds Supply from

http://www.eeualsmcsqaure.com/China-unicorm-parent-iPhone-4-demand-still-

exceeds-supply.

iPhone 4 Review-What is iPhone 4 and its Features, Free Download iPhone 4

Converter to Convert to iPhone 4 Video and Audio. Web 21 Dec.2010.

http://www.iPhone4-convertor.com/iPhone-4-review.htm.

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iPad Production Close to Meeting Demand; iPhone 4 to follow. Intomobile- Cell

Phone News. Web 06Jan2011.

http://www.intomobile.com/2010/08/19/iPad-production-close-to-meeting-demand-

iPhone-4-levels-to-follow-soon/

iPhone 4 account surplus Hong Kong gold prices

Htt://www.ouriphones.com/index.php/archives/iphone4-account-surplus-hong kong-

gold-prices-65.html.

Gulf news, 17th December, 2011.