N Demand Side Benefits Of Scale

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· Demand-side benefits of scale (network effect): For a crucial products like vehicles, the buyer will trust more to larger automotive company which have already been in the industry. The long-lasting and well known automotive companies such as General Motors, Chrysler, and Toyota create network effect among the potential buyers, which is they will more likely to purchase the trusted brands instead of new entrants. The purchase intention graph above shows that most consumers in the US still want to purchase major brands such as Toyota, Honda, GM, and Ford consecutively on the last year. While the other existing automotive brands have purchase intention below average, it will be difficult for new entrants to fight competitors to capture the market. · Unequal access to distribution channels: The new entrants in auto industry must deal with the distribution channels for selling their products. With the high entry barriers from incumbents, entrants usually have to put high investment to build their own distribution channels. Automotive Industry Online notices that the existing loyalty to major brands has eroded. At the same time, foreign low-cost and high quality automotive producers such as Kia and Tata have the potential of taking market share from domestic producers especially from the growing low-end market. The domestic automakers should anticipate this situation by utilizing customer switching cost and emphasizing brand loyalty program. However, with

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