Assignment
New entry and profit rates during 2004 there was a significant increase in the demand for flat-panel TVs which Scott McGregor, the boss of Philips semiconductors, said was irrational since conventional TV could produce just as good an image. However, the real reason for such an increase in demand for flat-panel TVs was that manufacturers saw the possibility of a lucrative new market. LCD screens for desktop and laptop computers have become relatively common and so profit margins have fallen. However, in the TV market, although the larger LCD screens cost more to make, they also command much higher profit margins. The interesting thing about this new TV market is that both new firms and also old established firms such as Motorola and Westinghouse (who stopped making TVs decades ago) are entering the market because of the higher margins. So too are computer makers such as Dell and Gateway who already sell LCD computer monitors and can undercut traditional consumer electronics firms by selling direct over the Internet. For example, in January 2004 a 30-inch flat-panel TV from Sony cost $3,999 whereas the equivalent Dell flat-panel TV cost $2,999 over the Internet. The market for flat-panel TVs accounted for 3% of all TV sets sold in 2004 but is set to rise to 55% by 2005. Therefore, the market is experiencing the ‘early adopter' phase of product sales which comprises the early part of the flat-panel's ‘life-cycle'. The market research company, supply, believes that as more suppliers enter the market and new factories are built, the prices of flat-panel TVs will probably fall by around 40% in 2004, resulting in decreased profit margins all round.
Question
1 What does the above account tell us about the nature of the ‘barriers to entry' in the flat-panel TV market?
2 How does the flat-panel TV market help us understand the concepts of ‘normal profit' and ‘super-normal profit' in an industry?
3 What would you expect potential buyers of flat-panel TVs to do, given the information in the above account?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.