Automobile Industry of Australia
The marketing structure of this industry is oligopolistic, which is a combination of both competitive and monopoly market structures. Oligopoly refers to an industry that includes a few competing firms. Each firm has enough market power to prevent it from being a ‘price taker'(Besanko & Braeutigam, 2010). Another part of the discussion will be focused on the problems of this industry and proposed some reforms needed to develop this industry.
Performance and problems of the market structure of the Automobile Industry in Australia
There exist two standard models in oligopoly such as Cournot’s model (simultaneous game) and Stackleberg’s model (sequential game)(Varian, 2010). It will be reasonable to think that these firms are choosing their strategies by doing the best it can, given what its competitors are doing. They are taking decision simultaneously. So, one way of analysis can be ‘Many firms in Cournot’s Equilibrium’ style(Besanko & Braeutigam, 2010).
If we read the above table, then we see that Toyota has occupied the largest market share compared to all others. Largest market share means, Toyota Company faces an inelastic demand from consumers(Costello, 2016). On the other side, Nissan has the smallest market share so that Nissan faces elastic demand curve from their consumers. The main intuition of these elasticity aspects can be stated as –
i) When demand is elastic then cutting the price of a business firm will improve its total revenue and market share and
ii) When demand is inelastic then cutting prices will create fall in revenue with little or no significant impact on market shares(Edwards, Davey, & Armstrong, 2016).
The Automobile Industry of Australia use the face several problems that hinders the growth of the industry. Australia is a developed country but there exist some problems in this heavy industry. Once the major problems are identified then its reforms will be easily prescribed.
The lack of scale opportunity is one of the major problems faced by the automobile industry. According to Rowell, Nghiem, & Connelly, (2016) the long run average cost curve is ‘U’ shaped. It has a special implication. Production of more and more output leads to decrease per unit production cost. On another hand,the Australian automobile industry can’t be able to capture the good effect of scale economies because more and more output production demands more inputs(Green, 2015). Improvement in manufactured sector requires mainly improved human capital, say, technical skills, innovations, increased R&D activity, etc. These all can be helpful to improve the quality of produced product. Still, the entrepreneur has to bear these input costs initially and the cost diminishing channel has been worked in the long run to capture the scale effect (Clibborn, Lansbury, & Wright, 2016).
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Another important issue that hampers the growth of the Australian automobile industry is the condition of the Australian Dollar. It is an important aspect of international trade. Due to the strong Australian dollar, it is difficult for Australian manufacturers to remain competitive in the global market(McAuley, Cregan, & Risbey, 2015). In this situation, trade balance will become positive if the quality of products will improve massively so that Australian Automobile products become unbeatable in the international trade(Valadkhani & Smyth, 2016).
The weak manufacturing base is also a vital reason behind the stagnant condition of the automobile industry of Australia.Strong manufacturing base is the prime factor for a country to be developed. A substantial amount of investment in capital is required to make a strong manufacturing base for a heavy industry (Rowell, Nghiem, & Connelly, 2016). Australia's manufactured base is not so improved so that imports of capital goods are increased and at last that will lead to the trade deficit for the Australian economy. This is evident from the market share data from Table-1. A decreasing trend of market share is seen for every company(Edwards, Davey, & Armstrong, 2016).
Therefore, revolutionary reforms are badly required for the improvement of automobile industry of Australia.
The stronger and stable step towards the huge investment can boost up the automobile industry.A Huge amount of both public and private investment is needed to capture scale effect and to improve manufactured base for Australian Automobile Industry. It is well known that ‘Investment' in any industry works as a fuel of engine(Rowell, Nghiem, & Connelly, 2016). Here a fortunate cycle will be created in the economy to boost the automobile industry.
The government of Australia has to take robust steps in the trade perspective in Australia to motivate the automobile industry of Australia in a larger market of the global automobile industry. The free trade agreement is maintained by Australia Government. But still, there is a problem in international trade due to the rigidity of Australian Dollar (AUD) movements in foreign exchange market(McAuley, Cregan, & Risbey, 2015). The Australian dollar has not experienced depreciation, so export earnings by devaluing AUD are not possible provided the Marshall-Lerner to be held. The first time, slight depreciation of AUD will create a new linkage(Valadkhani & Smyth, 2016). After establishing this linkage, it will be shown that there need not be further AUD depreciation. No situation of the price war in the international market(Besanko & Braeutigam, 2010).
This is a little approach to capturing the scenario of Australian automobile industry, its drawback, and reforms needed to overcome these problems. This essay is explained with economic intuitions. Problems of Automobile industry are identified then its reform measure will be discussed. The automobile is a heavy industry, and to be developed the country improvement in the heavy industry, manufactured base are very important.
Besanko, D., & Braeutigam, R. (2010). Microeconomics. New York: John Wiley & Sons.
Clibborn, S., Lansbury, R. D., & Wright, C. F. (2016). Who Killed the Australian Automotive Industry: The Employers, Government or Trade Unions? Economics Papers: A journal of applied economics and policy, 35(1), 2-15.
Costello, M. (2016, July 5). June 2016 VFACTS: New vehicle sales, winners and losers, biggest month ever. Retrieved from www.caradvice.com.au: http://www.caradvice.com.au/459401/june-2016-vfacts-new-vehicle-sales-winner-and-losers/
Edwards, J., Davey, J., & Armstrong, K. (2016). Safety culture and speeding in the Australian heavy vehicle industry. Journal of the Australasian College of Road Safety, 27(1), 18-26.
Green, R. (2015, February 23). How Australia got left behind in manufacturing and innovation. Retrieved from ABC (Australian Broadcasting Corporation): http://www.abc.net.au/radionational/programs/ockhamsrazor/6163536
McAuley, J., Cregan, M., & Risbey, T. (2015). The impact of airbags, electronic stability control and autonomous emergency braking on Australian light vehicle fatalities: methodology and findings. Taking action together: 1st Australian Road Safety Conference (ARSC2015) (pp. 14-16). Queensland: ARRB Group Limited.
Rowell, D., Nghiem, S., & Connelly, L. B. (2016). Two Tests for Ex Ante Moral Hazard in a Market for Automobile Insurance. Journal of Risk and Insurance, 14-28.
Valadkhani, A., & Smyth, R. (2016). The effects of the motor vehicle industry on employment and research innovation in Australia. International Journal of Manpower, 37(4), 684-708.
Varian, H. R. (2010). Intermediate Microeconomics: A Modern Approach. New York: W.W. Norton & Company.