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International Trade: Identifying Market Structure

Market Definition and the Relevant Market

With the U.S. infrastructure becoming increasingly more intricate, the automotive industry has been experiencing a range of challenges and simultaneously enjoying a vast array of newly opened opportunities. In the United States (U.S.), car exports rose by 1.91% in 2016 (Rao 175). Even though the specified economic environment is no longer represented by a single corporate entity and includes numerous firms, its development is defined by a comparatively small number of corporations. Therefore, the current U.S. car market can be identified as the monopolistic competition (Lutz 724). Among the key players in the identified realm, one must mention the organizations such as Fiat Chrysler, Tesla, Ford, and GM (Duggan). The specified companies define the course of the market development and introduce most of the contemporary innovations.

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Number of Sellers

The rates of sales in the U.S. car industry remain impressively high due to the development of the U.S. infrastructure and the necessity to create international contacts. At present, the corporate giants mentioned above sell an approximate number of 10,000,000 items per year (“Auto Sales”). The range of sellers that currently exist in the market is rather big, yet only the specified organizations define the course of its development.

Concentration Measures

At present, the U.S. automotive industry contains a rather large number of firms producing cars. Therefore, the level of concentration is comparatively high in the identified realm. The U.S. car market is dense, yet the few organizations that control it retain their position as well-established and highly valued. Consequently, making a difference in the automotive industry environment is a quite difficult task. Arguably, a disruptive innovation may shift the balance of powers within the U.S. car market, yet the presence of corporate giants such as Ford and GM makes the idea of an unexpected entry of an innovative company rather dubious.

Classifying Industries

Classifying Industries with the CR4

Since the current U.S. car market is rich in competitors, the corporations that dominate it have the control over less than a half of the identified economic environment. Particularly, the present-day CR4 index of the specified niche makes 42.4% (“Competitive Landscape”). The specified index level shows that the car industry has rather high levels of competition and is controlled by a comparatively small number of players. Put differently, the index proves that the U.S. car market represents monopolistic competition (“Competitive Landscape”). Although the specified description of the said environment should not be deemed as negative, it does imply that entering it is likely to be fraught with challenges.

Classifying Industries with the HHI

The HHI rates, however, point to the fact that the current U.S. car market is extraordinarily competitive. Indeed, according to a recent report, the HHI levels within the specified environment have only reached 650, which is significantly over the threshold of high competition (“Competitive Landscape”). Despite the endeavors of other states, the U.S., Japan, and Europe maintain control over the identified domain (Guajardo et al. 1862). Thus, the existence of monopolistic competition makes it rather difficult for new entrants to establish a strong presence in the market and introduce a memorable brand. Minor firms remain in the shadow of the accomplishments of corporations such as Ford and GM.

Product Characteristics

As a product in the U.S. economic environment, cars can be seen as a heterogeneous, or differentiated one (Brand et al. 127). Indeed, it meets the description of a typically heterogeneous commodity by having an inherently unique design based on the signature characteristics of its producing organization (Neto et al. 374). Furthermore, as a differentiated product, a car has specific properties, including unique elements of its design, its technical characteristics, and other details.

Barriers to Entry

As stressed above, the high levels of competition that persist in the U.S. automotive industry pose the most difficult challenge to any firm that attempts at becoming a U.S. player in the car market. The issues associated with natural barriers and particularly expenses is the other reason for most companies to remain rather unsuccessful in the car market (Hagman et al. 13). Since the production process is associated with numerous costs, including the stages of procurement, development, assembly, and other essential elements of the manufacturing stage, taking massive costs is inevitable. When reaching a certain level of quality and possessing the competitive advantage that can make an organization at least moderately efficient, one may expect certain profits (Elfenbein et al. 87). However, the expenses often turn out to be greater than a firm can afford, which makes one curb the business initiative and exit the market.

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Identifying Market Structure

Being a monopolistic competition, the U.S. car market can be seen as a rather difficult environment to target. Its structure is multilayered and intricate, with several key organizations defining the further progress within the industry. As a result, the U.S. car market has been thriving, yet the degree of expenses that it requires emergent firms to invest in order to gain the attention of buyers is truly immense. As a result, the threat of missing numerous opportunities in advancing the technological progress and spurring the creation of innovative tools and solutions remains persistent in the U.S. car market.

Works Cited

“Auto Sales.” The wall Street Journal, 2018. Web.

Brand, Christian, et al. “Modeling the Uptake of Plug-In Vehicles in a Heterogeneous Car Market Using a Consumer Segmentation Approach.” Transportation Research Part A: Policy and Practice, vol. 97, 2017, pp. 121-136.

“Competitive Landscape.” Cornell.edu, 2014. Web.

Duggan, Wayne. “The 10 Most Valuable Auto Companies in the World.” U.S. News. Web.

Elfenbein, Daniel W., et al. “Market Structure, Reputation, and the Value of Quality Certification.” American Economic Journal: Microeconomics, vol. 7, no. 4, 2015, pp. 83-108.

Guajardo, Jose A., et al. “Service Competition and Product Quality in the US Automobile Industry.” Management Science, vol. 62, no. 7, 2015, pp. 1860-1877.

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Hagman, Jens, et al. “Total Cost of Ownership and Its Potential Implications for Battery Electric Vehicle Diffusion.” Research in Transportation Business & Management, vol. 18, 2016, pp. 11-17.

Lutz, Catherine. “The US car colossus and the production of inequality.” American Ethnologist, vol. 41, no. 2, 2014, pp. 232-245.

Neto, João Quariguasi Frota, et al. “Market Prices of Remanufactured, Used and New Items: Evidence from eBay.” International Journal of Production Economics, vol. 171, 2016, pp. 371-380.

Rao, R. Srinivasa. “A Review on Competitive Structure of Automobile Industry.” Asian Journal of Applied Science and Technology (AJAST), vol. 1, no. 9, 2017, pp. 175-185.

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StudyCorgi. (2022, January 4). International Trade: Identifying Market Structure. Retrieved from https://studycorgi.com/international-trade-identifying-market-structure/

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