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Type of competition and amount of market power
Similar to all other auto companies, my company experiences a lot of competition considering that it is a principal car producer that trades in several markets and competes against key brands. Not only does the competition involve the products, it also comprises of the resources used such as labor, materials, and advertising. Robots and machines are greatly beneficial in the auto industry.
However, the competition also involves the search for expert automobile engineers and designers. Different companies also compete for the best suppliers as they search for tires, aluminum, and dashboards. Advertising is another aspect that brings in a lot of competition in the auto industry. Being a major company, I have to compete for the best broadcast and print materials for carrying out the advertisements. Market power depends on how my company markets itself through the manufacture of preferable brands and the after sale services it offers.
Features of perfectly competitive market
In a perfectly competitive market, many firms compete for the same market. As a result of the high level of competition, the company that produces high quality products and sells them at a reasonable price gains a huge competitive advantage. Perfectly competitive markets have companies that deliver similar products. In addition, the companies are price takers and they have no control over the prices irrespective of the huge number of buyers in the market.
The price mechanism sets the prices for various products. The companies involved in these markets are minute, none dominates, and there are numerous sellers. All the sellers and customers possess perfect information regarding the prices. Companies can also exit and entre at their free will since there are no barriers. The government does not offer unique treatment to any of the companies.
Some of the assumptions that are applicable in an auto industry include production of similar products. In auto industries, sales are basically made on the foundation of prices. The products are, therefore, homogenous and the clients are indifferent regarding the various products on offer. In the light of this discussion, it is worth emphasizing that various auto industries use unique brands so as to market themselves and establish their value.
This involves inflating a product’s value so as to ensure that it delivers more than its actual value. It is imperative for auto companies to ensure that the exchange value of their products is more than the use value so as to promote a greater competitive advantage.
Determinants of competition
The competition experienced in the auto industry is driven by various aspects. Principally, the manufacture of vehicles that are desirable to customers depends on the quality of market research carried out concerning the customer’s preferences. The market research should be aimed at assessing and satisfying consumer preferences and trends. It is worth noting that the auto market also comprises of auto parts.
Hence, auto parts dealers determine the level of competition in the auto industry and dealers compete for the best auto parts to ensure manufacture of high quality vehicles. In the auto industry, dealers can enter and leave the market at their free will. Therefore, the market has different dealers that specialize in various types of vehicles. Competition is high in the industry since dealers have to offer high quality vehicles that are preferable to their customers. Dealers associated with manufacture of low quality vehicles lose their customers gradually.
Another significant determinant of competition in the auto industry is price. Auto makers basically manufacture vehicles. The difference between the vehicles is the level of innovation applied so as to produce unique products and the quality of materials used while manufacturing. However, price plays a great role in determining the preferable auto maker. Auto companies that produce high quality vehicles and sell them at low prices have a huge market share. Considering that the different companies have the same types of vehicles, there is a high likelihood that customers will go for the low priced vehicles. Auto companies that produce unique brands end up selling more vehicles compared to companies that lack innovation and produce ordinary brands.
Basically, a cost-benefit analysis is imperative in determining the effectiveness of a planned action in my auto company. It is more common whenever financial questions are necessary. A cost-benefit analysis helps in determining whether an action, decision, or investment is sound, that is, the feasibility or justification of the project being implemented in the company. In addition, it acts as a foundation through which projects can be compared. This involves a comparison between the costs of every available option and the anticipated benefits. This enables selection of the option that has more benefits but is less expensive.
There are several steps towards cost-benefit analysis. The first step involves a determination of the project scope and objective. Secondly, the available options are screened and identified. Third, it is important to identify the costs and benefits involved. Consequently, the performance criteria of the project as well as the discounted cash flows are calculated. The next step involves grading the identified alternatives according to the preference. A sensitivity analysis is then conducted and a final decision made.