Read the Given Case Study Very Carefully and Then Answer the Following Questions

Instructions:

Read the given case study very carefully and then answer the following questions. Answers should be very brief and precise-I do not want long explanations at all. Wherever possible draw a diagram to explain your point.

You will be evaluated on accuracy of answers, precision and application of concepts done in the class. You do not need to do external research on smartwatch industry. All your answers should be based on what is given in the case study. If you are making any assumptions, state them very clearly. Total Points: 40

1. Describe the smartwatch market. (2 points)

The market in which multiple buyers and sellers interact for the sales and purchase of smart watches and its features. Features like sensors, gyroscopes internet connectivity, other applications, calling facility, weather update and financial updates, and fitness monitoring capabilities. The sellers are Apple, LG, Motorola, Pebble, Samsung, etc.

A) Who are the buyers? Identify three needs/wants of the consumers that a smartwatch fulfills.

The buyers can be retailers, sportsmen, individuals’ wholesales. Needs and wants that consumers wants Like Step tracks, sleep patterns, personal assistance, and information, medical, health etc.

B) Who are the sellers? Identify three sellers and highlight their differentiating features.

Sellers are Apple, LG, Motorola, Pebble, Samsung, etc.

Apple Watch Samsung Gear Live Pebble Steel Display Size 1.33” 2” 1.26” Display 272 X 340 480 X 360 168 X 144 Resolution Thickness Unknown 12.5mm 10.5mm Processer Unknown (New S 1 chip) 1 GHz dual core 120MHz single ore

Storage Unknown 4G 128Kb (8 apps) Battery Life ~ 1 day ~ 2 days ~ 6 days OS iOS Tizen Pebble Phone Compat. iPhone Samsung Galaxy Android/iPhone Touchscreen Yes Yes No Always-on No Yes Yes display Standalone Yes No No Wireless Price Basic $349 $300 $220

2. Choose the right option in the below statements about the smartwatch industry and explain your choice very briefly. (2 points)

a) Apple watch is a consumer/capital good.

Apple watch is a consumer good. Every year apple provides updates of IOS, providing latest technologies in iPhone and Smart watches.

B) Study of the smartwatch industry is a microeconomic/macroeconomic topic.

Smart watch industry is a Microeconomics topic because, that examines the behavior of individual consumers and firms.

3. The Smartwatch Group predicted 250% annual growth in sales of the smartwatch industry for several years. The industry sales were low till middle of 2014 (about 700,000 smartwatches shipped worldwide). But the sales were expected to surpass traditional watch sales in 2018 and become a six-billion-dollar market by 2020. Sketch a diagram for (a) smartwatch market and (b) traditional watch market to reflect the above scenario i.e. reflect the growth from 2014 to 2020. State your assumptions. (3 points) Note: No need to mention specific number of units/dollars.

Sales Data of Smartwatches and Traditional Watches (Millions) 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 Unit Sold Unit 400.0 200.0 - 2014 2015 2016 2017 2018 2019 2020 Smartwatch 0.7 2.5 8.6 30.0 105.0 367.7 1,286.8 Traditional Watch 50.0 60.0 72.0 86.4 103.7 124.4 149.3 Total 50.7 62.5 80.6 116.4 208.7 492.1 1,436.1 Axis Title

Smartwatch Traditional Watch Total

4. Explain, using a demand-supply diagram, the “complementarity between smartwatches and phones”. How are the “attributes and pricing of accessories such as smartwatches a key weapon in the mobile phone competitive battle”? (3 points)

Price P1 at Quantity demanded Q1 the demand of Apple phones is at D1. Smart watch as a complement its demand jumps up to D0 showing there’s an upward trend in demand of apple phone.

Ps Do D1

Q1 Qo Qd

5 Consider Figure 1 on Page 5 of the case study which shows the Apple Watch pricing strategy and answer the following questions. (7 points)

a) What is/are the dependent variable/s in the model?

Dependent variable includes Advertising budget, Pricing of apple watch, pricing of Samsung Gear S, and pricing of pebble watch.

b) What is/are the independent variable/s in the model?

Quantity demand of Apple watch is known as the independent variable.

Explain the “sign” of the coefficients of the following variables i.e. explain why the coefficient of the variable is negative or why it is positive? Use the right terminologies.

i) PAW = Paw in Negative due to competitive advantage

ii) PGearS= Positive Gears are substitutes of apple smart watch, PGreas Increases. Paw decreases.

iii) PPebble= Positive for the same reason above in number 2 as pebble is a substitutes product of apple watch, So when the Paw Decreases Ppeble decreases

iv) PiPhone6= Negative because it I complementary good for apple watch, When the substitute product (Pgears and Ppebble) Price increases, Piphone6 and Paw will also decease.

v) A is a positive.

5. USE MICROSOFT EXCEL FOR THIS QUESTION Consider the scenario that the Apple team had contemplated with the following variable values, prior to the launch.

PAW = 349, PGearS = $380, PPebble = $220, PiPhone6 = $299, A=$15,500 a) Calculate the QAW, using the above values and the demand function in Figure 1. (1 point)

QAW = -150000 – 2400*349 + 1520*380 +1200*220 – 1200*299 + 44*15500

QAW = 177200.

B) Calculate QAW only changing PAW to values given in the table. This means keep PGearS , PPebble , PiPhone6 and A fixed. (2 points)

PAW 300 310 320 349 350 360 380 390 400

QAW 294800 270800 246800 177200 174800 150800 102800 78800 54800

c) Using the table above draw a demand curve (use MS Excel line chart option). Take QAW on Y-axis and PAW on X-Axis. Like a typical demand curve, your curve should be downward sloping. (3 points)

Price QAW 300 294800 310 270800 320 246800 349 177200 350 174800 360 150800 380 102800 390 78800 400 54800

Qaw 400000

300000

200000

100000

0 300 320 340 360 380 400

Qaw

D) For each of the situations below, explain the effect on the demand curve i.e. is it a movement along the curve, a rightward shift, or a leftward shift? Calculate the change in QAW and label the variable as New_QAW. Use the same range for PAW i.e $300- $400 to draw an updated demand schedule. Graph a new demand curve (if there is a shift). Keep all other variables, except the one mentioned, as fixed. For example, in (b) only PGearS changes to $400, rest of the values remain as given above i.e. PAW = 349, PPebble = $220, PiPhone6 = $299, A=$15,500 1) Increase in price of AW from $349 to $400 If prices of the apple watch, increases then demand of the apple watch decrease.

400

349

2) Increase in price of Gear S from $380 to $400 If Pgears prices increase, then demand of the apple watch shift upward because Pgears and apple watch has both are substitutes.

Q 3) Decrease in price of Pebble from $220 to $150

If the prices of the Pebble decrease the demand of the apple watch decreases.

4) Decrease in price of iPhone6 from $299 to $250. If the price of the apple iphone6 decreases, then demand of the apple watches increase because it is complementary goods. P

5) Increase in Advertising budget from $15,500 to $ 17,000. If an increase in the budget of advertising, then demand of the apple watch increase. P

6) What is the marginal cost of producing one more Apple Watch? In other words, what is the Opportunity Cost to the company of producing one more Apple Watch?

Formula of Marginal cost=change in price/change in quantity So the marginal cost of the apple watch is 0.00204.

7 How will Apple’s entry in the smartwatch industry impact the following? (3 points)

a) The other suppliers. Sketch a diagram to show the affect.

When apple will enter into the market then the competition will be increasing, and it will effect on the demand of other Supplier.

P S1

b) Healthcare Industry

The technology is in your hand its known as the wearable technology. As a result, there is a decrease in health, medical and insurance Claim.

C) Society in general.

It shows the reduction in health expense. People love to use smartwatch for tracking fitness activities, etc without digging into the pocket or purse.

8) Do you own a smartwatch? If not, find a friend or family member who does. Ask yourself/them following questions. (3 points) a) Which smartwatch brand do you/they have? I would prefer Samsung.

b) What price did you/they buy it for?

US $ 130 c) What was your/their budget constraint when buying the watch? US $ 100

d) What was yours/their opportunity cost in buying the watch? Explain in terms of what you/they gave up buying it.

Huawei Smart watch X series 6 was US $ 120

E Why did you/they choose the brand you/they did? What were the “substitutes” or “complements “involved in the purchase decision?

Samsung is known for quality and advance technology implementor. Other option Huawei Smart watch X series 6

F) Would you/they want to buy an upgrade when it is released?

Yes g) If yes, what is your/their reservation price for it? If no, why?

US$ 140-160 h) The watch can most likely be resold. How much can you/they resell it for? (If you/they don’t know Exactly, come up with a reasonable estimate, for example 60% of the original value)

40 % Reduction of its cost.

I) If you/they don’t sell it, what is the opportunity cost of keeping it?

I would be losing latest technologies updates, advancement, and modifications. This will be my opportunity cost