CASE STUDY OF OLIGOPOLY ON AUTOMOBILE INDUSTRY

Presented by :-

Sumit Behura

Suchitra samantray

Farid Ahmad

Chinmaya Mohanty

Nilam priyadarsini Sethy

OLIGOPOLY

• Oligopoly is a market structure in which the

market or the industry is dominated by small

number of sellers.

• In other word Oligopoly means the market structure in which there are a few seller selling a homogeneous product or differentiated products.

FEATURESFew seller

Homogeneous or differentiated product

Barriers to entry and exit

High investment

Constant struggle

Lack of uniformity

Lack of certainty

Price rigidity

Selling homogeneous products - pure oligopoly .Example :industry producing cement steel ,petrol ,cooking gas , chemical, aluminium and sugar .

Selling differentiated product – differentiated oligopoly .Example : Automobiles, TV sets , soft drinks , computers ,cigarettes ,etc.

OLIGOPOLY IN AUTOMOBILE INDUSTRY• The Indian Car Industry Oligopoly• Hindustan Motors – the first Indian Car company to start production in

India - founded in 1942 by Mr. B.M. Birla; Ambassador – The flagship

car

• Establishment of other car manufacturing companies like Premier

Automobiles(1944); Premier Padmini – The flagship car, now also used

for cab services

Reasons for the Oligopoly structure

• In 1947, Government of India and private sector launched efforts to

create Automotive components manufacturing industry

• Slow growth in 1950s and 1960s; Reason: License Raj,

Nationalization, Socialistic approach, MRTP Act

• The Industries (Development and Regulation) Act passed in 1951 to

implement Industrial Policy Resolution of 1948 – one of the reasons

for closed market

• The Act empowered Government to prescribe Prices, Methods,

Volume of Production, Channels of Distribution

Impact of Oligopoly structure

• Impact on Automobile industry – Growth very slow because of

Low Demand and Low Economic Status of the country

• Government restrictions provided no motivation or incentive for

firms to do technological upgradation.

• Supply was low and there weren’t many competitors

• Impact on Consumers –Consumers did not have many choices;

the Demand was fairly low as Cars were still a Luxury and

availability of same models

The Causes of Transformation

• Sanjay Gandhi owned Maruti Technical Services Limited which was

liquidated

• After his death, Indira Gandhi government collaborated with Suzuki

Motors, a Japanese firm, for collaboration – Formation of Maruti

Udyog Limited and renamed later Maruti Suzuki in 2007

Effects of the Transformation

• New firms, including foreign players, entered with modern

engineering, efficient processes and modern shop-floor layouts

• Indian automobile industry grew at 14.31% per annum in 1991

era compared to 8.56% per annum during 1985-91

• Delicencing of sector attracted many major Global

automobile(GM, Ford, Honda, Hyundai etc.) to start assembly

in India

Automobile Industries associated with India

• Quite a few Domestic Indian Automotive companies: Tata

Motors, Mahindra, ICML, Hindustan Motors, Premier

Automobiles Ltd., San Motors etc.

• Foreign Automotive companies in India:

Manufactured or assembled in India: BMW India, Ford India,

General Motors India, Chevrolet, Honda , Hyundai Motor India

Imported to India: Audi, Bentley, BMW, Lamborghini, Land Rover,

Mercedes Benz, Nissan etc.

Price Leadership Model

• Intense competition amongst various players

• 30th December 1998 - Indica launched by Telco for `2,59,000 (petrol) and `2,85,000 (Diesel)

• 31st December 1998 – Maruti slashes prices by 5-12%; Maruti800 price slashed to `1,85,000 from `2,09,000

• Ratan Tata – “Even for those who do not own or buy an Indica,

good news, we’ve triggered price drops in Maruti and made the

car market a friendlier place”

Current Trends

• Tata has come up with ` 1 Lakh car – Tata Nano

• This again has created price war

• Nissan-Renault to develop a Rs 300000 car using India’s

“frugal engineering expertise”

• Bajaj to experiment with the idea of a small car

Market ShareIn the Passenger Car category, Maruti Suzuki is still the market leader with

around 50% market share

COMOARISION

•Considering huge market potential, production of passenger cars is projected to grow at

CAGR of 11% between 2010-11 and 2013-14.

Comparison:•1982

Number of manufacturers: 3

Vehicle sales: 20000

Number of models: 3

•2009:

Number of manufacturers: 15

Vehicle sales: 19,80,000 approx.

Number of models: 53