A story about Buying a car in Germany between individuals
Introduction to the subject
Australia is one of the few countries with the ability to design cars from scratch and manufacture them in significant volumes. Car sales in Australia are also an important factor in the Australian automotive industry and the Australian economy as a whole and Buy a car in Germany between individuals.
The Australian automotive industry (AIA for short) can be divided into two interrelated sectors, the production (manufacturing) sector and the car sales (or import-sales) sector, both of which are equally important to the total performance of the AIA. The manufacturing sector refers to the market conditions in which Australian manufacturing companies compete with each other, producing vehicles and related products, with the primary aim of maximising profits for private individuals. On the other hand, the sales sector refers to the market conditions in which representative car sales companies compete, through the sale of cars and related products, with the same objective with companies in the first sector for Buy a car in Germany between individuals.
It is very important to distinguish between these two sectors within the IAA, as we will be talking about two different market structures, business strategies, competition conditions, etc. In order to analyse these market structures, it would be appropriate to develop two economic models, one for each IAA sector.
1.1-Analysis of the manufacturing sector for Buying a car in Germany between individuals
There is only one market structure that can best describe the market conditions in the manufacturing sector if AAI, and that is Oligopoly. As there are only two organisations that produce cars in Australia, and these are Ford and Holden, the methods of competition and pricing strategies are based between these two organisations. The following economic model should help define the competition and economic conditions in the Australian car manufacturing market for Buying a car in Germany between individuals.
The first important characteristic of the Oligopoly that needs to be stated is that prices between competitors tend to be 'sticky', meaning that they change less frequently than any other market structure. This statement will be explained in more detail later, when we develop the game theory model, as it is a very important concept of competition. The second most important feature is that when prices change, firms are likely to change their pricing policies together. These two features can stimulate competition in the market. Firms will either try to adapt to their competitors' price changes or ignore them. This depends on the game theory which is explained below and Buy a car in Germany between individuals.
However, recent market conditions for the Australian automotive industry and the actions of the Australian government have worsened the competitive conditions and possible pricing options available to companies in the market. The costs of producing and maintaining a manufacturing business in Australia are already high and rising, mainly due to the lack of economic resources and technological advances. That is, Holden and Ford are trying to compete, as prices tend to be 'sticky', they are forced to focus on technological advantage and marketing. Both of these areas of business generate high costs. In addition, the Australian government has made it clear that it is not willing to further subsidise automotive organisations in the market. All of these factors mentioned above have a negative effect on the competitiveness of both companies. In other words, rising costs and falling revenues are pushing the companies to lower and decreasing levels of profitability to Buy a car in Germany between individuals.
Profitability and the level of competitiveness are closely related in an oligopolistic market structure, being the two most important factors, together with product differentiation, in the competition policies followed by firms. When we say that the level of competitiveness of a firm is very low, we mean that the firm cannot react effectively to changes in prices or competition or even to changes in production costs. This can leave the company dependent on the prices and competitive actions of its competitors, without being able to affect the competitiveness of the market at all. The company then exposes itself to external danger and can be driven out of the market, or worse, stop production and go bankrupt.
1.2- The game theory model for oligopoly
The game theory model is used to explain the pricing and competition policies of firms in an oligopolistic market structure. In addition, it can show the few different price-based competition policies that the two firms can follow, i.e. high and low as mentioned above. All firms in this market structure follow a game theory model, although surely more detailed than our example, trying to predict competitor prices and competitive movements and also to monitor market competition levels and market share. But how does this happen?
For example, let's say there are four different fields, each divided into two. These fields represent the pricing strategies that Holden and Ford can use in the competition process. Fields A and C represent a high price policy for Holden, while fields A and B represent a high price policy for Ford. Finally, fields B and D represent a low price policy for Holden, while fields C and D represent a low price policy for Ford. When both companies decide to follow a high price policy, they share a profit of, say, $12 million. If Holden decided to switch to a low price policy, it would make a maximum profit of $15 million, while Ford's profitability would fall to $6 million. The exact opposite can also happen, where if both companies decided to follow a low price policy, they would make a maximum profit of $8 million.
What we can identify from the above example for Buying a car in Germany between individuals is that firms in an oligopolistically competitive market rarely change their pricing policies as this can have a negative effect on their profitability levels. However, Holden and Ford, being the only two companies in the Australian car industry, will focus on competing through product differentiation and marketing. That is, they will try to compete by differentiating their products, for example by producing vehicles with different features, or even by basing their production on a technological advantage. Marketing plays an important role here, as it is the main tool that delivers and connects the customer to the product. For example, if Holden introduces a new driving technology that improves the driving experience and safety and produces this technology with a newly designed vehicle, it is likely that Holden will effectively differentiate its newly designed vehicle from a relative Ford vehicle and attract more customers into the shop. Holden can also use marketing techniques to provide this technology to the public, in the form of knowledge; thus trying to boost sales without changing its pricing policy. However, it is important to point out that this new technology may lead to higher production costs, if not properly evaluated; therefore, Holden can only rely on increasing its market share to become more profitable. The commercial side will however be discussed in more detail in the next chapter of this report.
Game theory is not just a theory for the car industry in Australia, it is a fact. It shows us that Australian car manufacturers have based their competitive strategies on all the factors mentioned above and as much as possible on pricing strategies. They may advertise that they have low prices, but in fact their prices are very stable. If we look closely at Holden's or Ford's websites, we will identify that there is a wide variety of products and that each company is competing for this. However, the new market conditions outlined above have significantly changed the way car manufacturers look to the future, which in turn may change their pricing and competition policies and even determine their existence in the market.
2.1- Analyse the Import/Sale sector and Buy a car in Germany between individuals
While car manufacturers are considered to operate in an oligopolistic market structure, the import and sale of vehicles or related products is another story. The import and sale of vehicles is the second and equally important sector of the Australian automotive industry. There are many different car sales companies and we will only consider first hand sales, as second hand sales in general are not included in the economy and particularly in GDP measures. To enter the industry hard as there are not many barriers to entry, however, an interested person must consider the high costs associated with setting up a car dealership. All businesses in this market rely primarily on product differentiation to compete and, although prices are not 'fixed', price competition is implemented through the market mechanism and tends not to be considered a regular phenomenon. Finally, cost analysis and cost management play a very important role. All the above characteristics refer to the market structure of monopolistic competition. In this market structure we will focus on two phases, the short term phase and the long term phase, each with different characteristics and results of competition and Buy a car in Germany between individuals.
One important factor we need to mention here is that as the cost of developing a vehicle in the manufacturing sector increases, the cost of selling the vehicle to a dealer may also increase. This of course always depends on whether the vehicle was produced in Australia and if it was produced overseas, under what economic conditions it was produced. The price may be 'sticky' for manufacturers, but prices will change much more easily in this sector if necessary. Here, companies will change their pricing policies if costs rise or fall and this always depends on the market mechanism. The degree of competitiveness as well as the degree of price elasticity of demand will depend on the number of competitors that the monopolistically competitive firm faces.
In such a market, the following situation is very common, a situation that helps us to distinguish between the short term and the long term:
At this stage, the company is making economic profits. However, this will attract new companies to the market, which will lead to an erosion of profits.
The economic losses indicated at this stage will result in many companies exiting the market, as they cannot continue to sell under these market conditions.
In the final phase, the market clears or reaches the equilibrium point. As all the companies that were supposed to leave the market have done so, the market mechanism reaches the point where no economic profit/loss is made by the companies. This is the point where the market is most stable.
By studying the above situation, we can identify a very important fact for any monopolistically competitive firm in the Australian automotive/sales industry. That is, in this market structure, in the long run, firms will only make normal profits and the market mechanism will eventually reach an equilibrium point. Therefore, in the long run, firms will compete mainly through product differentiation. However, in the short run, firms may make economic profits or losses and this is what drives firms to enter or exit the market and 'shows' firms how to compete and when to apply price competition policies.
The Australian automotive industry can experience difficult market conditions, mainly because there is no longer government support; however, competition and profit maximisation are still possible. Thinking of moving overseas is not always a good option for manufacturing companies, as the Australian economy needs the manufacturing sector as it represents a reasonably large share of GDP and Buy a car in Germany between individuals.
The conditions of competition in the market are well defined for each car manufacturer or dealer. Therefore, every company in the market has to use the competitive strategies available to it and achieve a higher market share and profitability level or stabilise its profitability levels. In any case, these are the main objectives of almost all profit-making companies, regardless of the type of market, regardless of the market structure. However, each company needs to define the market structure in which it operates, so that it can then clearly define its objectives, strategies and policies. The market mechanism is in all cases responsible for all of the above strategies and in most cases responsible for setting pricing policies or indicating pricing and marketing strategies for Buying a car in Germany between individuals.
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