ECO511 : Economics For Business : Helping A New Model

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

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

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.

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

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

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.

Therefore firm’s marginal revenue(MR) is equal to its avarage revenue(AR) and the price for which it sells its product(P). In every market structure firm’s resource allocation is determined by the market price of the product and firm’s cost of production. In the short-run, firm’s avarage revenue will need to be at least big enough to cover its avarage variable costs, however the long-run will require covering all the firm’s costs(variable and fixed), including also the normal profit necessary to keep the firm in the industry. Therefore, in the short-run, depending on these two variables, a firm will either earn a super-normal profit(fig.6.6 a, P1bad) or a sub-normal profit.(fig.6.6 b,dabP2)

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

The merger between Daimler and Chrysler was expected to be a success in the economy especially with the current trend and demand in the automotive sector. Daimler is considered one of the most successful and profitable automotive companies across the globe. Founded in 1893 as the Daimler Motor Syndicate Ltd, its growth and expansion in the automotive sector has been facilitated by the need to meet the interests and needs of its key stakeholders (Barnard, 1998). The vehicles that are manufactured by the company are of high standard and the quality is top-notch. Most of its customers are concerned with the satisfaction level that they achieve when they purchase the motor vehicles. The implementation of the luxurious car segment meant that the trend in the economy has considerably changed and there was need for improving the brand image and the superiority of the products offered.

Due to this transition, Indian automotive industry was experiencing an interesting evolutionary phase. India being seen as a crucial market of the future by global OEMs.

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.

· 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.

The demand curve is not perfectly elastic for the industry: It only appears that way to the individual firm, since they must take the market price no matter what quantity they produce.