Reasons why the World “Budget” Tyre Market is more or less perfectly competitive
An assessment on the European mass tyre market reveals that a tyre’s price is spread across a reasonably great array. Morgan Stanley Research analysts claim that the most costly tyres are approximately one hundred and twenty percent compared to those that are least expensive.
This spread in price can further be explained by the fact that the most costly tyres are approximately sixty percent compared to tyres of medium price. It is also worth noting that there are more than two hundred tyre brands in the United Kingdom market (Davis, 2003).
Moreover, around sixty percent of the tyres found in national markets originate from China, and they are sold at a price below the lower half price range. Huge competition is experienced in tyre prices.
Impact on Profits during the period when budget tyre prices rose
After a rise in price for budget tyres, majority consumers opt for Chinese- made brands which are cheaper. Tyres are a homogenous product. This implies that it is difficult for consumers to tell the difference between the outputs from the various companies.
Moreover, information spreads quickly across consumers in the market. Therefore, a rise in budget tyre prices will make consumers migrate to Chinese tyre producers. Consequently, budget tyres will have a reduced market share while the Chinese producers will make huge profits (Mining Magazine, 2012).
It is worth noting that if one company is charging higher prices for their tyres, consumers discover this quickly and migrate to the companies with lower prices.
There is an extremely huge number of consumers in the market, and consumers opt for companies with lower prices and discounts when the products are homogenous. Consumers in the tyre industry observe prices and acquire information in regard to tyres quickly.
Why tyre producers in china increased production capacity and new firms started
Majority of the tyre producing companies are getting in to the industry and assessing how the demand and supply issues are influencing relevant industries. These relevant industries include mining operations. For instance, the EM (earthmover) tyres have increasingly been in demand in the mining sector.
The demand has been in constant demand for the previous five years. Consequently, since 2009, majority of the mining companies have either upsized or advanced haul fleets and surface loads. This has resulted to the accommodation of huge production abilities, expansion in mining, and novel green field projects.
Furthermore, majority of the quarrying operations have escalated their production levels. Consequently, there has been a quest for equipment which can perform highly (Davis, 2003). As a result, the demand for OTR (Off- the- road) tyres has increased. These factors have led to tyre producers in China increasing production and novel companies setting up there.
Reasons why non- Chinese firms cut down tyre production after prices began falling
Most often, non- Chinese tyre manufacturers sell tyre at higher prices, while Chinese producers purchase them at lower prices. When the prices fell, non- Chinese manufacturers reduced production to avoid losses (Mining Magazine, 2012). This is because they were aware that consumers would migrate to the Chinese producers.
Moreover, there is the recognition that working with customers is extremely vital in modifying products. Several collaborative approaches can be used while advising tyre consumers on tyre servicing, supply, and tyre management strategies.
References
Davis, B. (2003). Bridgestone buying share in Nokian Tyres. Tire Business, 12 (2), 6- 12.
Mining Magazine. (2012). Getting a Grip. Web.