ECO302 GDB 1 Solution and Discussion

[zareen]

The Case:

Today, the modern global automobile industry encompasses the principal manufacturers, General Motors, Ford, Toyota, Honda, Volkswagen, and DaimlerChrylser, all of which operate in a global competitive marketplace. The global automobile industry has seen significant consolidation over the last few decades. Many of the industry giants have found it beneficial to join hands with some of their former rivals. The mergers between Daimler-Benz and Chrysler and between Hyundai and Kia, the association between Renault and Nissan and the takeover of Mazda, Jaguar and Volvo by Ford are but a few examples of this consolidation. Due to limited number of manufacturers, there is price interdependence among them. The automakers understand that price-based competition does not necessarily lead to increases in size of the marketplace so they are also involved in different ways of non-price competition to lure their customers. The industry has significant entry and exit barriers which makes it difficult for new players to enter the market.

Requirement:

Keeping in mind the characteristics of four market structures discussed in lectures, you are required to identify in which market structure automobile industry is operating out of four market structures. Also discuss the different ways of non- price competition used by automakers in order to attract their customers.