Substitute goods
‘A substitute is a good which can be replaced by another good’1.Therefore these are the ‘Goods for which an increase (or fall) in DEMAND for one leads to a fall (or increase) in demand for the other goods’. eg Butter and Margarine.
Therefore for ‘Windows 7’, the pre existing systems like ‘Windows XP’, ‘Windows Vista’, Windows 2000 in use of the same giant Microsoft or operating system of Apple Mac of the rival are substitute goods.
Therefore increase in demand for Windows 7 will lead to decrease in demand for XP, Vista 2000 or of Apple , called inward shift in demand. The failure of vista has tarnished the brand image of Microsoft resulting in increase in demand for Apple. The superiority of Windows 7 is hoped to regain the image of Microsoft and bring outward shift in demand for Windows 7.
Comment ‘Reach is switching from Windows 2000 and XP over to Windows 7’ shows there will be shift in demand for XP and Windows 2000 to left due to demand for Windows 7.
This can be explained with the diagram. The demand for XP,
vista and 2000 will shift to left that is from D1 to D2 because
of new demand for Windows 7, causing its price to be
reduced from P1 to P2.
The Forecast graph of Micosoft licence shipment from
2009 to 2013 theron shows that by 2013 the total
demand for the operatng system will be raised to
280 million out which 270 million will be demand
for Windows 7.
This graph therefore predicts that by 2013 Windows 7 will substitute most of the other operating systems of Microsoft.
The "substitutability" is always a matter of degree.
‘One good is a perfect substitute for another only
if it can be used in exactly the same way’.2
‘And after almost three years in the market,
analysts estimate only 10 to 15 percent of enterprises
adopted Vista, with rest sticking with XP’ shows Vista
failed to be proper substitute for XP.
Another effect of failure of Vista was tarnishing
the brand image, therefore increasing demand
of Apple being close/perfect substitute from 5% to 11% in US.
So Apple experienced outward shift in
demand from D1 to D3 causing a movement along the supply curve and a rise quantity of Apple and price from P1 to P3 however launching of new and better system hopes to regain the image and bring outward shift in demand for Windows 7and increase in market and price.
Complementary goods:
Complement goods are goods in joint demands therefore demanding one good, a consumer will also demand another good. ‘Economic theory suggests that a rise in the quantity demanded of one complement will lead to an increase in the demand for another good, resulting in an increase in the price and quantity bought of other complement’3
Computer hardware and software are therefore complementary goods.
‘Fortress and Broadway have computers based on XP and Vista, whereas Lenovo group, Hewlett-Packard and Sony have Windows 7 machine’ explains how system and PCS are marketed as complimentary goods. Therefore increase in demand for Windows 7 will also lead to increase in demand for personal PCs, leading to outward shift in demand for PCs from D1 to D3 in the above diagram and increase in price from P1 to P3. ‘boosting technology industry’.
‘The launch of the new operating system coincides with signs of revival of the technology market as companies prepare to replace ageing equipment after delaying new purchases during the worst of the economic slump’ 1.
Last year the world economy sank into chaos, however this year IBM, Intel, Google all have reported robust profits and Apple posted 9.9 billion revenues. Introduction of Windows 7 with economic recovery, Companies are expected to replace their old PCS increasing the demand for system and PC and related gear as the system is strongly linked to the demand for PCs called a derived demand. T
Evaluation: Although this article draws a rosy picture much is to be seen as many things may go wrong with the operating system like viruses, malware which may make performance claims of Microsoft to moot the minds of the customers. Another issue is Windows 7 requires less power and therefore many customers may choose to upgrade their PCs rather than replacing their PCs as it costs only $149. There is also threat from the competitor Apple. Fhil Schiller, Apple’s Senior Vice President says “ Windows 7 is still Windows and there is no guarantee it will be a good experience”