Oligopoly and the Automobile Industry in the USA

Introduction

There is no industry more present in the world-wide community than the automobile industry. The automobile has changed the lives, culture, and economy of the people and nations that manufacture and demand them. Ever since the late 1800s when the first “modern” car was invented by Benz and Daimler in Germany, the industry has grown into a billion dollar industry affecting so many aspects of our lives. There are more than 400 million passenger cars alone on the roads today.

During the early part of the twentieth century, the United States was home to more than 90 percent of the world's automotive industry, but has shrunk to about 20 percent in today's world. This drastic change has occurred by the booming economies in such nations as Japan, Germany, Canada, France, Italy, and other nations. The US auto industry “sales totaled $205 billion, or 3.3 percent of the total Gross Domestic Product.” (Tardiff 394) By the end of 19th century, there were about 500 auto manufacturers, but that number dropped sharply to 23 by 1917, and today the Big Three dominate the market.

Ford, General Motors, and Chrysler make up the Big Three which account for 23 percent of the world's motor vehicle production in 1997, with the Japanese industries coming in second, producing 21 percent. Germany produces 9 percent, Spain, France, South Korea, and Canada each produce 5 percent of the international market in 1997. In the US alone, the auto industry, which includes its 500,000 car-related businesses, create 12 million jobs. The automobile is clearly an oligopoly, but each company's control of the market has gradually diminished because of rising foreign competition. The US has three main auto manufacturers; Japan has five major producers as does Germany. (Rose, 20)

Each of these companies produce differentiated versions of the same product, have control over their products' prices, and rely heavily on non-price competition. Each company produces a new line of cars for each model annually. There are many different types of cars, like sedans, station wagons, Sport Utility Vehicles (SUV), two-doors, and four-doors, but by comparing models between two competing companies, you can see how great the similarities are. (Rose, 23)

The auto industry can still thrive even though its products are so similar because the demand for cars is immense and continuous. People rely on cars for so many things that life without one seems impossible, especially in the US which registered 141 million cars in 1988, whereas Japan, the second highest, only registered 30 million. The creation and production of a new car starts about three to four years before it is released to the public. The initial planning stage begins in the company's corporate headquarters with ideas for the car from product planners and company officials. (Yates, 128)

GM, Ford, and Chrysler, who embodied industrial excellence and manufactured much of the equipment that defeated Japan and Germany more than sixty years ago, are reduced to begging the federal government to prevent their bankruptcy. But there ...