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Automotive Industry

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by

Murad Omarov

on 7 November 2014

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Transcript of Automotive Industry

Automotive Industry
Growth rates
Elasticity
Automotive Industry
P
Q
D
s2
s1
P1
P2
1,464,906
1,509,762
A
B
A

-point of equilibrium in 2012
B
-
point of equilibrium in 2013
44856
The number of cars from 2012 to 2013 increased to 3.1% = 44856 units
PED = ΔQd/Qd * Pd/ΔPd
Short run
P
Q
0
q1
q2
p1
p2
D
inelastic
F
K
A
B
C
V
K
The area (
AFKT
) is bigger than area (
ABCV
) It means that by increasing in price the revenue is increasing.
D
Q
P
A
B
C
V
F
K
Long run
PED = 1,2-1,5
T
By lowing the price revenue is increasing
ABCV
>
AFKT
T
p1
p2
q1
q2
elastic
Determinants
The number of substitutes products
How much income is spend on the product
Time period
The possibility of postponing consumption.
Income level.
Durability of Commodities
Price elasticity of demand
Income elasticity of demand
Cross elasticity of demand
Price elasticity of supply
Income elasticity of demand
YED = 1.98 - luxury product
0
+1
-
Inferior
Normal
Luxury
Goods:
Income
Quantity demanded
% change in (Δ) quantity demanded

% change in (Δ) income (Y)
< 45°
luxury product
Cross elasticity of demand
Substitutes
price for
public transport
Q demand
P2
P1
Q1
Q2
Demand for automobiles
3.1%
Cross elasticity of demand
Complements
P1
P2
Q2
Q1
Q demand
demand for cars
The price for tires
Price elasticity of supply
PES≈ +3 > 1 - elastic
S
D2
D1
P
Q
q1
q2
p1
p2
elastic
(p1p2)< (q1q2)
It means that firm can respond quickly to change in demand.
Determinants of price elasticity of supply
Spare capacity
Stocks
Time period
Number of rivals and their size
Market share
Market structure
Substitutes
Complements
Production capacity
The auto industry is considered to be an oligopoly
.
(A situation in which a particular market is controlled by a small group of firms. )

Today there are 15 companies in production of which 5 are automotive producers and they have a control over hole market.

Market size
Altogether the automotive industry in
the UK generates around £50bn of
turnover and adds
£10bn

to the UK
economy.
Porters Five Forces Model
Competitive Rivalry
The extremely high amount of capital (physical manufacturing plants, raw materials, employees)
- to be able to achieve economies of scale
- the ability to mass-produce
Access of distribution channels
Competition
Patent
Government regulations
Threat of New Entrants
Barriers of entry
Suppliers are extremely sensitive to the demands and requirements of the automobile manufacturer and hold very little power.
Don't have much buying power as they never purchase huge volumes of cars.
Power of Buyers
Power of Suppliers
Power of Suppliers
Power of Buyers
Threat of New Entrants
Threat of substitute
• High functional similarity.
• Product image associated with many important factors
• Mostly high product switching costs.

Threats of Substitute Product
• Lager number of firms: - increases rivalry because more firms must compete for the same customers and resources.

• Rate of market growth:-causes firms to fight for market share in a growing market.

• Amount fixed costs:-result in an economy of scale effect that increases rivalry. When total costs are mostly fixed costs.

• Height exit barriers:-a common exit barrier is asset specificity. Some automobile production plant and equipment can’t easily sell to other buyers in another industry.

• Diversity of rivals:-with different cultures, histories, and philosophies make an industry unstable.

Public transport (train, bus, subway)
Bicycle
Airplane
Taxi
Tires
Engines
Oil
Gas
Patrol
Structure
General information about the market
A) Introduction
B) General information about the market
1. Market size
2. Number of rivals and their size
3. Market structure
4. Production capacity
5. Substitutes and Complements
C) Growth rates
D) Elasticity
1. Price elasticity of demand (shortrun, longrun, determinants)
2. Income elasticity of demand
3. Cross elasticity of demand (substitutes, complements)
4. Price elasticity of demand (determinants)
E) Porters Five Forces Model
1. Competitive rivalry
2. Power of suppliers
3. Power of buyers
4. Threat of new entrants
5. Threat of substitute.
F) Conclusion

% change in QD good A
% change in price good B
XED =
% change in QD good A
% change in price good B
XED=
%change in Q supplied
%change in price
PES =
PED= 0.2
Full transcript