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While consumers are very price sensitive they dont

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while consumers are very price sensitive, they don't have much buying power as they never purchase huge volumes of cars. Availability of Substitutes. Be careful and thorough when analyzing this factor: we are not just talking about the threat of someone buying a different car. You need to also look at the likelihood of people taking the bus, train or airplane to their destination. The higher the cost of operating a vehicle, the more likely people will seek alternative transportation options. The price of gasoline has a large effect on consumers' decisions to buy vehicles. Trucks and sport utility vehicles have higher profit margins, but they also guzzle gas compared to smaller sedans and light trucks.
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When determining the availability of substitutes you should also consider time, money, personal preference and convenience in the auto travel industry. Then decide if one car maker poses a big threat as a substitute. Competitive Rivalry. Highly competitive industries generally earn low returns because the cost of competition is high. The auto industry is considered to be an oligopoly, which helps to minimize the effects of price-based competition. The automakers understand that price-based competition does not necessarily lead to increases in the size of the marketplace; historically they have tried to avoid price-based competition, but more recently the competition has intensified - rebates, preferred financing and long-term warranties have helped to lure in customers, but they also put pressure on the profit margins for vehicle sales. Exclusive: Learn the "House Odds" of Investing he U.S. automotive industry operates in a highly regulated environment, a fact largely overlooked in recent congressional hearings over federal loan guarantees to domestic firms. These regulations affect more than three million American blue- and white-collar workers employed in the industry, along with shareholders and other investors, including retirees (and their spouses) vested in pension funds. The industry’s burden of regulation is explained to investors in corporate annual reports filed with the U.S. Securities and Exchange Commission. General Motors, the largest publicly traded domestic automaker, is explicit in detailing the “risk factors” created by government regulation, as it explains in its 2008 10-K report: “We are affected significantly by a substantial amount of governmental regulations that increase costs related to the production of our vehicles. We anticipate that the number and extent of these regulations, and the costs to comply with them, will increase significantly in the future.” From the first e-Activity, imagine this company acting as a monopoly was to have a new competitor arrive in the marketplace. Assess how the monopoly would likely change its pricing strategy to compensate for the new competition.
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