Supply and Demand in substitute products (cell phones) in our current Research Paper

Supply and Demand in substitute products (cell phones) in our current time - Research Paper Example To illustrate, as Luo (2006) points out, if government imposes higher tax rates on cell phones, consumer demand for cell phones would decline whereas demand and supply would increase when the government sets favorable tax rates. Government policies regarding imports can also significantly affect the demand and supply in the cell phone industry. Similarly, as Pierskalla and Hollenbach (2013) point out, technology also plays an inevitable role determining the demand and supply of cell phone products. The industry analysts say that technological innovations can reduce the production costs of products like cell phones and this situation in turn would increase their demand and supply. In addition, advancements in technology would assist cell phone manufacturers to offer technologically improved products to customers and consequently the demand and supply would be improved. Evidently, cost of production is inversely related to demand and supply (Hortman, n.d.). When the cost of production increases, manufactures will be compelled to charge higher prices for their products and this in turn would lead to a decline in demand and supply. In emerging countries like China and India, labor costs are relatively low and therefore production costs can be notably reduced. According to Sugden (2022, P. 42), nature of the industry can influence the demand and supply to some extent. Today cell phones have become increasingly popular and therefore people consider it as a necessity product. As a result, the supply and demand of cell phones would remain to be stable regardless of small variations in price. Degree of Competitiveness Degree of competitiveness is very high in the cell phone industry because there are numerous potential players like Nokia, Samsung, LG, and Sony operating in this sector (see Figure 1). Price competition is very common in the cell phone indus try because every marketer tries to improve the demand and supply of his products in order to obtain an edge over competitors by taking advantages of price sensitivity of modern customers. Therefore, a cell phone marketer cannot sustain in the industry if he fixes prices above the par industry prices. In addition, cell phone companies compete based on technology also. To illustrate, today cell phone marketers integrate technological features like video facility, high MP cameras, Wi-Fi, Bluetooth, GPRS, dual sim, external memory into their products with intent to retain customer interests. In order to address the intense market competition, the firm’s managers should particularly try to keep their labor costs and material costs low and thereby minimize costs of production. For this, managers need to establish their production plants in countries where cost of raw materials and labor is relatively low. Effects of Macroeconomic Events A decline in the relative value of the US do llar can have a significant impact on the demand and supply of cell phones. Evidently a declining value of the US dollar would directly lead to an increase in US import prices (Effects of a Falling Dollar). It is clear that the US cell phone market is dominated by foreign companies and hence a fall in the relative v