Laptop Industry Structure

“Laptop” is a differentiated product. There are many companies which manufacture laptop computers like Apple, Dell, Lenovo, and HP, each company has its own quality and design. Each company introduces different models which differ in looks, display quality and the different features available in them with different configurations. Few companies provide good service, in terms of customer service as well as in the product’s life. Companies such as ‘Sony’ and ‘Toshiba’ are Japan companies also give a very good competition to the leading companies manufacturing laptops. So the location of the company also helps in distinguishing its product. The brand name and packaging also count in giving competition which forces the customers in the market to buy a particular product of the company like; ‘Sony’ manufactures different kinds of electronic goods. There are significant barriers to entry for the sellers or producers which help the existing companies to have greater control over the market. So there are only few firms which manufacture laptops in the market. This is because if a new firm has to enter the market, it should have its plans and strategies to create its own techniques of production to give competition to its competitor’s techniques like “Apple inc.” has its known style for its product’ look and uses Mac Operating system for its products which shows its exclusive resource ownership. Another barrier to entry is the start-up costs of the products will be high. This is because the firms in this form of market need high capital particularly for manufacturing the sophisticated equipments. Herfindahl-Hirschman Index is 1073.3 which represent a moderately concentrated market. The concentration ratio is above 60%. Profit margins for “Dell Inc” which is one of the top manufacturers of laptops are:
Rate of Return on Stockholder Equity (ROE) (Net Income / Shareholder Equity = 39.8% (average of 5 yrs) or 58% (2009)), Profit Margin/Return on Sale (Profits / Sales = 19.6%), P/E Ratio (Stock Price per share / Earnings per share = 16.2), Financial Leverage (Total Debt / Shareholder Equity = 6.3), Asset Turnover (Total Revenue / Total Assets = 1.8)
From the above calculations, the laptop industry is a competitive market as the firm has profit margins which are relatively high. So, the market form of this industry is OLIGOPOLY. Some other factors which determine are: the industry has many buyers and few sellers producing the identical products who rule the market (which is laptop in this case) in terms of setting the price of the product and interdependency. They may produce homogeneous or differentiated products. Collusion risk is high and strategic planning is required. The non-price competition methods such as branding, product differentiation and advertising are more used as they are more cost-effective and also to keep away the price war risk when compared to the price competition methods which are ineffective in the oligopoly form of market. There is a large level of commercial advertising done through internet promotion for laptop product in the oligopolistic market to draw the attention of the consumers from its competitor firms.
Thus, the laptop industry structure is strongly an oligopoly form of market as there are few firms with lots of competition because of all the factors mentioned above like barriers to entry, product type, number of firms, product differentiation, concentration indexes etc.
References:
http://www.docstoc.com/docs/13412579/Price-wars-in-oligopolistic-markets
http://arstechnica.com/apple/news/2008/09/apple-gains-us-market-share-in-laptops.ars
http://www.advfn.com/p.php?pid=financials&symbol=NASDAQ%3ADELL http://www.advfn.com/p.php?pid=financials&btn=annual_reports&mode=&symbol=NASDAQ%3ADELL