Analysis of the US Automobile Industry as an Oligopoly Essay Example

lot that they can do to surpass the others in profitability.

Consumers are not likely to be the beneficiary of, say, a price war. (Buckingham 244) Pricing tends to remain steady and the position of the players in the market does not change dramatically nor does it change rapidly. Any price cut by one company is more than likely to be followed by a price cut in the others and so profits for all companies are reduced. (247) Likewise, if one company dominates the oligopoly, as General Motors did some years ago, price leadership will control the marketplace.

Price leadership is an “accepted” version of collusion, a practice that is illegal in the United States. (Alden) The dominant company in the oligopoly sets a price and in order to compete with this price leader, the other companies follow suit. Again, the consumer is the loser. Technological advances by one auto company are usually followed by similar advances in the others. By the same token, if one auto company finds it economically advantageous to put off innovations for the time, the other companies really have no incentive to come up with new technology of their own. “The Industry Handbook: Automobiles” 21) The cost of research and development will affect the cost of the automobile, so, consequently, they will not be able to effectively compete. Many consumers expected technological advances such as hydrogen powered cars, electric cars and hybrids that would eliminate or at least reduce their costs of operating a vehicle, These advances were slow in coming because of the reluctance of auto makers to make any move toward conservation if it did not

pump up their bottom line.

The result is that most consumers are still feeling a pinch in their wallets because of the rising cost of gasoline. The effects of an oligopoly such as the auto industry are not always apparent to Joe Consumer. Advertising makes it seem as though the auto makers are genuinely competing with one another, but the truth is that they are all “in the same boat. ” (Alden) An industry that is dominated by a few companies cannot participate in true competition. And without competition it is the consumer who suffers most.