oligopoly on automobile industry

1. CASE STUDY OF
OLIGOPOLY ON
AUTOMOBILE INDUSTRY
Presented by :-
Sumit Behura
Suchitra samantray
Farid Ahmad
Chinmaya Mohanty
Nilam priyadarsini Sethy

2. 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.

3. FEATURES
Few seller
Homogeneous or differentiated product
Barriers to entry and exit
High investment
Constant struggle
Lack of uniformity
Lack of certainty
Price rigidity

4. 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.

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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.

11. 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%; Maruti
800 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”

12. 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

13. Market Share
In the Passenger Car category, Maruti Suzuki is still the market leader with
around 50% market share

14. 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