Automobile industry - Automobile industry The main...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Automobile industry The main determinants of market structure are: freedom of entry and exit, nature of the product (homogenous/identical or differentiated), control over supply and output, control over price and barriers to entry. Type of market structure influences how a firm behaves: Pricing Supply Barriers to Entry Efficiency Competition The main features of oligopoly market are that industry is dominated by small number of large firms. There are high barriers to entry. Products could be highly differentiated. There is a potential for collusion for the firms operating under oligopoly market structure. Make abnormal profits. There is also high degree of interdependence between firms. Oligopolies refer to a market structure where an industry is dominated by a small number of large firms. Oligopoly is a fairly common market organization. In the United States, both the steel  and auto industries (with three or so large firms) provide good examples of oligopolistic  market structures.  MAJOR CHARACTERISTICS OF OLIGOPOLY.  An important characteristic of an oligopolistic market structure is the interdependence of  firms in the industry. The interdependence, actual or perceived, arises from the small  number of firms in the industry. However, unlike monopolistic competition, if an  oligopolistic firm changes its price or output, it has perceptible effects on the sales and 
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
profits of its competitors in the industry. Thus, an oligopolist firm always considers the  reactions of its rivals in formulating its pricing or output decisions.  There are huge, though not insurmountable, barriers to entering an oligopolistic market.  These barriers can involve large financial requirements, availability of raw materials,  access to the relevant technology, or simply patent rights of the firms currently in the  industry. Several industries in the United States provide good examples of oligopolistic  market structures with obvious barriers to entry. The U.S. auto industry provides an  example of a market where financial barriers to entry exist. In order to efficiently operate  an automobile plant, one needs upward of half a billion dollars of initial investment.   An oligopolistic industry is also typically characterized by economies of scale. Economies  of scale in production imply that as the level of production rises the cost per unit of  product falls for the use of any plant (generally, up to a point). Thus, economies of scale  lead to an obvious advantage for a large producer. Once again, the automobile industry  provides an example of a market structure where firms experience economies of scale. It  should be noted that there may exist economies of scale in promotion just as there exist 
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 7

Automobile industry - Automobile industry The main...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online