Subject: ECO511 Subject name: Economics for Business Name: Saiman Shrestha Student Number: 11648698 Lecturer: Maruf Mostafa Word limit: - 2000 Due date: 1st January, 2018 Explain, providing appropriate examples, why car manufacturers are constantly introducing new models. In recent times as consumers have been afforded multitude of choices in particular markets thanks to various reasons such as increase in their disposable income, exposure to the internet and globalization, companies have invested billions in research and development to keep up with the changes in customer preferences. Similar to any other industry, the modern automotive firms have to constantly evolve in order to survive under constant cutthroat competition. It is …show more content…
Depending on the type of market they operate in and the level of competition, the cost associated with product differentiation can vary. As the modern car market is a highly saturated one with many competing manufacturers whose customers have access to comprehensive, albeit not perfect, information about the specifications, prices, quality, we can render the modern car market to be a monopolistically competitive one (Salop, 1979). When discussing about whether a firm can generate profit in the long run by differentiating its product in the market, it simply boils down to the type of market in which it operates. For instance, producers of everyday items such as grocery items can earn regular income in short run without having to increase their cost of production on advertising as a result of homogeneity of the products. However, due to the presence of close substitutions, producers might have to lower their prices to keep their products competitive in the market. Moreover, firms in competitive markets concede the ability to set prices solely to the market forces (demand and supply). So, as they try to undercut rivals for profit, their attempts backfires as the rivals match their prices promptly (Bourdon, 1992). Monopolistic competition Hart (1985), defines monopolistic competition as, A situation where (1) there are many firms producing differentiated commodities ; (2) each firm is negligible, in
Click here to unlock this and over one million essaysGet Access
· The standardization of industry product: Vehicles products are standardized even though we still can find some differentiation between auto companies. For the consumers who feel they can find the equivalent vehicles between companies, they will compare them. However, since there are brand loyalty among the consumers in choosing a vehicle related to its differentiation, the switching costs for consumers may be high. Thus, the bargaining power of buyers seems to be moderate.
After twenty-six years in the car business, I can honestly say, “I’ve seen and heard it all.” As with most things, the car business changes constantly. Always inventing new ways of sell a car. However, one thing hasn’t changed. It
The addition of the firms has then since given consumers ample choices and less of a reason to buy the more expensive identical product. This now means that these firms are price takers, meaning they have no influence on the market for pricing and consumers are much freer to choose another producer. The firm must also be very careful about pricing because it is possible that any change can sway a consumer from buying from a firm who has had just rose the price of a
With the recovery of economy, the world’s automobile industry has been growing steadily over the past few years. According to Bloomberg, the US automobile sales climbed from its depth 10.4 million in 2009 to over 15.6 million in 2013. Furthermore, industry analysts predict that the sales will
In monopolistic competition, there are a relatively large number of firms, not the thousands of firms as in pure competition. The monopolistically competitive firms produce differentiated products, not the standardized products of pure competition. Product differentiation means that monopolistic competitors engage in some price competition because they have some limited “price making” ability based on the less elastic demand for their particular product. This demand, however, is more elastic than the demand for monopolists’ products. Monopolistic competitors, unlike most
The last several years were also tumultuous for the U.S. auto industry. After dominating the market for decades, American automakers had grown complacent about product development. At the same time, rising gas prices and uncertainty about the economy caused consumer preferences to shift from SUVs to more fuel efficient vehicles. Foreign competitors entered the U.S. market offering more reliable, higher quality and more fuel efficient vehicles at a lower price and began to steal market share away from American automakers. In order to remain competitive, U.S. automakers need to focus on increasing production efficiencies and developing innovative product offerings. Firm Analysis
differentiation through superior quality of its commoditized low price products whereas a true differentiation strategy is characterized by the creation of a unique product for which a premium price can be charged. Q. 2. In order to implement a
n perfectly competitive industries, there are such a large number of firms, each producing such a small proportion of the industry’s output, each firm cannot, by its own independent action, affect the supply or the price. The degree to which firms can influence the price of their product through their own strategy depends upon market structure. Perfectly competitive market structure is a market situation where there arelarge number firms producing a homogeneous productand there are large numbers of byers demanding the same products. In such a market every firm considers that it can sell any amount of output at the prevailing market price.Similarly, there is no restriction for the byers to purchase any amount from the
The different variations and attributes of Chevy’s product line appear to give their customers a wide range of choices to meet their functional needs. Chevy has made numerous strides in creating and maintaining customer satisfaction and appreciation over the years. However, choices does not always prove to be successful. Too many choices have been known to confuse customers and, in some cases, customers did not even purchase a product (Schwartz, 2006). Furthermore, with a strong and loyal customer base Chevy may still remain a larger portion of the competition, but could be missing out on simplifying the playing field. In addition, Chevy should focus on international markets to better serve them in a leaner vehicle manufacturing age.
However, one thing is clear, consumers have a wide variety of choices thus increasing their bargaining power. Most buyers can easily sell their cars and switch from one auto maker to another if they are not happy with their cars. It is therefore imperative that American auto manufacturers continue with their research and development in order to keep the consumers happy otherwise, they will risk losing them to other auto makers like Toyota which has already made huge inroads into the American car market.
The standardization of industry product: Vehicles products are standardized even though we still can find some differentiation between auto companies. For the consumers who feel they can find the equivalent vehicles between companies, they will compare them. However, since there are brand loyalty among the consumers in choosing a vehicle related to its differentiation, the switching
In a company this is an external factor where it’s all about the competition. The competition is what brings a company to make a change and innovation to outdo another company. Unfortunately in the motor industry the competition is a challenge. Automotive companies belligerently compete against each other which do make perfect sense for any type of company to do. As known there are many types of successful luxury car companies for example Mercedes Benz and Audi.
Competition is good for producers but better for consumers, more competition in the market means more: ideas, channels of distribution, market stability and competitive (lower) prices for consumers. Ultimately, healthy competition forces producers to offer better products and services at lower prices. Automobiles provide people with “…aspirational value in addition to a basic mode of transportation…” (Reinhardt, Yao & Egawa, 2006) consumers make purchasing “decision based on the styling, color, and concept of the cars in addition to functions and pricing” (Reinhardt, Yao & Egawa, 2006). So far, TMC has been trying to catch up with Honda and Nissan in the ‘innovative’ department. Let’s not forget the criticism the company previously faced for offering its customers “…proliferation of look-alike cars…and following rather than setting a trend” (Reinhardt, Yao & Egawa, 2006).Since, Mr.
New technology and innovation are important roles in any industry attempting to succeed in the current market. Automakers have recently put effort toward low emission vehicles, lightweight materials, safety and assisted driving. The American consumers expect the latest technologies and safety features, and the automakers are tasked with efficiently and effectively providing this.