TERM PAPER OF BUSINESS ECONOMICS

SUBMITTED TO :
Mr. CHANDER SHEKHAR DOGRA

SUBMITTED BY :

NAME - SONAM REG. NO - 11013962 ROLL NO - R1002B66 Good beginning, but patchy work, no coherence in thought or approach. 11/25

ACKNOWLEDGEMENT:
The real spirit of achieving is through the way of excellence of austere disci pline, without which I would never have succeeded in finishing it without the co-operation, encouragement and help provided to me by various personalities. With this deep felt consent and pleasure, I would like to express my heart felt gratitude to all those who helped me in preparation of this term paper. It gives me immense pleasure in expressing my deepest and sincerest gratitude towards my project guide Mr.CHANDER SHEKHAR DOGRA (lecturer of ECONOMICS) and for there considerate help, inspiring guidance throughout this work. I shall be failing in my duty if I do not thank all the other Quality Personnals and other lect. for source of constant encouragement and cooperation, through out my project. I would be defying if I do not mention my constant source of inspiration and vitality, that is, my parents who invested their present for my future and for their co-operation, support & encouragement without which I could not have seen the light of the day.

TABLE OF CONTENTS:
INTRODUCTION TO TATA PRODUCT RANGE OF TATA INTRODUCTION TO HONDA PRODUCT RANGE OF HONDA TYPE OF COMPETITION FEATURES OF OLIOGOPOLY DEMAND CURVE TATA SALES RECORD HONDA SALES RECORD CHANGE IN PRICES PRICE ELASTICITY INCOME ELASTICITY CROSS ELASTICITY CONCLUSION&REFRENCES 4 5-6 7 8 9 10 11 12-13 14-15 16 17 18 19 20

INTRODUCTION TO TATA MOTORS

Tata Motors is Indias largest automobile company, with consolidated revenues of USD 20 billion in 2009-10. It is the leader in commercial vehicles and among the top three in passenger vehicles. Tata Motors has winning products in the compact, midsize car and utility vehicle segments. The company is the world's fourth largest truck manufacturer, the world's second largest bus manufacturer, and employs 24,000 workers. Since first rolled out in 1954, Tata Motors has produced and sold over 4 million vehicles in India. Established in 1945, when the company began manufacturing locomotives, the company manufactured its first commercial vehicle in 1954 in a collaboration with Daimler-Benz AG, which ended in 1969. Tata Motors is a dual-listed company traded on both the Bombay Stock Exchange, as well as on the New York Stock Exchange. Tata Motors in 2005, was ranked among the top 10 corporations in India with an annual revenue exceeding INR 320 billion. In 2010, Tata Motors surpassed Reliance to win the coveted title of 'India's most valuable brand' in a annual survey conducted by Brand Finance and The Economic Times. Tata Motors has auto manufacturing and assembly plants in Jamshedpur, Pantnagar, Lucknow, Ahmedabad, Sanand and Pune in India, as well as in Argentina, South Africa and Thailand.

PRODUCT RANGE OF TATA MOTORS

Passenger cars and utility vehicles

Tata Xover

Tata Nano Europa

Tata Starbus Low Floor 1610

Tata Marcopolo buses in the Delhi BRT.

Tata Sierra (Discontinued) Tata Estate (Discontinued) Tata Sumo/Spacio Tata Safari Tata Indica Tata Vista Tata Indigo Tata Manza Tata Indigo Marina Tata Winger Tata Magic Tata Nano Tata Xenon XT Tata Aria tata pratul

Concept vehicles

2000 Aria Roadster 2001 Aria Coupe 2002 Tata Indiva 2004 Tata Indigo Advent 2005 Tata Xover 2006 Tata Cliffrider 2007 Tata Elegante 2009 Tata Pr1ma 2010 Tata Versa 2010 Tata Essota

Commercial vehicles

Tata Ace

Tata TL/Telcoline/207 DI Pickup Truck Tata 407 Ex and Ex2 Tata 709 Ex Tata 809 Ex and Ex2 Tata 909 Ex and Ex2 Tata 1109 (Intermediate truck) Tata 1510/1512 (Medium bus chassis) Tata 1612/1616 (Heavy bus chassis) Tata 1618 (Semi Low Floor bus chassis) Tata 1610/1623 (Rear Engined Low Floor bus chassis) Tata 1613/1615 (Medium truck) Tata 2515/2516 (Medium truck) Tata Starbus (Branded Buses for city,inter city,school bus and standard passenger transportation) Tata Globus (Range of fully built luxury coaches) Tata Hispano Globus (Rear Engined Inter city coach) Tata Marcopolo Bus (Low Floor, Semi Low Floor buses for Mass Rapid Transit and also standard passenger transportation Buses) Tata 3015 (Heavy truck) Tata 3118 (Heavy truck) (8X2) Tata 3516 (Heavy truck) Tata 4018 (Heavy truck) Tata 4923 (Ultra-Heavy truck) (6X4) Tata Novus (Heavy truck designed by Tata Daewoo) Tata Prima (The World Truck designed by Tata Motors and Tata Daewoo)

Military vehicles

Tata LSV (Light Specialist Vehicle) Tata Mine Protected Vehicle (4x4) Tata 2 Stretcher Ambulance Tata 407 Troop Carrier, available in hard top, soft top, 4x4, and 4x2 versions Tata LPTA 713 TC (4x4) Tata LPT 709 E Tata SD 1015 TC (4x4) Tata LPTA 1615 TC (4x4) Tata LPTA 1621 TC (6x6) Tata LPTA 1615 TC (4x2) Tata Winger Passenger Mini Bus

INTRODUCTION TO HONDA

Honda is the world's largest manufacturer of motorcycles as well as the world's largest manufacturer of internal combustion engines measured by volume, producing more than 14 million internal combustion engines each year. Honda surpassed Nissan in 2001 to become the second-largest Japanese automobile manufacturer. As of August 2008, Honda surpassed Chrysler as the fourth largest automobile manufacturer in the United States. Honda is the sixth largest automobile manufacturer in the world. Honda was the first Japanese automobile manufacturer to release a dedicated luxury brand, Acura, in 1986. Aside from their core automobile and motorcycle businesses, Honda also manufactures garden equipment, marine engines, personal watercraft and power generators, amongst others. Since 1986, Honda has been involved with artificial intelligence/robotics research and released their ASIMO robot in 2000. They have also ventured into aerospace with the establishment of GE Honda Aero Engines in 2004 and the Honda HA-420 HondaJet, scheduled to be released in 2011. Honda spends about 5% of its revenues into R&D.

PRODUCT RANGE OF HONDA

The honda deals in variety of products they are market leaders in the case of motorbikes and also providing the cars .

BIKES AND SCOOTERS

Activa Aviator dlx Aviator STD CB shine DISC 8

CB shine Drum CB unicorn Dazzler CB unicorn Electric start Activa Eterno Aviator CB 1000 R

CBR 1000 RR CBF stunner CBF stunner PGM-FI Dio

HONDA CARS
- Honda Jazz - Honda city - Honda city hybrid - Honda accord - Honda CR-V

TYPE OF COMPETITION IN WHICH BOTH THE COMPANIES ARE OPERATING

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). The word is derived, by analogy with "monopoly", from the Greek (oligoi) "few" + (polein) "to sell". Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants.

Oligopoly is a common market form. As a quantitative description of oligopoly, the fourfirm concentration ratio is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage. For example, as of fourth quarter 2008, Verizon, AT&T, Sprint Nextel, and T-Mobile together control 89% of the US cellular phone market. Oligopolistic competition can give rise to a wide range of different outcomes. In some situations, the firms may employ restrictive trade practices (collusion, market sharing etc.) to raise prices and restrict production in much the same way as a monopoly. Where there is a formal agreement for such collusion, this is known as a cartel. A primary example of such a cartel is OPEC which has a profound influence on the international price of oil. Firms often collude in an attempt to stabilize unstable markets, so as to reduce the risks inherent in these markets for investment and product development. [citation needed] There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place (although for the act to be illegal there must be actual communication between companies)for example, in some industries there may be an acknowledged market leader which informally sets prices to which other producers respond, known as price leadership. In other situations, competition between sellers in an oligopoly can be fierce, with relatively low prices and high production. This could lead to an efficient outcome approaching perfect competition. The competition in an oligopoly can be greater than when there are more firms in an industry if, for example, the firms were only regionally based and did not compete directly with each other. Thus the welfare analysis of oligopolies is sensitive to the parameter values used to define the market's structure. In particular, the level of dead weight loss is hard to measure. The study of product differentiation indicates that oligopolies might also create excessive levels of differentiation in order to stifle competition. 10

FEATURES OF THE OLIOGOPOLISTIC MARKET

Profit maximization conditions: An oligopoly maximizes profits by producing where marginal revenue equals marginal costs. Ability to set price: Oligopolies are price setters rather than price takers. Entry and exit: Barriers to entry are high. The most important barriers are economies of scale, patents, access to expensive and complex technology, and strategic actions by incumbent firms designed to discourage or destroy nascent firms. Number of firms: "Few" a "handful" of sellers. There are so few firms that the actions of one firm can influence the actions of the other firms. Long run profits: Oligopolies can retain long run abnormal profits. High barriers of entry prevent sideline firms from entering market to capture excess profits. Product differentiation: Product may be standardized (steel) or differentiated (automobiles). Perfect knowledge: Assumptions about perfect knowledge vary but the knowledge of various economic actors can be generally described as selective. Oligopolies have perfect knowledge of their own cost and demand functions but their inter-firm information may be incomplete. Buyers have only imperfect knowledge as to price, cost and product quality. Interdependence: The distinctive feature of an oligopoly is interdependence. Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firm's market actions and will respond appropriately. This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm's countermoves. It is very much like a game of chess or pool in which a player must anticipate a whole sequence of moves and countermoves in determining how to achieve his objectives. For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war. Or if the firm is considering a price increase, it may want to know whether other firms will also increase prices or hold existing prices constant. This high degree of interdependence and need to be aware of what the other guy is doing or might do is to be contrasted with lack of interdependence in other market structures. In a PC market there is zero interdependence because no firm is large enough to affect market price. All firms in a PC market are price takers, information which they robotically follow in maximizing profits. In a monopoly there are no competitors to be concerned 11

about. In a monopolistically competitive market each firm's effects on market conditions is so negligible as to be safely ignored by competitors.

Demand curve

Above the kink, demand is relatively elastic because all other firms' prices remain unchanged. Below the kink, demand is relatively inelastic because all other firms will introduce a similar price cut, eventually leading to a price war. Therefore, the best option for the oligopolist is to produce at point E which is the equilibrium point and the kink point. This is a theoretical model proposed in 1947, which has failed to receive conclusive evidence for support. In an oligopoly, firms operate under imperfect competition. With the fierce price competitiveness created by this sticky-upward demand curve, firms use non-price competition in order to accrue greater revenue and market share. "Kinked" demand curves are similar to traditional demand curves, as they are downwardsloping. They are distinguished by a hypothesized convex bend with a discontinuity at the bend"kink". Thus the first derivative at that point is undefined and leads to a jump discontinuity in the marginal revenue curve. Classical economic theory assumes that a profit-maximizing producer with some market power (either due to oligopoly or monopolistic competition) will set marginal costs equal to marginal revenue. This idea can be envisioned graphically by the intersection of an upward-sloping marginal cost curve and a downward-sloping marginal revenue curve (because the more one sells, the lower the price must be, so the less a producer earns per unit). In classical theory, any change in the marginal cost structure (how much it costs to make each additional unit) or the marginal revenue structure (how much people will pay for each additional unit) will be immediately reflected in a new price and/or quantity sold of the item. This result does not occur if a "kink" exists. Because of this jump

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discontinuity in the marginal revenue curve, marginal costs could change without necessarily changing the price or quantity. The motivation behind this kink is the idea that in an oligopolistic or monopolistically competitive market, firms will not raise their prices because even a small price increase will lose many customers. This is because competitors will generally ignore price increases, with the hope of gaining a larger market share as a result of now having comparatively lower prices. However, even a large price decrease will gain only a few customers because such an action will begin a price war with other firms. The curve is therefore more price-elastic for price increases and less so for price decreases. Firms will often enter the industry in the long run.

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TATA MOTORS SALES RESULT

Released on : 1st February, 2010

Tata Motors January sales at 65,478 nos.

Tata Motors total sales (including exports) of Tata commercial and passenger vehicles in January 2010 were 65,478 vehicles, a growth of 77% over 36,931 vehicles sold in January 2009. The companys domestic sales of Tata commercial and passenger vehicles for January 2010 were 62,202 nos., a 74 % growth over 35,704 nos. sold in January last year. Cumulative sales (including exports) for the company for the fiscal at 498,108 nos., recorded a growth of 24 % over 400,284 nos. sold last year. Commercial Vehicles The companys sales of commercial vehicles in January 2010 in the domestic market were 35,957 nos., the second highest ever and a 107% growth compared to 17,373 vehicles sold in January last year. LCV sales were 20,255 nos., the highest ever and a growth of 75% over January last year. M&HCV sales stood at 15,702 nos., a growth of 170% over January last year. Cumulative sales of commercial vehicles in the domestic market for the fiscal are 291,125 nos., a growth of 37% over last year. Cumulative LCV sales are 174,276 nos., a growth of 45% over last year, while M&HCV sales stood at 116,849 nos., a growth of 26% over last year. Passenger Vehicles The passenger vehicles business reported a total sale and distribution offtake of 28,547 nos. (26,245 Tata + 2,302 Fiat) in the domestic market in January 2010, the highest ever and a 43% increase compared to 19,911 nos. (18,331 Tata + 1,580 Fiat) in January last year. Sales of Tata cars, at 22,707 nos. are the highest ever and a growth of 47% over January 2009. Sales of the Tata Nano were 4,001 nos. The Indica range sales were 11,448 nos., the highest this fiscal though flat over January last year. The Indigo range recorded sales of 7,258 nos., the highest ever since the Indigos launch in 2002 and a growth of 83% over January last year. The Sumo/Safari range

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accounted for sales of 3,538 nos., the highest this fiscal and a growth of 21% over January last year. Jaguar Land Rover sales continued their upward trend since launch in June with their highest sales in January. Cumulative sales and distribution offtake of passenger vehicles in the domestic market for the fiscal are 200,573 nos. (180,184 Tata + 20,389 Fiat), against 162,425 nos. (157,439 Tata + 4,986 Fiat) last year, a growth of 23%. Cumulative sales of the Nano are 21,535 nos. Cumulative sales of the Indica range at 91,295 nos., reported a growth of 6%. Cumulative sales of the Indigo family are 41,724 nos., higher by 3%, coming into the positive territory for the first time this fiscal based on the growing acceptance of the newly launched Indigo Manza. Cumulative sales of the Sumo/Safari range are 25,630 nos., lower by 17%. Exports The company's sales from exports at 3,276 vehicles in January 2010 registered a growth of 167% compared to 1,227 vehicles in January last year. The cumulative sales from exports for the fiscal at 26,799 nos. are lower by 12% over 30,293 nos. in the same period last year.

HONDA SALES RECORD

Honda's profit doubles on solid sales despite yen Christine Tierney

Honda Motor Co. raised its full-year profit forecast today after reporting a surge in earnings for the July-September quarter on the back of higher sales. Tokyo-based Honda beat analysts' estimates, reporting net profit of 135.93 billion yen, or $1.7 billion, up from 54 billion yen, or $680 million, despite a rise in the yen to near-record levels.

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Advertisement
Honda's operating profit also more than doubled, to $2 billion, in the second quarter of the Japanese fiscal year. Sales rose across all of the company's main businesses. Best known as the manufacturer of the Accord and Civic cars, Honda also is the world's largest motorcycle maker and it sells motors for products ranging from boats to lawnmowers. Honda raised its net profit forecast for the year ending March 31 to 500 billion yen, or $6.25 billion, up from a previous forecast of 455 billion yen, or $5.7 billion, disclosed in July. Honda is the first of the so-called "Japan Three" to report its earnings. Nissan Motor Co. and Toyota Motor Corp. will issue their quarterly results next week. Although the rise in the yen has raised the cost of Japanese vehicle exports, Japan's automakers have benefited from a sales recovery in most markets. Global auto sales have risen 14 percent in the first nine months of 2010, to 52.5 million cars and light trucks, Deutsche Bank said today, citing figures compiled by Renault SA. Helped by higher car sales in Japan and the United States, Honda's quarterly revenue rose 9.5 percent to 2.25 trillion yen, or $27.9 billion. The much smaller Mazda Motor Corp. reported a tenfold jump in profits Friday to 7.62 billion yen, or $94.4 million, for the second quarter, from 707 million yen, or $9 million, a year earlier. It sales were up 3.1 percent at 579.7 billion yen, or $7.18 billion. Last week, Mitsubishi Motors Corp. announced that it had narrowed its loss in the first half of the fiscal year to 4.9 billion yen, or $61 million, from 36.4 billion yen, or $455 million. Mitsubishi Motors expects to be profitable by the end of the year, but lowered its earnings forecast because of the yen's strength, according to Bloomberg News. After appreciating more than 30 percent since 2007, the Japanese currency is flirting with a record high of 79.75 yen to the dollar set in 1995. Honda said it has been hurt by the rising yen, which was trading at 86 to the dollar, on average, during the second quarter, up from 94 to the dollar a year earlier. Recently, the dollar has been trading around 80 yen, raising major concerns in Japan about the country's exporting sectors. Although Honda raised its earnings projections for the year, it trimmed its vehicle sales forecast, to 3,615,000 from its July forecast for 3,640,000 unit sales. Honda also trimmed its

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overall revenue forecast. Although its results exceeded most analysts' forecasts, investors may be disappointed by the cautious full-year forecasts. "Some parts of the market were expecting big upward revisions, so the cautious full-year company numbers may come as a negative," said Noriyuki Matsushima, Tokyo-based analyst for Citi Investment Research and Analysis. Honda is developing more hybrids and alternative-energy models to spruce up its lineup. It has introduced a hybrid version of its Fit subcompact, which is available now only in Japan. At the Los Angeles Auto Show next month, it will show a prototype of an electric car that it plans to sell in the United State and Japan in 2012.

REASONS FOR GROWTH IN SALES

Increasing demand of the products Companies has reduced prices in the case of special offers More and more advertisements done by the company.

The demand for the company's product is increasing because the company is able to create the distinct position of its products by spending aggresively on the advertising and sales promotion activities of their products and they are offering reduced prices in the case of some events or special offers.

FOLLOWING IS THE EXAMPLE SHOWING THE PRICES OF DIFFERENT CARS OF TATA AND HONDA DURING DIFFERENT TINE SETS

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CARS TATA ARIA TATA MANGZA HONDA CITY

INITIAL PRICE 14,13,001 5,12,732 8,15,000

CHANGED PRICE 13,13,901 5,20,732 8,62,000

INCREASE/DECREASE DECREASE INCREASE INCREASE

HONDA JAZZ

7,36,912

7,20,500

DECREASE

FOLLOWING IS THE ANALYSIS OF THE ADERTISEMENT EXPENDITURE DONE BY DIFFERENT COMPANIES

Both the companies are spending heavily on the advertisements so as to create a distict position of their product in the minds of the customers.

EXPENDITURE TATA HONDA

2007-08 39.4 Cr 42.3 Cr

2008-09 42.9 Cr 51.2 Cr

2009-10 65.3 Cr 60.3 Cr

As both the companies are increasing their advertisement expense their sales are also proportionately increased , this shows that the advertisement have the positive impact on the sales of both the companies.

FINDING OUT THE ELASTICITIES OF DEMAND

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PRICE ELASTICITY OF DEMEND

Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price (holding constant all the other determinants of demand, such as income).

PED is a measure of the sensitivity (or responsiveness) of the quantity of a good or service demanded to changes in its price. The formula for the coefficient of price elasticity of demand for a good is:

Taking the case of HONDA JAZZ when the company changes the price of the car on the depawli event the resultant change in demend is : HONDA JAZZ PRICE INITIAL 7,36,912 CHANGED 7,20,500 % CHANGE 2.22%

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DEMAND

24,567

30,412

17.7%

PRICE ELASTICITY IN THIS CASE IS : (17.7/2.22) = 7.97%

INCOME ELASTICITY OF DEMAND In economics, income elasticity of demand measures the responsiveness of the demand for a good to a change in the income of the people demanding the good, holding all prices constant. It is calculated as the ratio of the percentage change in demand to the percentage change in income. For example, if, in response to a 10% increase in income, the demand for a good increased by 20%, the income elasticity of demand would be 20%/10% = 2.

CROSS ELASTICITY OF DEMAND:

In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good. It is measured as the percentage change in demand for the first good that occurs in response to a percentage change in price of the second good

News regarding change in prices of TATA NANO :

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Tata Motors raises Nano car price by Rs 9,000 from Nov 1

Related Industry : Auto By Vishwanath Nair MUMBAI, OCT 29 (TickerNews Service): Tata Motors has raised prices for its cheapest car Nano by Rs 9,000 (ex-showroom) on an average effective from Nov 1 to partially neutralise the steep increase in input cost in the past two years. The company began open sales of the car in Kerala in August and in Karnataka, Maharashtra, Uttar Pradesh and West Bengal since October. Nano which is advertised as the 'people's car', and is currently the world's cheapest, is produced from Tata Motors' Sanand plant in Gujarat. Tata Motors shares today ended at Rs 1,159 on National Stock Exchange, down 2.8% from previous close. (End) Filed Phone: +91 (22) by 6147 5100. Rajesh Menon

feedback@tickerplantindia.com

Copyright (c) TickerPlant Ltd.

So, as the price of the product has been increased i.e tata nano has increased , there may be possibility that the demand for the other competitors product increases as AJANTA is also going to enter in the low price car segment in indian market in direct competition with TATA NANO .

CONCLUSION
So, the automobile industry is competing in the oliogoboly type of the market condition , in which two or more players enjoy the major market share such as TATA HAVING 60% MARKET SHARE IN AUTOMOBILE SECTOR IN INDIA and HONDA IS HAVING AROUND 30% MARKET CAP , and the all the major players adopt different set of strategies in order to gain the competitive edge over the other for eg if one seller introduce new
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product in the market the other seller also countermoves the action by giving some new offering , if one gives discounts the other one might adopts the strategy of giving free gifts with the same price tag , so it is a type of market situation where the action of one is countermoved by the strategic actions of the other persons.

REFRENCES
www.Carcostmenia.com. www.hondamotors india.com. www.tatamotors.com. http://www.businessweek.com/magazine/content/10_16/b417402466 4807.htm http://en.wikipedia.org/wiki/Honda http://www.cardekho.com/india-car-news/tata-motors-to-increase-uvmarket-share-in-gujarat-2829.htm http://www.cardekho.com/upcomingcars

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