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APPLYING A GAME THEORY: A CASE OF APPLE AND

SAMSUNG COMPETITION



GAME THEORY PROJECT















HUDI Akhmad Tamzis (1675489) SHANGYUE Yuan (1213800) HARYANI Rubiah (1673632)




UNIVERSITY OF ADELAIDE
2014


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I. INTRODUCTION

1. Apple and Samsung Competition
The smartphone market has been experiencing an enormous level of growth in recent
years. It is acknowledged widely that smartphone has been a primary assistant for most
people. More people are becoming a gadget addict as the technology of the smartphone is
friendlier and progresses that favour convinience in doing daily activitis. Despite the facts
that that there are hundreds of models of smartphones available for consumers to choose
from, it is noticeable that the smartphone market is a two-horse race between Apple and
Samsung Electronics. Both companies makes up 49% of the planet's smartphones sales in
recent years, but account for nearly all the profits, and the Web overflows with noisy
opinions about whose is superior.

In term of power in revenue and stock market performance, both Apple and Samsung are
winners in their own right. Apple has the planet's biggest stock-market value, while
Samsung is the reigning world champion in terms of technology revenue. It holds other
titles as well, such as world's largest TV maker, biggest LCD-panel manufacturer, and second
world biggest chip maker, behind Intel. But while Samsung may be the underdog from the
commoners view, Apple is the more underappreciated stock. That gives Apple the edge in
about between these two heavyweights -- a winner not by knockout, but by decision.
World's No. 1 brand just may be its most misunderstood company. Officials at both
concerns declined interview requests. A petty decision to drop Google' s maps from its new
iPhone made Apple seem unusually fearful of its competition. Well-publicized labour abuses
at Apple's Asian suppliers gave the impression that it was losing control of its supply chain,
and things got worse when Apple couldn't make enough new iPhones to meet the
clamorous demand. Smelling blood and eager to depose the king, the mainstream media
rushed to trumpet Apple's decline.

Having nudged down investors' expectations, Apple has quietly refreshed all its major
products, introducing a new iPhone 5, iPhone 5c, an iPad retina display, the iPad Mini retina
display, and an upgraded MacBook Pro. This new lineup, robust demand, and low
expectations should produce a very good quantity. On the other hand, Samsung Electronics
is no slouch. The flagship unit of the Samsung Group once was known as a staid maker of
chips, display panels, and household appliances. That changed in 2010, when it unveiled the
Galaxy line of smartphones in Asia. Within 45 days of the phones' U.S. launch, more than a
million had been sold. Today, Samsung ships more units than anyone else its market share
jumped, largely at the expense of has-beens like Nokia and Research In Motion.

Samsung, too, has many fans. The smartphone trend is maturing in the developed world,
and that higher growth will come next from developing countries. That should benefit
Samsung more than Apple over the next year, since the lower price points of Samsung
phones will help it grab share in emerging markets. Among manufacturers, Samsung is
Apple's worthiest foe. Smartphones drive two-thirds of its profits, but it also makes its own
chips and display panels, which gives it tremendous control over its product. Samsung also
has a formidable silent partner. It is the world's biggest maker of smartphones that run on
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Android software, which Google created and gave away free to drum up a market for its
mobile ads. Today, Android owns 66% of the market for smartphone operating systems,
dwarfing the 19% for Apple's iOS software. And because Samsung does not pay for its
operating software, it can afford to produce cheaper devices that help it dominate the mid-
to low-end smartphone market. In contrast, Apple controls both its hardware and software,
and can give its customers a more cohesive experience. Apple's fate also isn't hitched to
another ambitious competitor the way Samsung's is. For now, Google's search business is so
lucrative that it isn't rushing into manufacturing, but its recent purchase of Motorola's
handset unit has to worry Samsung.

In term of fighting rather than competing, major sources have picked up on Samsung's
latest ad, proving how much fodder the Samsung-Apple rivalry has given the media over the
years. Have a look at some of the most memorable points in their rivalry. The Patent Wars,
the fighting all began in 2010, when Apple accused Samsung of copying the iPhone when
they released the Galaxy S. Samsung retaliated that in the years they have been making
mobile phones, Apple may have violated some of their existing patents in the process. That
was how the patent war began. The war went on until 2012, when Apple won their case
against Samsung, with the jury deciding Samsung copied the design of the iPhone. Apple
was granted over a billion in damages, reduced in 2013 to $890 million after a recalculation.
Apple has since eased up on Samsung, holding back on their court appeals for some of the
patent cases filed.

In another view, it is no secret that while Apple may be Samsung's rival, they are also one of
Samsung's business partners. For years, Samsung has been Apple's supplier of
microprocessors and chipsets. However, since the fighting in law begin, Samsung has been
losing market, with Apple beginning to source their chipsets from Taiwan Semiconductor
Manufacturing. While this is not a dispute, it is another large blow for Samsung given the
rivalry of the two companies. Apple doesn't mean it as an attack against Samsung - they
have been known to explore different options for production over the years, with Jobs'
vision of creating all components in-house being their main goal. In 2012, Apple made
similar headlines when news of the company thinking of switching from one of their other
suppliers, Intel, to in-house ARM technology. To this day Intel remains one of their
component suppliers. Samsung finds itself in a similar position today, and it is predicted
that they will continue losing market as Apple moves suppliers.

The latest attack ad quickly made headlines, as Samsung took another jab at Apple for
copying them. The ad did this by taking early feedback about the Galaxy Note; this was
followed by Samsung saying their style was now being copied by competitors. By poking fun
at themselves and quoting Twitter feeds, Samsung called out Apple for claiming their idea
for iPhone 6 was fresh, and accused them of imitation. It is noted that this latest attack ad
isn't the first to come out from Samsung. They have been releasing attack ads against Apple
since the announcement of the iPhone 6 at the IFA 2014. These latest round of ads add fuel
to the fire that is the Apple-Samsung rivalry. With Samsung making their move through the
ads, it is now Apple's turn to make the next move.

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2. Focus of Analysis

It is interesting to study the move on every strategy which is made by both Apple and
Samsung in the battle of smartphone. Regarding consideration to some of their move to
defeat each other, they select their decision with intriguing strategy leading to complicated
prediction which is not easy as calculating a movement of stock market performance. A
game analysis can be implemented in order to know the basic behaviour of both big
manufacturers of smartphones in the world in chasing their victory over others.

In order to simplify the complicated game employed by Apple and Samsung, in this project,
the analysis is then focused on a battle of the next newest smartphone series of both
players that are predicted to have numerous similarity on all aspects comprised of form or
figure factor, body shape, body material, performance, and also its price. In this case, the
analysis will uncovered the application of game theory in deciding the strategy on the way
to have a victory in selling Apple iPad 6, the newest series of Apple smartphone flagship and
Samsung Galaxy Alpha, an aluminium high tech covered smartphone.

3. Apple iPhone 6
When Apple first announced that it would be developing a new iPhone, it is initially
predicted that the iPhone 6 was going to be a large nation-state, with its own sovereign
government and national currency. It said today the iPhone 6 will actually be a smartphone.
The iPhone 6 clearly and claims that in spite of the 4.7-inch size rumour being correct the
sapphire glass screen, sadly, isn't going to make an appearance. Instead it will be a layered
glass with rounded edges. Sticks with the idea of the iPhone 6 being a larger device,
although it is still a little skeptical about the camera. The regular LED flash looks like a step
down from the dual-tone flash of the iPhone 5S, so we're left none-the-wiser. Apple aims to
introduce its first 125GB iPhone with the 5.5-inch iPhone 6 only. The smaller 4.7-inch
iPhone 6, that's anticipated, will come with 32GB and 64GB options. Reports have also
suggested Samsung is hard at work on Apple's next-generation processor, which
unsurprisingly has been dubbed the A8. If the handset does launch with a new processor,
this should also mean an improved battery life.

There has been a bit more talk surrounding the camera, with a 13-megapixel camera sensor
by Sony thrown into the mix, as well as more recently, Chinese website IT168 claiming the
"next-generation iPhone" will be coming with a 10-megapixel snapper featuring an aperture
of f/1.8 and an improved filter. In terms of other features, there has been talk of the iPhone
6 combining a fingerprint scanner with NFC, bringing eye-tracking, wireless charging and
even sonar for face detection and 3D modelling. This sounds a little too fantastical, although
the first few technologies mentioned on the list are commonplace in other devices. The NFC
addition has been mentioned another time since, especially after Apple's acquisition of
Beats was announced. Certainly we'd expect some nod to audio with Beats, even if its just
improved headphones in the box.



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4. Samsung Galaxy Alpha
The Samsung Galaxy Alpha is predicted to be a quite pricey for a device that is not a
flagship, but its metal design and high-end specifications contribute to its price tag. The
Galaxy Alpha includes a 2.5GHz quad-core chip, 32GB of internal storage, a 12-megapixel
main camera and 2.1 megapixel front camera. Unlike the Galaxy flagships, the Galaxy Alpha
includes a lower-resolution 4.7-inch 1280720 Super AMOLED display, likely to distinguish it
from Samsungs most premium Galaxy S and Galaxy Note lines. But the device does include
heart rate and fingerprint sensors like other high-end Galaxy models.


II. ANALYSIS
1. Players
As has been described above, the players which are included in this analysis are Apple and
Samsung. In this case, Apple will take some strategies in their decision in unveiling and
marketing their new unreleased Apple iPhone 6, their newest generation of Apples
smartphone. On the other hand, Samsung will employ their strategies in decision about
publishing and marketing their new smartphone that has some similarity with Apples
smartphone characteristics, Samsung Galaxy Alpha, an aluminium body Samsung
smartphone.

2. Strategy
The actions which will be taken by the players are divided into some strategies of the player
in deciding their decisions about performance of their smartphone, price setting, and
releasing time of their products.
The decision about the performance of the smartphones is based on some consideration
from two aspects. The first one is about the hardware specifications that are the most
factors that influence the level of the performance of the smartphones. The specifications
include some basic hardware in smartphones engineering and body work such as follows
Network receiver; 2G/EDGE, 3G/HSDPA, 4G/LTE.
SIM type; Conventional, Mini, Nano.
Display size, resolution, and screen technology.
Memory; includes internal memory and availability of expandable external memory.
Camera; resolution, technology, and quality.
CPU (Central Processing Unit); processor type and clock speed.
GPU (graphic Processing Unit); processor type and clock speed.
RAM (Random Access Memory); capacity.
Battery; capacity and capability to be replaced.
Operating system.
Body dimensions, weight, and material.

In order to simplify the term, in this game, performance will be only divided into two
characteristics which are high performance and low performance. To have a fair
comparison, the level is decided by comparing them to the most well-known existing model
of smartphone; Samsung Galaxy S4.
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The decision about price setting is also simplified by dividing it into two categories; high
price and low price. The level of price is compared to the performances/specifications that
are chosen by the players. For instance, although the price of both smartphone is similar,
the price can be differenced in the category if a smartphone has a low performance and the
other has a high performance. Also as a best practice which can be used to base of
comparison, Samsung Galaxy S4 price is also employed as a principal point. On the other
hand, the releasing time will be divided also in two terms, earlier time of release for first
mover player and no earlier time. Hence, in the simple order, the strategy sets of the game
are as follows:

Player 1 (Apple)
Medium performance, High performance
Medium price, High price
Earlier release, No
Player 2 (Apple)
Medium performance, High performance
Medium price, High price

3. Payoffs
The payoffs used in the analysis are the portion of growth of market shares of the total
market share of the two players (Apple and Samsung). In measuring the payoffs, each
player strategy is given a point, and final payoff is calculated by summing the point of each
decision and employing some calculations. The detail measurement is briefly described as
follows:

Scoring
Strategy Points Note
Medium Performance (MP) -10 Higher point means that the
strategy is attracting more
consideration for buyer in
their purchasing decisions
High Performance (HP) 10
Medium Price (MPR) 15
High Price (HPR) -15
Earlier Release (R) 5
No (N) -5

Payoffs calculation
Portion of Apples growth of market shares = Apples point Samsungs point
Portion of Apples growth of market shares = Zero - Apples growth of market
shares

4. Game Solution

III. CONCLUSION