Why+Nobody+Can+Match+the+iPad’s+Price+-+Kenny

**Date:** Feb 18th, 2011
 * Article:** Why Nobody Can Match the iPad's Price
 * Source:** Wired - http://www.wired.com/gadgetlab/2011/02/ipad-price/

The article gives a very interesting explanation as to why the iPad, the most technologically advanced tablet of its kind, is only $500 compared to the tablets produced by Samsung and Motorola that are in the $700~$900 range. The article states that Apple is the "most vertically integrated company in the world" and refers to Apple and its assets as an 'ecosystem', meaning Apple controls every aspect of iPad production: from R&D to manufacturing to marketing to selling. What this means is that because Apple is such a big company, it faces economies of scale that leads to it being able to experience increasing returns to scale. Because Apple is so vertically integrated, it has almost if not all the economies of scale: specialization, divisions of labor, bulk buying, financial economies, transport economies, large machines, and promotional economies. Also, vertical integration also has the benefit of cutting down the price of what the "middle-man" would have charged. In other words, cost is minimized because of Apple's size and economies of scale that it faces. Samsung and Motorola are not as vertically integrated and therefore have higher costs (middle-man prices), forcing their products to cost more than the iPad. Ultimately, the iPad's price will be more appealing, explaining why its sales have beaten the other tablets' sales.
 * Summary:**

Vertical Integration- a single firm that is involved in all aspects of a product's manufacture from raw materials to distribution Microeconomics- the part of economics concerned with single factors and the effects of individual decisions Profit- financial gain after subtracting total cost from total revenue Cost- an amount that has to be paid or spent to buy or obtain something Revenue - any income gained Long run- all factors of production are variable, technology fixed. planning takes place in the long run. Economies of scale- factors that lead to the firm to experience increasing returns to scale, e.g. specialization, divisions of labor, bulk buying, financial economies, transport economies, large machines, and promotional economies Positive statement- A statement that is proved by the use of fact Normative statement- An opinionated statement
 * Vocabulary**


 * Graph 1: Long Run Average Cost Curve for iPads in 2011**


 * Evaluation**

I believe Apple's vertical integration process is very effective that it allows not only the company to face increasing returns to scale in the long run, but also a minimized cost. If Apple were like Samsung/Motorola that marketed OEM devices, it would have higher costs, e.g. more factory costs, management fee, etc (mainly middle man fees). Because it has a minimized average variable cost that constitutes mainly of the raw costs needed to make the iPad, Apple can still make a reasonable amount of profit by selling the iPad at $500. Since a firm's SOLE purpose is to maximize profit, I believe Apple has done a very successful job ever since its launch of the iPad. A problem that Apple may be experiencing are the diseconomies of scale: alienation and communication problems. Because Apple is virtually established in every country, the head group in California may have difficulties organizing and contacting different branches around the world. Also, workers in the manufacturing division of labor may experience loss of identity, as what they do may seem extremely trivial. However, because Apple is so vertically integrated, the profit it generates is far greater than decreasing returns to scale it may experience. Nonetheless, a company should still try to tend to its problems and maximize profit. A possible solution to this is happier programs for workers in factories or establishing a second "central" base with more specialized managers to manage Asia.