Competition in the Automobile Industry

Although perfect competition cannot be possible as it is idealistic, but near to perfect competition industries do occur. We shall discuss the automobile industry in Pakistan. All those companies that provide spares and locally assembledmanufactured cars are a part of the automobile industry of Pakistan, Toyota, Honda, Suzuki, Mitsubishi Hyundai etc to name few.

As in perfect competition there is no asymmetric information i.e. the prices of the vehicles, their performance, their specifications and their availability at dealers is known to all. There is a huge demand for vehicles and so there are a huge amount of dealers spread throughout Pakistan. As nothing is hidden from the customer it is safe to assume that there is perfect knowledge in the market. Perfect knowledge is a key ingredient for perfect competition, reflecting that automobile industry is near-perfect competition.

Cell phones today are made from cutting edge technologies and the pace of their development is very fast, research and development costs are high but because as production techniques are enhanced and technologies become cheaper so a particular cell phone becomes cheaper and new cell phone models will be highly priced.

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A communication has globalized, boundaries have been removed and with new Information technologies coupled with the web has helped streamline the way company information is transmitted and perceived, helping in effectively manage and provide up-to-date support on products and bridge business to business and business to consumer gaps.

The most basic strategy of business is to provide goods at cut throat prices giving the competition a run for their money by being the cheapest option in the market. Thi way they can secure a larger share of demand for their product in the market and possibly remove and “kill off” other competitors. Hi is usually practiced by companies which have ability to achieve a very highly efficient economy of scale operation model or simply with large amounts of capital.

The company aim to provide a product that is different and yet highly competitive in the market, that is either promoting and placing the product in such a way that appeals to the consumer (branding) or buy having variety in looks, technology, shape, size etc. in the same class and product.

The ability of a company to identify and then customize its product for a particular niche is segmentation strategy. Here a company will provide a product in accordance to the requirements and needs of a particular area, income class, age, gender, etc. and then provide them with the product. This “rifle” approach helps companies achieve the optimum supply and demand production.

Samsung in Pakistan have differentiated themselves from their competitors by providing not only the largest variety of cell phone but also their cell phones are marketed as the best value for money in reliability, availability of peripherals (chargers, headphones etc.) and re-sale as opposed to that of Sony Ericsson which markets it technology but are perceived as fragile cell phones.

Samsung provides one of the largest varieties of cell phones which can be classified in to one of many categories intended for different kinds of users. There are both cheap cell phones and high end cell phone for different income classes and there are categories of business class cell phones. Such as the E-series and the high end smart phones the N-series. The new C-series are intended for the younger generation with either dual SIM options or social networking cell phone options.

International trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). An import is the purchase of a good or service made overseas. An export is the sale of a good or service overseas. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders and would all be much poorer. International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture.

In monopolistic competition, buyers do not know everything, but they have relatively complete information about alternative prices. They also have relatively complete information about product differences, brand names, etc. Each seller also has relatively complete information about production techniques and the prices charged by their competitors. In the automobile market, the buyers and sellers also contain relatively information about the brands names, product differences and prices of the products

In monopolistic competition, firms are relatively free to enter and exit an industry. There might be a few restrictions, but not to many. These firms are not “perfectly” mobile as with perfect competition, but they are largely unrestricted by government rules and regulations, start-up cost, or other substantial barriers to entry. In the automobile market the mobility of the resources is easy during the operation but there are certain rules and regulations, permission needed by the firm in the starting of business

Each firm in a monopolistic competitive market sells a similar, but not absolutely identical, product. These goods sold by the firms are close substitutes for one another, just not perfect substitutes. Most important, each good satisfies the same basic want or need. In the automobile market all the cars are not the same and they are providing different features or benefits to the users so therefore automobile market does not provide the perfect substitute but they are offering a close substitute products.

There are many barriers which can prevent the business to enter into an industry, they can be economies of scale, product differentiation, investment requirements, switching costs, access to distribution channels, etc. All of these factors can decrease the competition inside an industry as it prevents other firms from entering it, however small firms are the ones which are mostly affected by it. But if these barriers are eased, than new organizations can enter the industry and therefore increasing the competition in it. So, if any new firm or organization enters into the industry and for an organization to address these issues they can easily handle the market activities by differentiating their products or by lowering their cost of production which would hence lead to decreased prices of the products, thus making the new firms or organizations to face difficulty in being able to operate in that particular industry.

These products are products that a customer can choose over an existing product in that industry. Customers usually do so when the other product is not available in the market or the prices of that product are too high for them to afford. Therefore they then look for an alternative product which is then known as a substitute product. They are usually cheap as well. For example, there are two products tea and coffee in an industry. We assume that majority of the people are using tea and its price goes up and the price of the coffee remains the same, then people would shift to the alternative which would in this case be the coffee. This act can be said to be an act of choosing a substitute (an alternative) over their existing product. For an organization to address this issue, they would have to strengthen the research and development department and also acquire the modern technological system so that they can produce the modern products which will not be available in another organization or in that industry. By strengthening your research and development an organization can also become more efficient, hence this would help in reducing the prices of the product and increasing its quality.

An organization or a firm produces the products they produce in order to satisfy the needs of the customers in the market. Organizations or firms can make profits by capturing the majority number of customers in the market available to them, so it means that the customers can or always play a vital role in the operating of business as they are the ones who pay for the purchase of these products. The customers are never willing to pay more for any product unless or until they are luxury goods, even then the customers would want to pay as less as possible as that is in their nature. So if the organizations or firms are producing such products that are costly and beyond the reach of the customer, than the customer will not purchase the product. So for the form or organization to address this issue they must produce those products which are in demand, or which will match with the income level of that area of customers.

Suppliers are the ones who provide raw materials to the organizations or firms in order for them to produce the finished products by further processing those raw materials. So the suppliers have a control over the organizations or firms operations over some degree, because if the supplier increases the prices of those raw materials then it will lead to an increase in the price of that product. However this can only happen or take place when there is only one supplier of a particular good or product, hence he would know that no matter what the organization or firm would have to buy from him, thus he would look for more profits and increase his prices. To address this issue the organization or firm should establish a strong and a close relationship with their suppliers or they should extent their business by backward integration in order to take that power from the suppliers.

When the numbers of sellers increase in the industry, then the level of competition in industry increases at the same time as well. The level of competition in the industry also defines the situation in the market. It’s comparatively easy to gain a competitive advantage in an industry when there are just a few large firms in it. But in a large market where many firms operate, achieving a comparative advantage would be a much difficult thing to do. The more the competition, the more it will be harder to get a competitive advantage in the industry. In intense competition, one firm might reduce its selling price to a very low, and to follow it becomes inevitable in some circumstances. Thus the organization or firm will then be more interested in minimizing profits and maximizing market the share. The organization or the firm can accomplish this in competition by differentiating their product from the competitors or by having a cost leadership strategy in that market.

As the above diagram shows, a product should be the one which is the need or want of the customer. The price should be satisfactorily for the customers, one which is affordable for them. That is a customer should get a good return for their money. The place where the product is available should be easy enough for the customers to reach, providing them with convenience. The promotion of the product should be them by communication, for example the advertising of the products via newspapers, billboards, television. This would make an awareness of your product which is a positive sign for attracting customers towards you products.