Consumers, Firms and Markets

Group Assignment Questions

Case: Toyota Australia in Peril

Title: Toyota Australia in Peril

Batch: 2020 - 2022 Section: A Group No. 7 Date:17/10/2020

S.N. Name Roll No.

1 Aanchal Mahajan 202022027
2 Devansh Singh 202032070
3 Jatin Gupta 202012057
4 Prateek Joshi 202032069

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Q.1: What is the market structure of Toyota Australia? Justify? (Word limit: 200 words)

Market structure can be of 4 types: Perfect competition, Monopolistic competition, Oligopoly

competition and Monopoly.

In this case, the market Structure of Toyota Australia is ‘Oligopoly’. Oligopoly can be defined as a
market structure in which there are only a few firms, each of which is large relative to the total
industry.
As it is mentioned in the case that – ‘In, 2013, apart from Toyota, Australia had two car
manufacturers: Ford motor Company of Australia and General Motors Holden.’ – this validates that
the firm is operating in oligopoly as only 3 large firms and a few more were there to compete
against Toyota Australia.

An oligopoly is characterized by the products as may be homogeneous or differentiated. It is

evident from the article saying ‘Approximately 65 brands and 365 models….’ – Showing
homogeneity and differentiated products.

An oligopoly competition is a price maker, not a price taker. This can be justified as the Toyota
Australia emerges to be the market leader since 2003 continuously, as per Exhibit 3. It has the
largest share of market proportion due to which it can influence the prices prevailing in the market.
Though, Holden is immediately below it, followed by Mazda (in 2012).

Q2: Is Toyota Australia operating at the optimal scale of operation? Should Toyota expand or
contract its scale of operation? What are the associated implications? Support your answer with a
diagrammatic presentation. (Word limit: 500 words)

No, the Toyota Australia isn’t operating at the optimal scale of operation. As article mentions –
‘Toyota, the largest Australian manufacturer, with an annual installed capacity of 1,50,000 units
produced just more than 1,00,000 vehicles in 2012.’ The small-scale production kept the average
cost of production at a higher level and led to an adverse impact on scale of operation.

As in the long run, Toyota should expand its scale of operation in order to reach optimal scale of
operation. The company’s further investment in the Altona plant will reduce the production cost
and will also maintains its production. As a result, the company would be able to attain its optimal
scale of operation.

The situation implies that the Toyota Australia due to lack of scale economies, it may lead to the
loss in its market proportion. The Toyota Australia might face a tough competition if it does not
expand its scale of operation.

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Q3: What should Toyota do? Should it wait for the demand and cost conditions to improve or exit
the market? (Word limit: 500 words)

Toyota Australia should not exit the market. Its closure would result in job losses not only for its
employees in the manufacturing unit but also for those who were supported by Toyota through
supply chain linkages. Toyota should wait for the demand and cost conditions to improve.

Toyota can improve its cost condition by working it with Australian Manufacturing Workers Union
(AMWU) and gather its support.

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Toyota with the help of government can improve the condition of Free Trade Agreement. As
according to the article – ‘Although the FTAs were expected to result in win-win situation for all the
countries involved, the FTAs signed by Australian with countries such as Thailand, Japan, South
Korea, had turned out to be bad news for Australian car industry. The partner countries had either
retained high tariff rates on imported cars or used subtle methods to keep the imported cars out of
their domestic markets.’ Government can regulate this unbalanced trading environment and
improve cost conditions for Toyota Australia.

Government can help reduce the tariffs on imported products, which in turn reduces the cost of
production of the Toyota Australia.

Hence, the Toyota Australia should not exit the market, instead it should wait for the cost
conditions to improve.