Choice of Product and the Market Structure

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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]

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