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market structure: business economics
the environmental impact of the automotive industry
market structure: business economics
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Choice of product and the market structure
My choice of product is automobile/Car and the company is Ford. Traditionally, the American automotive industry has been an oligopoly market. By the end of 1920s, it was dominated by three big companies- Ford, General Motors, and Chrysler. This dominance by three big companies remained even after post-world war II period. These companies hold the largest share of automobile market. The three major players in the American automobile market, i.e.Ford, General motors and Chrysler with foreign companies like Toyota, Nissan entering in to the market. The market continues to be almost same as it was in 1960s and 1970s. Since only few large firms have dominated the automobile market, therefore it can be called as the oligopoly market structure. All the firms in the industry are related to each other and are dependent in terms of output or price setting. Each firm has the market power so that they can affect the market conditions such as demand and supply in the market. If a firm changes its products price or production level, they will consider the reactions of other firms producing the similar product. This is so because each firm in this market has the enough market power to affect market condition and therefore whenever a firm decides about any of its policy or action; it always considers the corresponding actions which will be taken by its rivals. If a firm reduces the prices of its products, then the other firms will also react by reducing the prices of their products so that they maintain their shares in the market.
Product differentiation occurs in automobile industry in one form or another. It might be in the form of weight, size, look, color, features etc. Such kind of product differe...
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...y in research and development. The automobile industry requires continuous invention/exploration as the need for new features/technology are ever increasing. Also as the concerns regarding global warming are rising, companies are spending lots of money on R&D to make the car more fuel efficient and environment friendly. This creates additional difficulty for new firms to enter the automobile manufacturing industry as they might not have required technology to start with.
References:
Mankiw, G N (2006) , Principles of Microeconomics, 4th edition, Cengage Learning.
Snyder, C and Nicholson W (2008), Microeconomic Theory: Basic Principles and extensions, 10th edition, Cengage Learning.
How the US automobile has changed, published on April 2012, available at: http://www.investopedia.com/articles/pf/12/auto-industry.asp#axzz20Z7qv7zh [accessed on: 30/10/2013]
Flink’s Three stages of American automobile consciousness fully express the progress of the whole automobile industry. From the first model T to the automatic production, it gives me an intuitive feeling of the automobile history from a big picture. On the other hand, Kline and Pinch focus more on a certain group of people--farmers or people who live in the rural area, they use it as an entry point to talk about automobile, alone with the role and duty transition between male and
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
The world of technology is ever changing and advancing. With the automotive industry in play technology is constantly surpassing what is available today with what can be done for tomorrow. Technology and the automotive industry go hand in hand with constant improvement to components of cars. Due to technology advancement there is competition within the car industry, especially between American car companies and European car companies. European car companies provide their buyers with innovative variety and revolutionary luxuries. European car technology is superior to American car technology due to their safety, entertainment, and luxury features.
Model T’s were everywhere in America, even long after Ford stopped production in 1927. (Henry) While Ford was the number one brand, selling the most cars throughout the early 1900’s, the Model T created a new industry that is distinctly American; the auto industry. Three manufacturers, Ford, General Motors, and Chrysler dominated the American auto industry, and all three companies still produce cars today. The Model T gave birth to the competitive auto market. To this day, car companies in America are constantly racing to innovate, improve, and outsell their competitors. Manufacturing of cars “became the backbone of a new consumer goods-oriented society. By the mid-1920s it ranked first in value of product, and in 1982 it provided one out of every six jobs in the United States.” (history –idk yet) The demand for cars also resulted in a booming petroleum industry, and a high demand for metals, like steel. ( History idk yet) Furthermore, with so many people driving cars, construction of roads was necessary. The popularity of automobiles set off a chain reaction that created new opportunities all across the country. All sections of the modern automotive industry, from marketing to manufacturing, as well industries like petroleum refining, steel production, and road construction, can trace their beginnings to the Ford Model
Because there are few firms in an oligopoly industry, each firms output is a large share of the market. As a result, each firm's pricing and output decisions have a substantial effect on the profitability of other firms. In addition, when making decisions relating to price or output, each firm has to take into consideration the likely reaction of rival firms. Because of this interdependence, oligopoly firms engage in strategic behaviour. Strategic behaviour means when the best outcome of a firm is determined by the actions of other firms.
In the July 1997 issue of Commentary, James Q. Wilson challenges the consensus among academia’s finest regarding the automobile in his bold article, Cars and Their Enemies. Directed towards the general public, his article discredits many of the supposed negatives of the automobile raised by experts, proves that the personal car is thriving and will continue to thrive because it meets individual preference over other means of transportation, as well as presents solutions to the social costs of cars. Wilson emphasizes that no matter what is said and done in eliminating the social costs of the automobile, experts are not going to stop campaigning against it.
An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of monopolies).
There are four major market structures; perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition is the market structure in which there are many sellers and buyers, firms produce a homogeneous product, and there is free entry into and exit out of the industry (Amacher & Pate, 2013). A perfect competition is characterized by the fact that homogeneous products are being created. With this being the case consumers have no tendency to buy one product over the other, because they are all the same. Perfect competitions are also set up so that there is companies are free to enter and leave a market as they choose. They are allowed to do with without any type of restriction, from either the government or the other companies. This structure is purely theoretical, and represents and extreme end of the market structure. The opposite end of the market structure from perfect competition is monopoly.
Ford’s production plants rely on very high-tech computers and automated assembly. It takes a significant financial investment and time to reconfigure a production plant after a vehicle model is setup for assembly. Ford has made this mistake in the past and surprisingly hasn’t learned the valuable lesson as evidence from the hybrid revolution their missing out on today. Between 1927 and 1928, Ford set in motion their “1928 Plan” of establishing worldwide operations. Unfortunately, the strategic plan didn’t account for economic factors in Europe driving the demand for smaller vehicles. Henry Ford established plants in Europe for the larger North American model A. Their market share in 1929 was 5.7% in England and 7.2% in France (Dassbach, 1988). Economic changes can wreak havoc on a corporation’s bottom line and profitability as well as their brand.
In the modern world of conducting business, any company that wishes to succeed must differentiate its products or services from others in the industry. Differentiation makes it possible for consumers to point out notable differences between one company’s products as compared to those of competitors. Differentiation helps companies build brand loyalty as the uniqueness keeps customers fixed on a particular product. BMW is one of the most popular automakers in the world today. It definitely uses differentiation as a strategy to beat off competition by building products that are innovative, detailed and incomparable to those of competitors.
The four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly entails various characteristics that exemplify the level of competition within the market. These distinct features include having a number of sellers, producing a homogeneous or differentiated goods or services, pricing power, a level of competition, barriers to entering or exit the markets, efficiency, and profits. Due to the high profit and revenue some firms face within the various market structure, barriers to entry are put in place to restrict new competitors from entering. Natural, artificial, and governmental barriers play a vital role in firms ability to stay in a market, be productive, efficient, and competitive. Firms reaction to price changes, the government’s ability to create a price, and the influence of international trade on the market structures, are essential factors that economist evaluate the various market structures. Overall, the competition between market structures may not always result in the same outcome, due to the behavior and interaction between consumer’s and buyers, but in the end, both the buyer’s and seller’s are needs are
A monopoly is “a single firm in control of both industry output and price” (Review of Market Structure, n.d.). It has a high entry and exit barrier and a perceived heterogeneous product. The firm is the sole provider of the product, substitutes for the product are limited, and high barriers are used to dissuade competitors and leads to a single firm being able to ...
An oligopolistic market has a small number of sellers dominating market share and therefore barriers to entry are high. These sellers are highly competitive and do not act independently of each other. Access to information is limited so sellers can only speculate of their competitor’s actions. Sellers will take advantage of competitor’s price changes in order to increase market share.
The American Automotive Industry, popularly known as the U.S. Automotive Industry is one of the most rapidly evolving industries in North America. It is generally oligopolistic with a few players who in the past have been known to avoid price competition among themselves. The industry consists of industries manufacturing vehicles, car parts, replaceable parts and those engaged in assembling parts into complete models. However, the most dominant players in this industry are the vehicle manufacturers. The players design various models, produce the various parts that each model needs and assemble them into a finished product before availing them to the market. General Motors, Chlysler and Ford motors, dominate the U.S. Automotive mobile. They are popularly referred to as “The Big Three”.
The second market structure is a monopolistic competition. The conditions of this market are similar as for perfect competition except the product is not homogenous it is differentiated; thus having control over its price. (Nellis and Parker, 1997). There are many firms and freedom of entry into the industry, firms are price makers and are faced with a downward sloping demand curve as well as profit maximizers. Examples include; restaurant businesses, hotels and pubs, specialist retailing (builders) and consumer services (Sloman, 2013).