College of Engineering and Computer Science

------------------------------------------------------------------------------------------------------------

ECO533 - Managerial Economics

Demand and Supply of Smart Phone in UAE

Prepared by: Shehab Hashim Al Yassi 1029776

Date: 19/12/2011

Index

Table of Content
Page

1. Introduction

2. Objectives of the Project

3. Market mechanism and the Demand and supply

4. Demand and supply of iPhone

5. iPhone 4 in UAE

12

6. Conclusion

20

7. References

21

Demand and Supply of Smart Phone (iPhone4) in UAE

1. Introduction
The technology is changing very fast since the telecom revolution occurred across the
globe. Similar to the change in other sectors, the change in mobile phone technology has
changed and improved drastically in terms of quality of the product and the price. The
competition in this sector amongst the suppliers (producers) has resulted into great
benefits to the consumers. The market mechanism of demand and supply, i.e. Adam
Smiths market mechanism Laissez Faire has proved very practical and played a
major role in growth of this sector. During this period the technology used in mobile
phone industry has grown and continuously growing as demand for the product is
growing. Most of the mobile companies in this industry have produced such product
which is creative and competitive, commensurate with the consumer demand of mobile
phone. This phenomenon was very common not only amongst the developed countries
but also in the developing countries. The demand for the iPhone in UAE has also
increased substantial since last a little less than a decade. Amongst the other firms
producing mobile phones, the Apple Company is the largest mobile phone producer
company in the world, which has also experienced a great technological progress
compared with other mobile producing companies. The production of iPhone, and its
various versions such as iPhone3G and iPhone GSs, and the iPhone4 which was very
much in demand has arrived. Now in UAE, iPhone4s has launched officially on15th
December,2011. It has attracted a large number of customers which are very much
2

fashionable and technology savvy. The unique design and appearance of the product, its
image and the sound quality powerful iTunes store, has lured many more consumers of
the product. The model of iPhone 4 which is in two colors of black and white, with the
capacity of huge memory, i.e 16Gb and 32 GB flash drive has attracted more consumers.
In the market equilibrium, there is demand and supply of the product. If the demand
exceeds supply there would be shortage. On the other hand, if supply exceeds demand
there would be surplus. In the case of this product of iPhone, there is a market
mechanism. As the product was very much attractive due to its advanced features, the
demand of the product has exceeded the supply and created a shortage of the product in
the market. (see: http://www.iPhone4-converter.com/iPhone-4-review.htm).

Amongst the other features, iPhone-4 also has many attractive and advanced features.
The most important amongst them is that its users can communicate with each other by
video calls and with no charges or very low indirect charges, if any. The users of the
iPhone just need a wireless connection. The second important feature of the product is
that Retina display to make navigation more clear and precise exposure of retina, most
dynamic and highest resolution phone screen. The basic aim of the product is to get the
best navigation. The third feature is HD video recording and editing with advanced
sensor and integrated rear LED lighting. The users can comfortably capture highdefinition video, and then use the new iMovie application to create a custom movie.
Another important feature of iPhone is Apple A4 processor, which is very powerful
mobile processor. The chip is selling A4, iPhone4 can easily perform complex functions,
and at the same time it does not consume too much power, which is an important point
3

from the

view

of

energy

and

the

environment.

(see:

http://www.iPhone4-

converter.com/iPhone-4-review.htm). The next section would focus on the basic concept

of demand and supply of the product through market mechanism.

2. Objectives of the Project

In this section, the basic concept of market mechanism, that is, demand, supply, shortage
and surplus has been discussed. The market equilibrium, law of demand the also forms
the parts of the objectives. In the study, the concept of market mechanism, demand,
supply and the law of demand along with the market equilibrium has been applied in
practice to iPhone 4. The analysis pertaining to the demand and supply of the product has
also been undertaken.

3. Market mechanism and the Demand and supply

The concept of demand is generally defined as the willingness and the affordability of the
product by any consumer. The demand takes place when consumers exchange a product
with money. As per the law of demand, there is negative relationship between the
demand of a product and the purchasing price of the product. If the price decreases, the
demand of the product would increase. Most of the books on Microeconomics have
discussed this concept in greater detail, as the basic concept of the economy. (Schiller,
2010 and Hubbard 2008).
Law of Demand: Price and quantity demanded are inversely related, that is, as the price
of a good rises (falls) and ceteris paribus (all other things remain constant), the quantity
demanded of the good falls (rises).

Basic characteristics of Demand and demand curve

The demand curve is downward sloping.

Negative relationship between price and quantity.

Which reflects the law of demand, and that all other factors that influence demand are
held constant at each point on the line.

In addition of to the price of product, there are many other determinants of product which
affects the demand of product, these are, income, population, preferences and the
expected price of the product. These factors affect the quantity demanded and the demand
will increase / Decrease and the demand curve will shift right/ left side.

Law of supply
The supply is generally defined as the willingness and ability of the producers (suppliers)
to supply the product at the given price, ceteris paribus.

Basic characteristics of Supply

The supply curve is upward slopping and there is positive relationship between quantity
supplied and the price of product.

Law of Supply- The quantity supplied is directly related to its price and there is positive
relationship between quantity supplied and the price.
The determinants of supply are: input price, technology, expected future price, number of
firms in the market.
These factors would affect the increase in supply or decline in supply. For example, If
there is improvement in technology, there would be increase in supply of product.

Whenever one or more of these variables changes, the position of the entire supply curve
shifts. Such a shift is known as a change in supply (Schiller 2010 and Hubbard 2008).

4. Demand and supply of iPhone

Demand of iPhone4
As the product was highly publicized and advertised heavily, the demand for the
product has created and increased before the release of the product. The consumers
had started placing the order before its release. Pre-orders started on the Apple
website from every corner of the world. It was most surprising that the company has
received 600,000 orders when they opened the pre-order in the first day of the preorder (Warwick Ashford, 2010). It is observed that the most common site in the UAE
for a pre-order of iPhone4 was http://www.emiratesavenue.com/shop/index.php.
Through this site most of the pre-orders were booked for the demand of iPhone4. It
7

was further noticed that the demand for the product for the newest model was 10
times more than the oldest one (Warwick Ashford, 2010). At that time of booking the
price for the iPhone4 was $199 (AED 733 approximately) for 16GB and for 32GB it
was $299 (AED 1097 approximately) (www.apple.com). It was interesting to note
that price of iPhone4 was higher than the other cell phones, but apple iPhone4 has
exceeded in their demand compared to other cell phones.

Law of demand and iPhone4

As per the law of demand the price would increase when the demand goes down. In
case of iPhone4 it was observed that when the iPad product has been increased in it
price, iPhone4 still lower sales, indicates laws of supply. iPhone4 has low demand
because of its production, it was taking a long time to get the orders released from
Apples US site, which has slowed down sales of product, about three weeks of delay
in transportation. Similarly, other companies were taking about 5-10 days for
delivery. (see http://www. Intomobile.com/2010/08/19/iPad-production-close-tomeeting-demand-iPhone-4-levels-to-follow-soon/.

Law of Supply and iPhone4

The law of supply has also applied to the iPhone4. It was observed that Apple
Company has sold more than 1.7 million units of iPhone4 in the very first three days
since the iPhone was introduced (Neil Huges, 2010). As the demand of the product,
8

there were many people in the queue, who were waiting for the iPhone to get their
order released. As per the supply of the iPhone, there was not enough supply of the
product in the market. It was a threat for the Apple Company, if they were not in a
position to supply, the consumers may switch to other companys product. Their
waiting time loses its excitement and charm to get the latest technological advanced
version of the mobile phone. The Apple company had not expected such high demand
and they were not prepared to supply this much demand.

The Demand curve of iPhone 4

As per the law of demand, there is negative relationship between quantity demanded
and the price. It also applied to the demand and price of iPhone4. Apples new
iPhone 4 is a smart phone, the demand for this product declined as price increased.
The demand for iPhone decreased due to its high price and the demand curve of
iPhone shift towards left, simply the law of demand applied.

It implied that

consumers were buying fewer number of iPhone 4 at high price or same price.
Another factor, people liked iPhone4 more than iPhone 3Gs because of its advanced
features. So this has added to shift the demand curve to left and a decline was
registered in the demand for iPhone4. So, there was a shift in demand curve for
iPhone4.

Law of Supply and iPhone 4

As per law of supply, the supply will increase, when price will go up. When iPhone 4 was
launched in the market, every consumer wanted to get its order released. In
commensurate with the demand, the Apple Company was trying to produce more of the
product while its price was very high. The consumer wanted to buy the iPhone 4 as early
and quickly as possible as it was introduced in the market. However, at that time
consumers were not bothered much about the prices. So the supply of iPhone 4 curve
shift right side as supplied increased. Similarly, the law of supply applied, as the price of
iPhone decreases and the cost of production increased, in such case supply curve shift to
left and it would shift right when supply increases.

Market Equilibrium
The market equilibrium takes place at the price when demand of the product and supply
of product equals at the market established price.
In other words, quantity demand equals quantity
supplied. The demand and supply of iPhone 4
reached equilibrium in at some stage, when
demand for iPhone 4 becomes equals to the
supply of iPhone4. So market mechanism of
Adam Smith applied.

10

Surplus and Shortage of iPhone 4

When demand and supply is equal at the equilibrium price, is called market equilibrium.
When there is more supply and less demand then there would be surplus, or when price is
above equilibrium price, there would be surplus. On the other hand, when demand is
more than the supply, there would be shortage and the price would be below the
equilibrium price.

The above figure indicates the surplus and shortage of quantity demanded and supplied.
In case of iPhone 4, shortage occurs when demand of iPhone exceeded its supply, and the
price is set below equilibrium. Similarly, when price is set above equilibrium, there
would be surplus. In case of iPhone 4, shortage occurs when the price is set below the
equilibrium price. The sellers are in equilibrium because they think to sell many products
at the same price and buyers do not want to buy these products. In such situation some
buyers are willing to offers more price and sellers would accept this increased price. So in
such case, this condition would drive marketing price upward in the equilibrium. For
iPhone 4 in China, the sellers wanted to sale more of this product but they had to wait in
11

line because it was not satisfying the demand of consumers. China has more than 200,000
of iPhone 4 when it had introduced iPhone 4 in the market. It has just sold 100,000
number of iPhone 4 in six weeks which means there was shortage in the market. (see
Figure above for illustrative purpose).

In case of iPhone 4, the surplus occurs when the market price is set above the equilibrium
price. When there is surplus, buyers would buy more of product when the price is going
up. In such case sellers would offer more products at lower price and buyers are willing
to buy less of product which means the market equilibrium move downward. The iPhone
4 had surplus in Hong Kong market because there was more distribution for this product
and

the

buyers

wer

less

to

buy

this

product.

(http://www.ouriphones.com/index/php/archives/iphone4-account-surplus-hong-konggold-prices-65.htm) .

5. iPhone 4 in UAE

In case of UAE, the iPhone 4 was officially on sale at the time of its introduction, the
demand was expected to exceed the supply, as both distributors, that is, du and Etisalat
had declared that they had limited supply of iPhone 4s in their stores. Regarding the plan
and prices of iPhone 4, were not declared to customers much in advance, the details were
made available just only two days in advance.

12

Supply of IPhone 4 in UAE

Of the two major suppliers, the du offered the iPhone 4 with 16GB capacity in US $666
(AED 2449) and another model having capacity of 32GB model for the price of US$ 775
(AED 2849). At that time the customers had range of option plans, including different
amounts of voice minutes, SMS and the data, to buy this product. There were also prepaid plan available to the customers, in the same line, another plan was pay-as-you-go,
and in this case there was not commitment for buyers after buying the product of iPhone
4 from their supplier. Another supplier of iPhone 4 was Elisalat. It had offered a different
plan to its customers. The Etisalat had offered to its customers a plan, that they offered
iPhone 4 on a 12 month contract basis by which customers can pay different amounts for
iPhone 4 at upfront cost. The upfront cost varied in the range of AED zero to AED 2399
and each option was offered with a different monthly cost and different charges for voice
minutes, SMS and the data. Under this plan, the customers were getting cheaper up-front
cost, if they were willing to pay more monthly amount. In the case of absence of transfer
plan, the customers having the iPhone plans of du have to buy a new iPhone 4, where as
the customers with Etisalat iPhone plan, were offered a tailor-made option so that they
can upgrade their existing iPhone 4 plan. Apple's iPhone 4 has been available on the gray
market in U.A.E. since shortly after the company announced their latest Smartphone in
June 2010. Prices were initially very high and have come down only a small amount
since then. The prices offered by, in particularly, du represent a significant saving over
the gray market alternatives. In addition, all iPhones sold officially in the U.A.E. are
13

factory unlocked including iPhone 4. In many gray markets iPhones were factory locked,
leading to potential problems for users to upgrade them when new versions of iOS are
introduced. Etisalat was the first telecommunications company in U.A.E. to offer iPhone.
They introduced iPhone 3G in February 2009. Both du and Etisalat started selling iPhone
3GS in October 2009. (By Magnus Nystedt, http://www.macworldme.net/

Sep 26,

2010 4:35 pm).

About the growth of sale of Smartphone in UAE during 2009, one of the leading retailer
company indicated that there was overall increase in sale,

about 30%. (Jacky

Electronics). The top leading brands in the Smartphone segment are the BlackBerry,
HTC, Nokia and Imate.
The demand for Smartphone is UAE was also due to the consumer demand for innovative
and cutting-edge multimedia capabilities, and increased, cost-effective data packages
offered by domestic telecom providers. "The UAE's Smartphone penetration rates have
improved because of better and more affordable data packages offered by local telecom
providers such as Etisalat and du, which were offering various subscription plans that
were cost-effective, convenient and included international roaming services to suit the
needs of business executives who were wanting to access their emails anywhere in the
world,". (Jimmy Patel, General Manager, Jacky's Electronics).

Another reason for the demand and popularity of Smartphone was result of availability of
portable computers with top-of-the-line capabilities. Most of the new offers included
unique touch screen, interfaces or full QWERTY keyboards and excellent features such
14

as messenger, internet surfing, MP3 players and portable video devices. Some more
features has also enhanced the demand for Smartphone, were, sleek model, convenient
designs, unique touch screen interfaces and wide network support, along with high speed
data synchronization and GPS capabilities.

Growth of Smartphone in UAE

The mobile service application provider, Info2cell.com, has revealed that the use of
mobile phones in the UAE, a technology-oriented country with majority of its residents
among the most tech-savvy in the world, is expected to grow by 11 per cent over the next
three years. The Dubai-based company, quoting figures from the International Data
Corporation, said that 1.7 million Smartphones were shipped in the UAE in 2010, a 46
per cent increase over the previous year.

The continued rise in the future is attributed to demand from more users looking to keep
in step with data and information on the go, especially in the business and social
networking sectors.

Aside from user benefits, the rising popularity and adoption of smartphones in the UAE
is also creating opportunities for mobile application developers, as evidenced by the fact
that the UAE controls a majority share of the development of mobile phone applications
in the region.

15

The UAEs market dynamics, young demographic, strong government support and
excellent telecom infrastructure make it a flourishing market for mobile application
content developers. (Khaleej Times)
It was observed that the mobile value-added services playing an important role in
consolidating the UAEs position as one of the regions leading telecommunications
markets and as such, the company is pushing for the development of this particularly
in the non-voice segment as a means to help the telecom industry, maintain revenue
increase and growth. (Khaleej Times)

Launch of iPhone 4s in UAE

Much awaited desire of the tech savvy or fonder of iPhones people are likely to be
fulfilled shortly. Before Christmas, it would be a festival gift to UAE people. Apple has
officially launched the iPhone4S in the UAE on Friday, 16th December ,2011, offering
the handset on its website at prices far below local retailers. (gulfnews.com , 15th
December,2011)
As the demand for iPhone 4 is increasing every day, apple has offered iPhone 4s with
different price package with different price model. Apple site offered the device for
Dh2,599 for the 16GB model, Dh2,999 for the 32GB model and Dh3,399 for the 64 GB
model. Another incentive given by the Apple Company that Delivery of purchases on the
site (www.apple.com/ae) is also free.
The supply of iPhone4s has to be commensurate with the demand of the product. If the
customers who can wait a little, such price package requires patience, would be able to
16

get the delivery of iPhone4s with in one-two weeks. Still there is question of supply,
whether the sale stores has that much supply matching with the demand? However, a
number of local retailers who began to offer the new iPhone4s last week still had the
devices in stock. Many did not move to immediately match Apple website prices released
very recently, for the launch of the iPhone 4S.
There is price difference between the Apple web site and the retailers. It was found that
retailers are often charging hundreds of dirhams more than the Apple.com/ae website.

Coverage of iPhone4

The Apple company, in its last statement on the iPhone4S issued on November 1, 2011,
from Cupertino, California head offices, said at the time that the phone was available in
"29 countries around the world and will be available in more than 70 countries by the end
of the year".

Matching prices

There is price differentiation charged by the different retailers in comparison to the Apple
price. One of the outlet (Jumbo electronics) prices were Dh3,599 for the 16GB model,
Dh3,799 for the 32GB model and Dh4,199 for the 64 GB model. It was informed by the
outlet person that the store has ample stock on hand and would have enough models for
the days ahead, if sales surge.

17

Therefore, in the market, there is future expectation of sale. It was observed that the
lower Apple website-advertised prices would force data-package phone prices lower.
The only major telecom players, both, du and Etisalat, also launched the phone iPhone 4S
very recently at a variety of prices packaged with data and voice plans.
The Du has informed its customers that "for the first few days, only post-paid du
customers or those who received an invitation by du can purchase the new iPhone 4S
models". The prices for selected du customers are Dh2,749 for the 16GB iPhone4S,
Dh3,199 for the 32GB model and Dh3,599 for the 64GB model. Another leading
competitor of du, that is Etisalat, has already gone public with its official iPhone4S deals
available through pre-order sales which are slightly cheaper in some cases than du.
Etisalat's prices, as announced, are Dh2,749 for the 16GB model, Dh3,149 for 32Gb
model and Dh3,549 for the 64GB device. (Source: Scott Shuey, Deputy Business Editor)

Demand and Revenue of iPhone 4s

It was informed by the head of Apple company that the company has earned a quarterly
revenue of $28.27 billion (Dh104 billion) with a net profit of $6.2 billion resulting in
$7.05 per diluted share up from the same period last year when Apple posted fourthquarter revenue of $20.34 billion with a net profit of $4.3 billion for $4.64 per diluted
share.
An historic surge in demand for the newly released iPhone4 witnessed four millions sales
in the first days after its release on October 14, 2011, paving the way for an expected
record first quarter of 2012.
18

In total, Apple sold 17.07 million iPhones in the fourth fiscal quarter which ended
September 24, 2011, and registered a 21 per cent increase in sales of the device.

In a small survey of 50 responds (50 male and 50 female)undertaken before the launching
of iPhone4s, it was found that, amongst the male, a little less than half (48%) were
interested in iPhone4s, whereas inclination for iPhone4s amongst the women was high.
Amongst the 50 women surveyed, about 72% were very much interested to have this new
device, indicated the high tech savvy of women in the region.

19

6. Conclusion

In this project it was endeavored to understand the concept of market mechanism and
demand and supply concept along with the equilibrium price and surplus and shortage of
demand and supply. The attempt was made to apply this concept of demand and supply to
the iPhone 4 in general and UAE particular. It was observed that demand goes with the
price of iPhone4. However, the UAEs market dynamics, young demographic, strong
government support and excellent telecom infrastructure make it a flourishing market for
mobile application content developers. The two major telecom company in the region,
that is, Etisalat and du has indicated some control over price, as their prices were more
than the Apple company price (some indication of characteristics of oligopoly). In a
survey, it was revealed that the inclination for this device amongst the women and men, it
was observed that the women are more tech savvy than their counter part (men),
indicated their interest for this new product.

20

7. References
iPhone 4 supply and demand issues could hurt Apple brand, BY Suzanne Deffree,
Managing editor, news-EDN, June,2010.
http://www.edn.com/article/509611-iPhone 4 supply and demand issues could hurt
Apple b rand.php.
The Law of Demand and iPhone Maxs Blog. Maxs Blog.Web05Jan2011.
http://12jostma.wordpress.com/2010/09/16/the law-of-demand-and-iPhones/.
Scheller R. B. (2010). The Micro Economic Today (12th ed.). New York: The
University of Neveda-Reno.
Asford, W. (2010). iPhone 4 demand exceeds expectations. Retrieved from :
http://www.computerweekly.com/Articles/2010/06/17/241629/iPhone-4-demandexceeds-expectations.htm
Huges, N. (2010). Limited iPhone 4 stock viewed as competitive risk for Apple.
Retrieved from
http://www.appleinsider.com/articles/10/06/29/limited-iPhone-4-stock-viewed-ascompetitive-risk-for apple.htm/

China

Unicom

Parent:

iPhone

Demand

Stll

Exceeds

Supply

from

http://www.eeualsmcsqaure.com/China-unicorm-parent-iPhone-4-demand-stillexceeds-supply.

iPhone 4 Review-What is iPhone 4 and its Features, Free Download iPhone 4

Converter to Convert to iPhone 4 Video and Audio. Web 21 Dec.2010.

http://www.iPhone4-convertor.com/iPhone-4-review.htm.

21

iPad Production Close to Meeting Demand; iPhone 4 to follow. Intomobile- Cell

Phone News. Web 06Jan2011.

http://www.intomobile.com/2010/08/19/iPad-production-close-to-meeting-demandiPhone-4-levels-to-follow-soon/

iPhone 4 account surplus Hong Kong gold prices

Htt://www.ouriphones.com/index.php/archives/iphone4-account-surplus-hong konggold-prices-65.html.
Gulf news, 17th December, 2011.

22