Ambassador -- Riches to Rags...… Is Competition the Culprit?

Summary

 There are several reasons for the success and failure of Ambassador Car in the Indian automobile industry.

Reasons of Success:

The Ambassador Car ruled the Indian automobile industry from 1958 with the market share of 70%. In 1958, there was no competition in the automobile industry in India. The Ambassador Car was a monopoly in the Indian automobile industry at that time. They only targeted to upper class like Minister and provide them cars with bulletproof glass windows and taxi services. They were exporting the car to their neighbor countries like Bangladesh, Myanmar, Pakistan, Sri Lanka, and in the Middle East. They had a large number of dealers and service centers, which also attracted other customers as well. The ambassadors also enforced the low volume and high price policy introduced by the Indian government at that time, which also give success to the Ambassador car.

Reasons of Failure:

The Ambassador Car lost its market share in the 1980s when the Suzuki Maruti was introduced in India. The Suzuki Maruti takes the permit to manufacture small passenger car in India, which created competition in the Indian Automobile industry. The Suzuki had promoted their car Maruti 800 as the People’s Car because it was easy to maintain and it was also in the budget of common people. The price of Maruti 800 was also less than the cost of Ambassador Car, which leads towards the failure of Ambassador.

The government lifts the barriers of the entrance from importing the different industries, including automobile industry, which enhanced the competition in the automobile industry. Lifting the entry barriers to multinational companies has changed the complete automobile industry in India. Many multinational manufacturers (Ford, Volkswagen Nissan and, many others) also entered the Indian Market in 2010 and they targeted small cars as a potential product for Indians. As a result, Ambassador Car didn’t find suitable space in the Indian Automobile industry that caused failure of Ambassador Car and withdrew from India Automobile Industry after 4 years in 2014.

Role of Market Structure:

By analyzing the case, we can say that the market structure plays an important role in the success and failure of any business or industry. We can see that when there was no competition in the industry and the business operates as a Monopoly market structure then it can get success easily, like the ambassador and Padamini, they both were leading the industry when there was no other player in the automobile industry. However, when the government allows other multinational players to manufacture the car then this creates competition that resulted in shut down of two leading automobile industries in India.

Introduction on the economic environment where Ambassador belongs to

 There are two main forms of market structure.

1.      Perfect Competitive Markets

2.      Imperfect Competitive Markets

The imperfect Competitive market is divided into following structures:

a.        Monopoly

b.      Oligopoly

c.       Monopolistic Competition

1.      Monopoly

 The monopoly is the market structure where there is only one seller or supplier of a commodity exists in a specific area.

Features:

Number of firms: In a monopoly, there is only one firm exists.

Nature of products: The firm sells a single type of product in monopoly.

Entry: The entry of a new firm in a monopoly does not exist because in monopoly only single firm operates and that firm did not want to allow another firm to enter in the market.

Exit: The exit of any firm in monopoly is does not exists because in monopoly one firm can operate at a single time two or more than two firms cannot operate at same time.

Power: In a monopoly, a single firm has total control over the market.

Price Policy: The monopoly also known as the price maker.

Knowledge: The buyer has incomplete knowledge about the market.

Example: Local natural gas or pharmacy in any hospital

 

2.      Oligopoly

The market will say to be an oligopoly market structure when there are only few suppliers that exist with the difference in the product in a specific area.

Number of firms: In an oligopoly market structure, only few firms that exists.

Nature of products: The firm can sell different or similar types of products in an oligopoly market.

Entry: The entry of a new firm in an oligopoly market is restricted. (A firm can enter but it has to pass through some restrictions).

Exit: The exit of any firm in Oligopoly market structure is easy but they are somehow restricted too.

Power: In an oligopoly market structure, the firm has limited control over the market because they sell differentiated products.

Price Policy: The oligopoly market structure known as the price maker because these few firms make the price by mutual consultation.

Knowledge: The buyer has incomplete knowledge about the market.

Example: Cellular phone service

 3.      Monopolistic Competition

The structure of the market where many suppliers exist and those suppliers sell different products that is said to be monopolistic.

Number of firms: In a monopolistic market, some other firms also exist but not many.

Nature of products: The firm sells different types of products in a monopolistic market.

Entry: The entry of a new firm in a monopolistic market is easy because all the firms are selling different products, which does not affect other firms.

Exit: The exit of any firm in monopoly is easy too.

Power: In a monopolistic market, there are many other firms so they have limited control over the market.

Price Policy: The monopolistic market has also known as the price maker because these firms are selling different products so they can also make the price by themselves.

Knowledge: the buyer has limited knowledge about the market.

Example: Restaurants: Every restaurant has their own differentiated products.

 4.      Perfect Competition

 The market where there are many sellers and buyers exists and those suppliers and buyers buy or sell the same or identical product then it said that the market is perfect competition.

Number of firms: In perfect competition, there are many buyers and many sellers exist.

Nature of products: The firm sells the same or homogeneous type of product in the perfect competition market structure.

Entry: The entry of a new firm in perfect competition market structure is easy and free.

Exit: The exit of any firm in perfect competition market structure is easy too.

Power: In perfect competition market structure, the firms have no control over the market. The buyer through their bargaining power controls the market.

Price Policy: The perfect competition market structure has known as the price taker because many other firms sell the same type of product so the buyer through bargaining makes the price.

Market Knowledge: the buyer has complete knowledge about the market.

Example: Street food venders

Body of proposal including the definition of key terms (with citation) and relevance to the company

 There are several factors of Ambassador Car monopoly position in the market.

a.       The government appoints the first tariff commission to control over production and the price so the new entrants cannot easily enter the market, which helps the Ambassador to remain at the position of monopoly.

b.     The government introduced a new policy in which they started to promote their local products more and removing those manufacturers who were dealing with imported products related to Automobile Industry. They also remove those players or manufacturers who have not partner with any Indian. This policy also gave benefits to the Ambassador to main there position as a monopoly in the market.

c.       The strict policies also introduced for the new entrants for locals as well as foreigners, which also cause no or less competition in the automobile industry, and that also benefited the ambassador to lead the industry as a monopoly. 

Address the theory of cost that will help the company in taking effective decisions and innovative solutions using incomplete data.

 The economic liberalization is the general thought to process the economy for development. The government imposes this type of policy when the government wants to open up its doors for foreign investors. The government removes the barriers to entering a particular market so that market or economy can develop and achieve growth.

Economic liberalization enhances competition in the market within a particular economy. It plays an important role in creating a competitive market in a way that provides easiness to the new entrants that can be a local investor or foreign investor.

In economic liberalization, the government removes the barriers from international boarder so the trade among countries can grow. The government provides easiness in the form of reducing tariffs and taxes. When the new entrants enter the market they create competition within the economy. When there will only a few players in the economy, then there will be less or no competition in the market and these players will know as a monopoly. If there will more and more player enters or already exists in the market due to less restriction of government and government policies then it will create huge competition in the market. Economic liberalization also plays a role not only in creating competition but also in increasing the local and foreign investment opportunities within the economy.

Conclusion

 1.      Perfect Competition

a.      Price and output determination:

In perfect competition market, the industry and the firms, on the demand of buyers and supply of the sellers determine the price and output. In a perfect competition market, the price is determined by looking at the equilibrium point of demand and supply. The equilibrium is the point where marginal cost equals marginal revenue. At equilibrium point marginal cost, marginal revenue, and marginal revenue becomes equal. The firms set the price equals the marginal cost (AR=MR=MC).

 b.      Price and Freedom of Consumer’s Choice

In the perfect competition market, there are many buyers and many sellers for purchasing or selling the same type of product and all are selling at the same price. In a perfect competition market, the consumer has many choices to buy a product because all the sellers sell the same type of product.

 2.      Imperfect Competition (Monopoly) 

a.      Price and output determination

In the imperfect competition market like monopoly, the price is also determined by looking at the equilibrium point. In an imperfect market competition like a monopoly market, the firm set the price above the marginal cost while the equilibrium point is where marginal costs equal to marginal revenue (MR=MC).

b.      Price and Freedom of Consumer’s Choice

In a monopoly, there is a single firm selling a single type of product so the consumer has no choice of selecting a particular product. The consumer has also no power to bargain or buy at a low price. The consumer has to purchase the product at any price because there is only a single seller.

3.      Imperfect Competition (Oligopoly)

a.      Price and output determination

In the imperfect competition market like oligopoly, a few firms exists that are selling same or different product. All the firms have strong influence over the market. By using that power, everyone wants to set their own price which causes collusion. Sometime the firms which are doing business of same products become agree on a single price but the firm which are doing business of different products they increase or decrease the price of product without any fear of losing their customers.

b.      Price and Freedom of Consumer’s Choice

In an oligopoly, there are a few firms selling a same or different type of products so the consumers have some time advantage and sometime disadvantage. Advantage in a way that if the consumer wants to purchase the product and there are some other businesses available which are selling same products then consumer have advantage of price as well as availability of different choices.     Disadvantage in a way that if the consumer wants to purchase the product and there are some other businesses available but they are not selling same products then consumers have disadvantage of price discrimination as well as no choice availability.    

Reference

Case Study: https://www.slideshare.net/SheikhAmanullah/ambassador-riches-to-rags-is-competition-the-culprit

Grade 12. (n.d.). Retrieved from www.kullabs.com: https://www.kullabs.com/classes/subjects/units/lessons/notes/note-detail/6626

Market. (n.d.). Retrieved from www.yourarticlelibrary.com: https://www.yourarticlelibrary.com/economics/market/market-structure-meaning-characteristics-and-forms-economics/28736

Monopoly. (n.d.). Retrieved from www.google.com: https://sites.google.com/site/maeconomicsku/home/monopoly

Oligopoly. (n.d.). Retrieved from www.google.com: https://sites.google.com/site/maeconomicsku/home/oligopoly