Report: Market Structure Analysis of the US Automobile Industry

This report provides a detailed market structure analysis of the US automobile industry, focusing on the NAIC code 441110. It identifies the industry as an oligopoly, characterized by a few dominant firms like Ford, Chrysler, Toyota, and Honda. The report explores microeconomic relationships, such as price leadership by firms like General Motors and the influence of their pricing policies on competitors. It also examines the impact of government policies, including antitrust laws, emission standards, safety regulations enforced by the NHTSA, and corporate average fuel economy (CAFÉ) standards, on market prices, output, and the overall structure of the industry. The analysis highlights the complex regulatory environment and the need for automobile companies to comply with various legal requirements to avoid potential legal actions. The report references academic sources to support its findings.

Running head: MARKET STRUCTURE ANALYSIS OF AUTOMOBILE INDUSTRY
Market Structure Analysis of US Automobile Industry
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1MARKET STRUCTURE ANALYSIS OF AUTOMOBILE INDUSTRY
Selection of industry with NAIC code
The NAIC code of the selected sector for studying the market structure of the industry is
441110. This industry consists of different dealers who make new type of automobiles like
trucks, cars, sports vehicles and different types of vans such as passenger vans. The companies
under this industry is not only engaged in providing new automobiles but they also sell spare
parts of vehicles and provide repair services. The companies under NAIC code 441110 are
classified into three categories such as companies who are engaged in selling new cars or new
and used both, companies which sell light trucks and companies which sells only new cars.
Honda North America Inc., Ford Motor Company, and Mercedes Benz are some of the examples
of some major cars manufacturers in the US automobile industry that fall in the first category.
Structure and few characteristics of automobile market
The market structure of any industry consists of different outside factors which affect the
industry operation. The market structure can be monopoly, perfect, monopolistic and
oligopolistic. The leading companies like Ford Motors, Chrysler, Toyota, and Honda shows that
there are more than two companies in the market who are considered as market leaders. These
companies are strong competitors to each other and are influenced by each other’s policy and
performance (Andrevski, Brass & Ferrier, 2016). They are some of the specific companies in the
automobile sector in United States which shows the industry is not run by a single firm. This
makes the automobile industry in the US, an Oligopolistic market. The characteristics of an
oligopoly market are classified on the basis of few points. Firstly, the industry will be influenced
and mostly dominated by few companies operating in the market. Secondly, these few leading
companies will have the product line which is not very different from each other. The products

2MARKET STRUCTURE ANALYSIS OF AUTOMOBILE INDUSTRY
are mostly identical. Thirdly, the oligopolistic industry creates many restrictions and barriers for
entry of new firms.
Notable micro-economic relationships, market outcomes, and/or trends in automobile industry
In oligopolistic market, any change in the policy such as pricing policy can largely affect
the other competitors. The competing firms remain active always to receive information related
to other firms (Miller, Sheu & Weinberg, 2019). For example- In the 1990s, General Motors was
the price leader in the US automobile industry. Whenever Chrysler used to set higher price for its
products, General motors used to set a lower price for it. This practice of General motors
influenced the Chrysler pricing policy which was compelled to lower its prices similar to General
Motors. This example shows that some companies in oligopolistic market are price leaders and
some are considered as price followers (Kim, Lan, & Dobson, 2019).
Government’s policy impact on automobile industry’s market prices, output, and/or market
structure
There are different strategy of government to control the prices and output in the market.
Subsidies, corporate taxes, bail outs, fiscal policy are some of its examples. Antitrust laws are the
policies that government brings to regulate the market. These are the regulations to maintain the
fair competition among different competitors in any market structure. The use of antitrust laws
was initiated by the US government to protect the interest of consumers (Manne et al., 2018).
Recently, companies like Ford, BMW and Honda are investigated as directed by DOJ to find out
whether these companies have violated the tail pipe emission standards proposed by US
government. There are several industry regulations which are adopted by the government to save
the consumers interest and are proposed for their welfare like emission certificates are required

3MARKET STRUCTURE ANALYSIS OF AUTOMOBILE INDUSTRY
before launching the automobiles among public. These certificates are given by US
Environmental Protection Agency. Government also intervene in the pricing policy of the firms
under oligopolistic structure. All the vehicles manufactured in the US automobile industry need
to comply with the federal safety standards. National Highway Traffic Safety Administration
(NHTSA) plays a significant role in maintaining and certifying the safety margin of every
vehicle produced and sold in the country.
The examples of government regulations which control pricing of oligopolistic market are
prohibitions of certain kind of mergers and amalgamation which can create threat to the fair
competition in the market. Corporate Average Fuel Economy (CAFÉ) is also one of the safety
standards concerning efficiency in the usage of fuel. Following so many safety regulations and
manufacturing the vehicles as per these standards often makes the cars expensive. In spite of this
automobile companies should comply with these norms as well as they should comply to other
country’s norms where they are proposing to export their vehicles. The regulatory standards of
US concerning Automobile industry has become complex and stricter. Any participant of this
industry must comply with all the legal requirements. They should prevent from entering into
M&A and joint ventures which can attract legal actions against them.

4MARKET STRUCTURE ANALYSIS OF AUTOMOBILE INDUSTRY
References
Andrevski, G., Brass, D. J., & Ferrier, W. J. (2016). Alliance portfolio configurations and
competitive action frequency. Journal of Management, 42(4), 811-837.
Kim, S. H., Lan, H., & Dobson, P. W. (2019). Identifying price-leadership structures in
oligopoly. Oxford Economic Papers.
Manne, G. A., Boliek, B., Cooper, J. C., Epstein, R., Hazlett, T. W., Hurwitz, J. G., ... & Wright,
J. D. (2018). Amicus Brief of Antitrust Law & Economics Scholars, Ohio v. American
Express. Jonathan and Lambert, Thomas Andrew and Lipsky, Tad and Teece, David J.
and Wright, Joshua D. and Yoo, Christopher S., Amicus Brief of Antitrust Law &
Economics Scholars, Ohio v. American Express (January 25, 2018).
Miller, N. H., Sheu, G., & Weinberg, M. C. (2019). Oligopolistic Price Leadership and Mergers:
An Empirical Model of the US Beer Industry.