Apple introduces the iPod on October 23, 2001. Although the iPod was not the first hard-drive music player, it was the most elegant one at the time. Equipped with a tiny hard-drive, it was about a quarter the size of it competitors. Eventually, other firms produced products that at least some consumers were willing to buy instead of the iPod. Most consumers viewed its rivals' products as generic, me-too players. Apple's share of the hard-drive player market fell to 74% in 2009 from 95.6% in 2004. Due to its large scale, Apple has been able to produce the iPod at lower cost than its competitors. According to Piper Jaffray in 2005, the cost of Apple's 30GB iPod was $10 per gigabyte compared to Creative's ZEN Vision M at $11 per gigabyte, while Samsung and iRiver's costs were between $15-$25 per gigabyte. In 2009, iSuppli estimated that Apple's cost of producing an iPod Shuffle -which sold for $79 - was only $21.77. No other company could come close to matching Apple's cost. Economist refers to such a market as one in which adominant firmfaces acompetitive fringe. The competitive fringeacts like (competitive) price takers so that their collective supply curve is horizontal at p2=MC+x.

1. How did Apple set the price for the iPod when it was essentially the only game in town?
2. How did the presence of me-too rival products produced by firms with higher marginal costs affect Apple's pricing in more recent years?