Business

Economics
Alliance University
EPGDM (Term - 2)
Name: Priyanka Jha
Regn No: PROV/EPGDM-12-20/109
1. What type of market structure is Toyota Australia operating? What are the features of this
market? What challenges does this market structure pose for the company?

Answer:

The market structure for Toyota is an oligopoly.

What is Oligopoly Market:

Oligopoly could be a market structure with a tiny low number of firms, none of which might keep
the others.
from having significant influence. A monopoly is one firm, a duopoly is 2 firms, and an oligopoly is
2 or more firms.

Characteristics of Oligopoly Market:

• An industry dominated by a little number of huge firms

• Firms sell either identical or differentiated products
• The industry has significant barriers to entry

Since the market consists of few firms that control the market; with homogeneous
products. Because of high startup costs very, few firms can enter the market.

Features of this market:

Oligopoly have few features in market like:

• Few Firms: In Oligopoly, few large firms are in market. Each firm produces a large portion of
the full output. There exists deliver competition among different firms and every firm try
attempt both prices and volume of production.

• Interdependence: Each firm produces a major portion of the full output. For instance,
the marketplace for automobiles in India is an Oligopolist structure as there are only few
producers of automobiles.
For example, market for cars in India is dominated by few firms like Tata, Maruti etc.
• Non-Price Competition: Under oligopoly, firms are in a very position to influence the costs.
However, they struggle to avoid price battle for the fear of price struggle. They follow the
policy of price rigidity. Price rigidity refers to a situation within which price tends to
remain fixed regardless of changes in demand and provide conditions. Firms use different
method like promotions, for better services to customers etc. to compete with one another. If
a firm tries to cut back the value, the rivals will react by reducing their prices. However, if it
tries to boost the worth, other firms won't do so. it'll result in loss of consumers for the firm,
which intended to boost the value. So, firms prefer non- price battle rather than price war.

• Barriers to Entry of Firms: The main reason for few firms under oligopoly is that the barriers,
which prevent entry of recent firms into the industry. Patents, requirement of
enormous capital, control over crucial raw materials, etc are a number of the explanations,
which prevent new firms from moving into industry. Only those firms enter into the industry
which is in a position to cross these barriers. As a result, firms can earn abnormal profits within
the long term.

• Role of Selling Costs: Due to severe competition ‘and interdependence of the firms,
various advertisement techniques are wont to promote sales of the merchandise.
Advertisement is full swing under oligopoly, and plenty of times advertisement can become a
matter of life-and-death. A firm under oligopoly believes more on non-price competition.
Selling costs are most important in oligopoly than under monopolistic competition.

• Group Behavior: In oligopoly, there is complete inter-dependence among different firms. So,
price and taken decisions of a particular firm directly impact the competing firms. Instead of
independent price and output strategy, oligopoly firms prefer group decisions that will protect
the rights of all the firms. Group Behavior means that firms pretend behave as like they were a
single firm.

• Nature of the Product: The firms under oligopoly may produce homogeneous or differentiated
product.
1. If the firms produce a homogeneous product, like cement or steel, the industry is named
a pure or perfect oligopoly.

2. If the firms produce a differentiated product, like automobiles, the industry is termed
differentiated or imperfect oligopoly.
 Challenges of Oligopoly Market:

The major challenge of the market is that the cartel-like behavior which reduces competition and
thus reduces output. Competition from firms like Ford, and other car companies poses a
good challenge for Toyota. There are barriers to entry. Competition is that the main
challenge during this market.

An oligopoly may collude to line a price or output level for a market to maximize industry profits.
Oligopolists pursuing their individual self-interest would produce a greater quantity than a
monopolist and charge a cheaper price.
How to maximize profit in Oligopoly Market:

If Toyota in an oligopoly can successfully collude to mend prices, then they will make certain of
every other's output, which can allow maximizing their profits by producing that quantity of
output where –

Marginal Revenue = monetary value, even as it'd be for a monopoly

2. What factors are affecting the profitability of Toyota Australia? Which side of the market are
they related to? Which of these factors can the company control to improve profitability? What
strategy would you suggest to improve the profitability?

Answer:

Factors affecting the profitability of Toyota Australia were:

• Competitive and Fragmented Market: While Toyota, Holden and Ford were seen to be the
most important players, the Australian market, with its low-tariff barriers and highly open
trading environment, also provided easy accessibility to imported cars, making the
market one in all the foremost competitive, while also highly fragmented.
 • Changes in Demand: Because of the depression, and also the slow recovery process,
automobile demand, in developed countries decreased. The demand within the Australian
Market itself, was rather thin – accounting for under about 1.3% total global sales (2013).
Additionally, there was a shift seen to the emerging markets, specified a shift was seen not
only geographically, but also in terms of composition of demand – a preference for tiny, fuel
efficient cars (an anti-thesis to the kinds of cars Toyota manufactured) was on the increase.

• Small Scale of Operations: With Australia being a awfully small player in global automotive
production, monetary value of production of vehicles was high, thanks to the
ensuing smaller scale of operations of the manufacturers of components, which led to them
supplying components to the corporate at a better cost.

• Added Costs: High cost of labour, and also the additional taxes imposed, including carbon
tax and luxury tax, further added to the value of producing in Australia.

• Policies: With government policies adding stipulations to assistance provided, linking the
receipt of the identical to investment and expenditure in research and development, more
funds were seen to be redirected to exports – competitive arena – instead of the
manufacturing, increasing the stress on exports.

• Trade Agreements and Trade Environments: While FTA’s signed by Australia were with the
intention of improvement of trade and capital flows, assuming a win-win situation for all,
the FTAs signed with countries including Thailand, Japan and South Korea proved to be
highly detrimental to the Australian car industry, as partner countries used various means to
stay imported cars out of their domestic markets

• Currency: With the dollar strengthening over USD, and Australia’s primary exports being to
GCC countries, and being committed in USD, the overall profitability of its exports, also
declined.

Toyota is faced by various factors like heavy taxation, hyper competition, lawsuit actions, high
maintaining costs, higher recall losses which has made business almost unsustainable.
Strategy to boost profitability:

The company must control its brand image by offering best quality and built trust factors among
customers and maintain aggressive pricing and retailer tie-ups for higher volume.

Toyota must strongly position itself as highest quality made car as per customer revie This can
generate positive word of mouth for better revenue. Moreover, must work on economies of scale and
global standardisation strategy to chop cost drastically and improve profitability.

Toyota Australia should practice the philosophy of steady improvement in productivity and
continuous reduction in cost, as envisioned within the Toyota Production System They ought to start
producing small segment cars targeting all 2-wheeler customers to process more market share and to
avoid dependency on export. Right now, focus of Toyota is barely on high end vehicle which must be
changed.

3. What should Toyota do? Should it wait for demand and cost conditions to improve, or
should it exit the market? Give reasons

Answer:

From exhibit chart 4, we will clearly say that Toyota Australia isn't operating at the useful scale of
operation. there's only 13% market share in Australia within the year 2012 which might be easily
improved by a minimum of 30 – 35% with Toyota’s brand loyalty or we will say that with Toyota
brand good-will. Toyota can expand its scale of operation to maximise the market share to survive.

With demand and value conditions in Australia being unfavorable to Toyota, at present, they
will make either of 1 decision, each carrying their own result

• Go with Ford and Holden, and exit the Market:

Advantages:

It Might give monetary profit to the corporate to shift its manufacturing unit out of Australia,
especially of avoiding the high export tariffs as per existing FTAs, being to export – possibly also
simultaneously increase production to the currently in-demand smaller, fuel-efficient cars.

Disadvantages:

This would end in plenty of job loss – not just for direct employees of Toyota but also along the
provision chain of the firm

• Wait for the case to Become Favorable:

Advantages:

In this case, maybe a competitor of the firm exited the market, and Toyota can increase further
overtime with positively impact production to satisfy up upmarket demand and
Employees will be proud of their job security.

Disadvantages:

Toyota has to look ahead to thing bet back to in good working condition, and for the mean-time the
corporate will still face the present issues within the market.

Suggestions:

The shift will be made, to extend production to extend the economy of scale profit, beginning have
to meet a minimum of the installed capacity of 150,000 cars per annum; together with good
negotiations have to make with the worker’s union, to cut back total costs; similarly as
negotiations have to make with the govt. to further reduce the general cost of producing. Toyota can
make a shot to continue within the Australian market.