Is it possible to identify the typical “stratgies’ adopted by the firms in the sector towards (a) one another and (b) their customers? Because of the nature of the market the first impact on firms is the pressure to cut costs so as to increase their profit margins since this is the only way profits can be increased if firms intend to avoid price wars. One strategy being used is mergers like that between Nissan and Renault: and DaimlerChrysler. Insert law on mergers since competition in the industry is keen firms might want to reduce unit costs, especially as excess capacity is characteristic of the industry. One way to do this is by merging with each other, as McRover and Brilliance are doing to develop small and medium sized vehicles. According to the chief executive of Brilliance the main benefits of mergers is taking advantage of large economies of scale and spreading development costs for new products over bigger volumes, and increase purchasing power for components. Another strategy is the improvement of efficiency . Kevin House, Chief Executive of Rover said “”?with 80% of our components sourced from the UK and over 40% of our cars exported overseas, an over valued pound means we have to be more determined about our costs and efficiencies.” (The Guardian, August 2002) Outside factors must also be considered when discussing this particular issue such as interest rates, unemployment and the level of inflation. At present firms are enjoying an ever increasing turnover due to lower prices and the introduction of new models as the cost of borrowing has fallen. As firms strive to relocate and use excess capacity, their unit costs falls which then gives lower prices for consumers. For example in July 2002, there was a 2.4% fall in prices. With the influx of new models and product technologies, consumers are presented with a wide range of scope from which to choose. Oligopoly In the car manufacturing industry has therefor…
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