Soichiro Honda founded the Honda Motor Company in the 1930’s as what was initially a motorcycle manufacturing company. His revolutionary engine arrived in the United States in 1973 as the Honda Civic, and immediately took off in popularity amongst consumers looking for alternatives to the gas-guzzling American cars that dominated the market, (Johnson 53). Honda grew into an international corporation when it became the first Asian car company to build a factory in the United States. By the time Honda retired, his company had been on the cover on Time Magazine and had demonstrated a powerfully lasting effect in the United States auto industry, (Johnson 60). Honda is still a popular and recognized brand today within the automotive market, and has opened up new opportunities for manufacturers overseas to both compete as well as work in collaboration with American companies. This international networking of firms is incredibly influential today in affecting consumer decisions and influencing the wider market, and is of a uniquely competitive nature in several aspects.
The automotive manufacturing industry is a perfect example of an oligopoly in action. That is, the buyers within the market (consumers) that create a demand for a car as a commodity to be bought and sold, make up a large percentage of the population. In fact an argument can be made that every single person has a need for such transport as is provided by cars, especially within the United States. This creates a large market of potential consumers who essentially have the same demand, and allows for a number of suppliers to compete to meet that need. There are thirteen firms within the auto industry in the United States (Select USA 22). Each company creates a different brand version of what is the same product. This type of market structure is unique in that it involves a certain amount of competition within the auto industry to build a brand, and a loyal base of customers from that label.
Within the auto industry, each different firm is so closely linked in competition that any action undertaken by the individual company results in an overall market change. For example, of the car manufacturer Toyota were to lower the price of its’ vehicles below those of competitors within the same industry, the overall car market would be impacted in that consumer behavior patterns would show a trend towards the lower priced cars.
In this example, companies like Honda and Ford would lose business to their competitor. This market shift would eventually come back and change business for the initial competitor as well. In this case, Toyota undercutting vehicle prices of the competition would ideally open up a wider market to the company, as more of the American consumer demand is shifted to their car brand. This makes up the monopolistic potential within a market for one particular company.
In a competitive economy, companies compete for the marketplace vote of their consumers in order to sell similar or even identical products. When one car manufacturer lowers the product’s price, market forces predict that consumers will spend more of their money there than at the other companies (“6 Essential Characteristic” 6). This forces an overall lowering of prices upon every company competing in that sector. So no one company can carry out a decision without impacting the overall market (“6 Essential Characteristic” 11). This characteristic is unique to an oligopoly. Another key component to the auto industry is that there are steep barriers to entry that prevent any new competitors from entering the market and potentially upsetting the balance of the few (but powerful) existing firms. This means that not anyone can start a new automotive manufacturing firm with ease, and restricts the market to those companies that have already entered it. There is a stabilizing factor that is necessary for an oligopoly to properly function, as such an interdependent market would be too vulnerable to the changes many competitors entering and leaving the market would create.
When a company becomes a monopoly it holds all of the power to influence market outcomes. A car company that is able to outcompete all other sellers and become a monopoly has ultimate power within the market. Also there is the likelihood of raised prices (of a car, within the example) as a monopoly can essentially charge whatever it would like for a good. This becomes a collusive behavior that can occur when one company outcompetes another, and in doing so absorbs the customer base and meets a wider demand.
The competitive nature of the auto industry within the United States has diminished the likelihood of such a monopoly ever occurring, as even in times of economic downturn there continue to be automobiles manufactured by multiple companies. Automobiles are a staple part of the American culture and life, and so they fill a niche which is all important to preserve as is within the economy. The United States automotive industry provides a unique example for the case study of the market forces in action driving an oligopoly, and the importance of consumer branding in regard to competition. Each firm within the industry directly competes with one another, and yet they remain interdependent and highly prone to market instabilities as a result of this close-knit network. Such a market is distinct in that it attempts to foster brand loyalty and, while not necessarily outcompete the other suppliers, at least outsell them.
Johnson, Richard. "Hell-Raiser Honda Breaks the Mold." Six Men Who Built the Modern Auto Industry. St Paul, MN: MBI, 2005. 50-60. Google Books. MBI Publishing Company. Web. 20 Oct. 2013. <http://books.google.com/books?id=CArfq7tV0OIC>.
"SelectUSA." The Automotive Industry in the United States. N.p., n.d. Web. 21 Oct. 2013. <http://selectusa.commerce.gov/industry-snapshots/automotive-industry-united-states>.
"6 Essential Characteristic Features of Oligopolistic Market." 6 Essential Characteristic Features of Oligopolistic Market. N.p., n.d. Web. 21 Oct. 2013. <http://www.preservearticles.com/201106178093/6-essential-characteristic-features-of-oligopolistic-market.html>.