iPhone 5’s Matching Markets Dilemma
Last Friday, Apple released the iPhone 5 and sold over 2 million phones within the first 24 hours. Assuming there is nothing wrong with Apple’s supply chain and it is able to meet the demands of consumers, analysts expected Apple to sell 8 million iPhones (including pre-orders) over the weekend. When Apple announced its sales this morning, it reported 5 million units of iPhone 5’s sold over the weekend. Note that the 5 million does not include pre-orders and a sale is only recorded when the unit is received by the consumer. Amidst the shortfall in completed sales, reports are showing that a riot has broken out in Foxconn, one of Apple’s suppliers. Concerns over Apple meeting consumer demand can be formed into a matching markets example.
In this example of Apple and iPhone 5’s matching markets, there are two sets of nodes. The first set is the sellers of iPhone 5’s and the second set is the buyers of iPhone 5’s. There are a limited number of iPhones that are currently available in the market provided by Apple. Let A and B be the total supply of iPhones in the U.S [N(S)]. For the sake of simplicity, assume Apple only offers one model of the iPhone 5 and it is sold for $199 after subsidies. There are many buyers who think the price is a good value. However the amount of buyers far exceeds the amount of iPhone 5’s for sale. Let X, Y, and Z represent the total number of people who want iPhone 5’s [S]. When the nodes in the two sets are matched, it forms a constricting set because there are more buyers than sellers [N(S) < S]. This indicates that Apple may have trouble meeting the demands of consumers. As a result, sellers may raise the suggested retail price of iPhones in order to create a perfect matching market. If sellers chose to do that, they would lose iPhone sales; instead Apple needs to efficiently produce iPhone 5’s in order to meet the market’s demand.
– rjayy
Source: http://www.marketwatch.com/story/apple-down-as-early-iphone-5-sales-disappoint-2012-09-24