Multilevel Product Differentiation in The Smartphone Market

Abstract

Apple enjoys only 15% of industry unit sales but garners over 80% of the industry’s operating profit. However, almost of all Android smartphone vendors suffer from low profitability. This situation seems to break the rule of both the winner-take-all competition in the network goods market and economies of scale. In this paper, I unveil why asymmetrical profitability exists in the smartphone industry, by analyzing a consumer survey to discover both the horizontal competition between operating systems and the vertical competition between Android handsets.