Skip to main content



The release of Amazon’s tablet and bargaining power

Source: http://www.nytimes.com/2011/09/29/technology/amazon-unveils-tablet-that-undercuts-ipads-price.html?pagewanted=2&sq=amazon%20&st=cse&scp=2

Recently, amazon introduced its whole new tablet: kindle fire. With kindle, customers can have access to more than 18 million e-books, movies, songs and television shows on Amazon, as well as to numerous Android applications. Clearly this device is a strong competitor to Apple’s ipad 2. It offers a lot of  services not so different from what ipad 2 does. And another advantage  is that it’s price is much cheaper than ipad 2: kindle fire is $199 while the cheapest ipad 2 sells for $499. It seems that ipad 2 is facing a serious competition. So how does Amazon’s new tablet affect ipad?

We can think of this competition as a game and both Apple and Amazon are players. They all have two strategies: high price and low price. From this passage we know that Amazon already chose the low price strategy because $199 is “less than half that of many tablet computers on the market.” Amazon can afford to sell kindle at a very low price because it expects to make up the difference by selling books, movies and musics. For Apple, it has two available strategies: it can choose either to keep its price high or drop to a lower price. If Apple chooses not to change its price, then the kindle’s low price will lure a lot of customers away and thus Apple will face a reduction in profits. If Apple finally chooses to drop its price to compete with Amazon, its profits will still decrease because the price dropped and the introduction of kindle will always steal some customers away from ipad. So no matter which strategy Apple chooses, it always worse off than before. Since I cannot compute how much Apple will be worse off here so I don’t know which strategy it will choose. but one thing is for sure: both Amazon and Apple are not as well as before (because Amazon also sacrifices kindle’s price in order to improve its sell of e-book, movies and music). So no matter which company triumphs in the end, customer will be the winner since they are going to enjoy the fairly low prices.

The advent of the new kindle also affected the bargaining power of Apple. Before kindle comes out, Apple dominated the magazine-selling business and it has relatively large bargaining power when facing those magazine companies. In order to sell their magazines, most magazine companies have to negotiate with Apple and they have very little bargaining power because they have no outside options. However, now kindle also entered magazine-selling business. With another influential player, those magazine companies found they have an outside option and their bargaining power also increase as a result when negotiating with Apple. Accordingly, Apples bargaining power decreases because some magazine companies might cooperate with Amazon. So, the new kindle poses a serious threat to ipad.

Comments

Leave a Reply

Blogging Calendar

October 2011
M T W T F S S
« Sep   Nov »
 12
3456789
10111213141516
17181920212223
24252627282930
31  

Archives