Competition can be classified into three kinds that are monopoly competitiveness, monopolistic competition, and perfect competition. There is also a kind of competition called an oligopoly that falls between Monopolistic competition and Monopoly. The auto industry can be an oligopoly since there are only a few companies that control the market and an enormous number of consumers. The subject is ‘Why do you think the automobile industry is considered to be an oligopoly? What is the reason?
Automobile Industry Considered An Oligopoly.
The US automobile industry is believed as an oligopoly because three major corporations run the sector. The companies’ names comprise General Motors (GM), Chrysler, and Ford. This is evident in the price ranges that are seen on the market. It is also evident in the development and introduction of new automobiles to the American market. In the 1950s, there’s ample evidence that suggests the three firms forged alliances, including the introduction of the compact automobile. This article will show how the three firms have created an industry that is an oligopoly.
The basic idea of an oligopolistic market is that a small number of corporations or companies control the whole market, setting the prices after collusion. This kind of competition has enabled every firm in the marketplace to not only survive but also grow and earn a profit. The few firms in the market cooperate with one another to be successful.
There is room for an enormous amount of competition in a marketplace in which a small number of sellers are selling a uniform or distinct product. Some of the characteristics of an oligopolistic marketplace are the following:
- There is a very limited quantity of sellers.
- They can either offer the same product or an item that is distinct.
- Companies aren’t able to enter and leaving the business at the speed that.
- Firms operating in an oligopoly must put in a significant amount of funds.
- It is a constant battle for firms.
- There is a high degree of price rigidity.
The American automobile industry has shaped America’s American economy and has been a major influence on the culture of the country. The oligopoly it’s developed into has a significant contribution to this. Automobile manufacturers were once among the most profitable firms which existed. They are constantly evolving and strive to be able to accommodate the needs of their customers. The way of doing business, production, and distribution have changed drastically through the years, yet they have always embraced the oligopolistic system of the market, which is prevalent within the field.
It is clear the fact that General Motors has a trend to be the primary determinant of pricing in the oligopoly. This can be seen from the pricing decisions made in the years 1965-71. Chrysler would announce a price increase at first, followed by General Motors. General Motors would follow by raising their prices less than what Chrysler would. This led to Chrysler cutting their prices by a tiny amount in order to match the price of General Motors. Ford is also known as a price-follower in this arrangement, as was General Motors. Following General Motors, Ford and Chrysler shared an advantage that helped form the oligopoly which exists to this day. When the industry first began, the industry there was no concrete evidence for an existence of a “monopoly” within the field, however, there was a substantial restriction on companies entering the market. Three large firms made it difficult for others to earn and sustain profit margins in the business.
It is important to understand the way these three players on the market decide on prices. There is a distinct difference between the way prices are selected in a market that has perfect competition as opposed to a market that is dominated by oligopolies. In a perfect scenario of competition, there is a possibility for competitors to boost their profits by constructing the amount where the marginal costs for creating an item are the same as the price on the market, and the price is equal to the marginal revenue. This means that the marketplace is highly competitive and efficient entirely due to that market player charging the price when economic profit is not even. The competitiveness of this market since the firms collaborate and decide the prices together. The companies that are referred to as oligopolists collaborate as a monopolist when it comes to price decisions. They strive to maximize the profit of the group instead of making a focus on their profit. The pricing choice will result in the collusive price being much more expensive than marginal costs at this level, and thereby, maximizing the profits of the single company is the ultimate profit in a highly competitive market.
Influence On The Surpluses And Welfare
In situations like this, when the oligopolists act in a monopolistic manner, and there is a lack of concern for the welfare and surplus of consumers. Also, there is a constant growth in the number of producers due to the fact that the price of the collusive oligopoly functions as an increase in the equation of price-quantity that equalizes marginal costs to marginal revenue.
The market has developed into an economy due to the long history of the automotive industry. In the days when cars were an expensive item to be owned and enjoyed by the wealthy, these three automakers were more efficient than their competitors and enjoyed the benefits of the fact that. As they reaped the benefits, they cultivated an environment of oligopoly, which subsequently stopped competitors from being competitive. A quote from Alfred Sloan of General Motors describes the mindset the oligopolists had “a car for every purse and purpose”. This led to the creation of an extremely competitive oligopoly with two other rivals on the market.
To summarize, To summarise the scenario, the American automotive market is one of the most complex that is characterized by an oligopolistic structure. The pricing strategy is dominated by the three automotive giants that control the market and have an undisputed position within the market. They’ve been able to control the market and have devised strategies to generate collective profits. It has been difficult for other companies to gain an edge or gain market share because it is difficult for new companies to break into an industry that has an oligopolistic character. In the future, there is nothing to suggest that the current trend will change. The only other competitors in the field are those that sell luxury automobiles. However, they won’t have the kind of profit the three giants have gotten due to their very small number of customers. It is the responsibility of the government to make sure that this oligopoly doesn’t become out of control and remains under the control of the market, to a degree, at the very least.
Frequently Asked Questions
1. What is an oligopoly?
The principle behind an oligopolistic marketplace is that a small number of businesses or corporations control the entire market, setting the price following collusion. This kind of competition has enabled every firm in the marketplace to not only survive but also grow and make a profit. The few firms in the market cooperate with one another to be successful.
2. How do you identify the 3 companies that make up the oligopoly within the auto sector in america?
The three companies comprise General Motors, Ford, and Chrysler.
3. Why is it difficult for other companies to win a significant percentage of market shares in the automotive industry?
Since the time that automobiles were considered a luxury item to own, The three companies mentioned above have made smart business decisions and gained control of the market. To date, they do not have any strong competition for the same reason.