Archive for January 1st, 2012

So this is 2012, the year when Apple might lose its formerly large margin with its best-selling mobile phone. When first introduced in June 2007, the iPhone was – by any account – way better than any other cell phone on the market. Despite all civil disputes, Apple was extremely innovative and launched a product that satisfied millions of consumers. In a market economy, that innovation was rewarded by unprecedented revenues and profits. Apple has been the most admired company in the world for four straight years (2008-2011) and was able to attract many of the brightest university graduates.

But in a market economy, other companies will try their best to get a piece of the pie. That is why Samsung for instance developed the Galaxy S cell phone which is currently sold in its second generation. Already, Samsung has technically caught up with Apple’s iPhone. Again, let aside all legal disputes, Samsung has shown how innovations that turn out to be very useful spread around across companies and products.

Now, we are in 2012 and this year might mark a turning point. While Apple disappointed investors and consumers with the iPhone 4S in fall 2011 and is not expected to launch the new iPhone 5 before summer, Samsung might unveil its new Galaxy S3 as early as February. Technically, both phones will be more or less neck and neck.

From a economic policy perspective the challenge remains to create incentives for companies to be innovative. That is largely done by having a free market economy and some sort of patent system. The latter, however, must balance protection of the innovation (thus the incentive to be innovative) and protection from competition. As for the case of cell phones, everything has worked quite well: within just five years, consumers have seen an enormous improvement in the mobile devices they use.

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