Essay 1

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Abstract Shares in Eastman Kodak plunged by a quarter on September 26, after the world’s largest photographic company warned of an unexpected shortfall in earnings. At first glance it would seem reasonable to assume that the rapidly expanding market for digital photography was the culprit, but closer examination reveals that digital photography has had only a small effect. Furthermore, both Kodak and Fuji, who together control 70% of the conventional photo-finishing, will be able to both survive and thrive in the coming digital onslaught. Introduction When a new technology is introduced, it generally comes at a premium price. The market for this new technology is usually “early adopters” , a segment where price is not the object but having the latest technology is most important. Even thought this technology may be superior, the initial costs make it unattractive to the majority of the market. Since the marginal cost of the technology is so high, the demand is very low. The volumes needed to lower the price to a point where the mass market will adapt the technology are often difficult to reach. This concept is illustrated in Fig. 1. Price vs. Demand Since the startup of the new technology is slow, this will often make the providers of the older technology slow to react, since the threat is growing slow. Often by the time the traditional providers realize that the threat is real, they cannot react in time to participate in the new market. It would appear to the casual observer that the above scenario is presently being played out in the photography market, as digital photography gains ground and the market value of Kodak declines. It would also appear that Kodak is finished as a long term player in the photography market, that the need for the consumables presently provided by the firm will disappear. Several market analysts have rated Kodak a short sell .

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