Market Model Pattern of Change: Automobile Industry
Date of Submission
Automobile industry is one of the oligopolistic industries that have experienced a change in its oligopoly market model. The pattern of change is evidently shown in its production, supply chain, pricing, and international trade changes. The paper examines this industry and explains the pattern of change and other aspects within the industry.
Automobile industry is one of the most global oligopolistic industries. Products in this industry have spread throughout the globe, and a few numbers of companies ...view middle of the document...
Production: Unlike in the past, major players in this industry have production facilities in different markets from which cars are produced for that specific market. This is facilitated by tough competition and varying customer demands where process of product development has advanced more significantly than product design changes. Production cycle is growing shorter as many companies within the industry employ concurrent engineering approach brought about by technological advancement. Moreover, production is moving towards modularization that will eventually reshape the industry’s supply chain, shifting the companies from assembling to supplier companies. Since the degree of economies of scale is linked closely to technological flexibility in this industry, companies have opted to produce more vehicles. Consequently, the cost of production is reduced by standardization on one hand, and on the other hand, new challenges are fueling it (Nag, Banerjee & Chatterjee, 2007).
Supply chain: Over the past few years, supply chain of this industry has undergone intense changes. Major players are increasingly concentrating on basic architecture, assembly activities and servicing of after-sale, while preferring to deal with few large suppliers. As a result, the supply chain is shifting into sub-system assemblers, component producers, and commodity sellers. This isolation progressively defines risk sharing that was previously defined by cost pressure. Tier one suppliers are taking risks of major players and shifting cost pressure to tier two suppliers who produce sub-components.
Pricing: In this industry, pricing currently depends on fixed cost, technology, competition, economies of scale, and consumer demand among other aspects. Major players are now considering reducing prices, in every production stage to selling for them to survive in this competitive industry. Since fixed costs are very high, most companies are producing different models under one platform for them to have a wide range of outputs and extensive degree of scale economies to cut on average production cost.
International trade: In the past, international trade of this industry was influenced by liberalization only. Currently, major players through imposition of high impotration barriers have introduced protectionism, thus making liberalization and protectionism to influence the trade.
Hypothesis of the basic short-run and long- run behaviors of the automobile oligopoly model
In most countries, automobile industry has oligopolistic market structure and major players have been competing for larger market share with considerable amount of diversified products. Since the market model is currently changing, a few short-run and long-run behaviors will be seen. Due to competition, most major players and new entrants will obtain nil normal profit in the long-run. However, in the short-run, they will earn super-normal profits. Therefore, competition will be intense in the...