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oligopoly in the car industry

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by

Adam wallace

on 31 January 2011

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Transcript of oligopoly in the car industry

The concentration ratio:
out of 60,986,985 cars
1.)Toyota produce 7,234,439 cars (11.9%)
2.)General motors produce 6,459,053 (10.6%)
3.)Volkswagen produce 6,067,208 (9.9%)
4.)Ford produce 4,685,394 (7.7%)
leading to a four firm concentration ratio of
40.1% in 2009
Oligopoly in the car industry? The concentration ratio
indicates the relative size of firms in relation to the market. Toyota is the market leader here with the highest percentage of production of cars, but do firms in this market follow toyota for price or the kinked demand curve? Barriers to entry Market leader Ford started the ball rolling yesterday by announcing an average 3.75% price rise on its cars from April 1, which comes hard on the heels of a 4.75% rise on February 1.

Within hours Vauxhall confirmed that it too was putting up its prices from April 3 by an average of 4%
Nissan said current pricing was 'unsustainable and announced it was increasing prices from April 9 by an average of 3.4%. This behaviour contradicts the kinked demand
curve as firms are illustrated on the curve not to follow a price rise from one firm, this following behaviour implies that firm interdependence exists as firms are watching and reacting to what their competitors are doing. The barriers to industry in the car industry.

The barriers to entry in the car industry are very high due to the sheer magnitude of the economies of scale in production and the advantage the large dominating companies have in advertising. In order to boost brand identity
Audi has announced that it will increase its
North American marketing budget to $40
million in 2008 — an estimated increase of $30 million over 2007
this is only in north america and represents the sheer magnitude of
the market costs in order to survive. Non-price competition When price is a key determant in demand
of supply for firms providing they choose not to
collude they will use non-price competiton in
order to increase their market share. The following factors are
examples of what a firm may
choose to do,
Comprehensive Motor Insurance
Servicing
Breakdown Cover
Road Tax*
Warranty
These offers are currently used on peugeot models
and are used as an alternative to lowering price.
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