Market structure of Oligopoly - Assignment Example

Market Structure of Oligopoly Table of Contents Table of Contents 2 Characteristics of Global Automotive Industry 3 Application of Game Theory in Automotive Industry 3Competition Not on the Basis of Price 4Non-price Competition Strategy of Automotive Industry 5References 6Characteristics of Global Automotive Industry Owing to the complex structure of the production and development process of the automotive industry, it is often considered to be principally a knowledge based industry. This particular feature can be evidently observed in the leadership operations of Ford Motor Company, which renders primary significance towards training assistance to develop the knowledge base of its employees (Lam & Lambermont-Ford, 2009).

The supply chain of Ford also indicates an oligopoly industry structure which has various levels of suppliers that work throughout the production process until the final products are obtained (Law, 1991). Ford’s supply chain also involves a complex pattern including the manufacturing, accessorizing and assembly lines apart from the distribution channel (Ford Motor Company, 2013). Application of Game Theory in Automotive Industry The application of game theory for pricing strategy in the automotive industry is quite significant.

In this regard, the Nash equilibrium has a vital role in depicting the pricing strategy of the automotive industry. In Nash equilibrium concept, there are two players mainly column and row, where each player is aware of the equilibrium strategies of the other player. In such equilibrium situation, both the players must change their strategies simultaneously assuming that the change of the strategy by one player will not deliver positive results to the other. This is applied in the automotive industry where pricing can only be developed or changed effectively when all the players agree on the same proposal (Myerson, 2013).

The hypothetical profit matrix below will provide a clearer idea to the concept. As illustrated in the above hypothetical profit matrix, when player 1 tends to adopt strategy A and fix the per product price to 5 units, player 2 also compromises its profit margin by pricing 5 units per product and vice-versa. Again, when player 1 decides to fix its price per unit to 4, player 2 decides to lower its price to 1 and vice-versa, which imposes a strong impact on the profit margin of both the companies.

This depicts that in Nash equilibrium situation, the strategies adopted by one player are known to the other player who accordingly makes changes in pricing strategy; thus, leading to a change in the profit margin (Myerson, 2013). Competition Not on the Basis of Price Since there are several firms in the market to sell similar sort of products, low price strategy or high price strategy cannot be implemented for competition in the long run. Therefore, at most of the instances, Ford, being a major player in the oligopolistic market structure, emphasizes towards practicing differentiation and innovative strategies to apply the Game Theory, and ensure maximum profit.

Also, because the bargaining power of customers tends to be increasing in this market structure, differentiating the products in the basis of price for the long run shall prove unworthy or unproductive (Tucker, 2012). It is due to this reason that companies performing in an oligopolistic market structure focuses on non-price competitive strategy.Non-price Competition Strategy of Automotive Industry In the automotive industry, non-price competition strategy has been quite effective for Ford owing to the fact that the consumers are also quite concerned towards aspects such as quality and features apart from price.

Sequentially, Ford has been aimed at applying sustainable and green strategies in manufacturing its products which can be referred as its non-price competition strategy. This not only helped in persuading quality concerned loyal customers, but also rewarded the company with sustainability within the oligopolistic market differentiating it from its competitors (ACCA, 2013; Ford Motor Company, 2013). References ACCA, 2013. Business Strategy and Pricing. Uploads. [Online] Available at: http://www.chinaacc.com/upload/html/2013/06/27/lixingcundf971924b1cf4234b6603286cfc9151e.

pdf [Accessed 11 July 2013]. Ford Motor Company, 2013. Ford Wins Top 25 Award at 2013 Gartner Supply Chain Executive Conference. News Center. [Online] Available at: http://corporate.ford.com/news-center/press-releases-detail/pr-ford-wins-top-25-award-at-2013-38099 [Accessed 11 July 2013]. Lam, A. & Lambermont-Ford, J. P., 2009. Knowledge sharing in organisational contexts: a motivation-based perspective. Journal of Knowledge Management, Vol. 14, No. 1, pp. 51-66.Law, C. M., 1991. Restructuring the Global Automobile Industry: National and Regional Impacts.

Routledge. Myerson, R. B., 2013. Game Theory: Analysis of Conflict. Harvard University Press. Tucker, I. B., 2012. Microeconomics for Today. Cengage Learning.