The United States Federal Trade Commission has determined that five major car manufacturers, from General Motors, Chrysler, Honda, Toyota, and Ford have monopolized the industry and have abused their power. Why is the automobile industry considered an oligopoly? The auto makers are considered to have power when the prices of a vehicle cannot be reigned in. When consumers cannot get the products they need at a price they want, they will buy elsewhere. The auto makers are able to charge high prices due to high overheads and marketing spend.
High overheads allow companies: to charge high prices for products due to economies of scale. These companies are able to control prices because they control a large percentage of the market. When consumers cannot get the products they need at the price they want, they will choose to purchase a car from a company they do not even know exists. Even though these companies try to sell cars at a loss, their overall profit margin is still high. This allows them to charge more for the same car, which further drives down consumer demand.
Car buyers are stuck between a rock and a hard place when choosing a car: Because the companies have so much financial power, they can dictate terms to consumers, which are almost impossible to refuse. For instance, a consumer may be offered a car that has an extremely high starting price, but it comes with a substandard engine. The consumer is therefore forced to take this car regardless of its poor quality. If this happened, the consumer would likely never consider purchasing another car because of the high cost.
The situation in the automobile industry is very similar to that in retailing: Big-name companies are able to dictate terms to retailers because they have the power of the economy on their side. Without consumers demanding better pricing, retailers would go out of business, forcing small businesses to either accept less than fair pricing or go out of business themselves. The result is that an already over-saturated market becomes even more over saturated as smaller businesses try to make their products available to those who otherwise would not have them.
Why is the automobile industry considered an oligopoly?
The answer is simple; the power of big business and their ability to manipulate the supply, demand, and level of service of a product determines how it is priced. An obvious example would be airline tickets. If a consumer goes to an established airline, they are likely to be charged for the most expensive fare possible because that is what the consumer agreed to pay for. However, if the consumer chooses a smaller, less traveled, or new airline they are likely to be charged a lower fare because they are not yet established and do not have the financial leverage of a major airline. Therefore, why is the automobile industry considered an oligopoly?
The answer to the question: “Why is the automobile industry considered an oligopoly?” is determined by those who benefit from the status quo. These are the airline companies, car manufacturers, and truck manufacturers. These large corporations use their incredible economic leverage to charge prices that force consumers to pay more or go without. Only the consumers who band together can prevent these giant corporations from taking over the transportation industry.
