Tesco Case Study

COURSEWORK

I) The world's leading vehicle companies have seen the UK as being an important location for manufacturing. The market structure of the motor car industry in the UK is an ongoing market and also a very large market with many benefits and drawbacks. The motor car industry in the UK has seen a number of UK-based companies' setup. Ford was first established here in 1911, another 243,000 have since joined, including General Motors, BMW, Honda, Nissan, Peugeot and Toyota. There are a huge number of people employed in the motor car industry either in the design and manufacture of vehicles and components or the supply, distribution and service chain.

The manufacturing sector contributes around Ð'Ј8.5b added value to the economy, and accounts for 1.1% of GDP (Gross Domestic Product), 6.2% of manufacturing value-added and 9.5% of total UK exports of goods. The UK is home to the world's most successful motor sport industry.

Market structures are the characteristics of a market which determine a firm's behaviour.

There are four different types of market structures these are as follows:

 Monopoly Market- exists when there is only one supplier in the market.

 Oligopolistic Market- exists when there are a few different suppliers/producers in the market.

 Perfect Competition or Monopolistic Competition- where there is a large number of small suppliers, but none of which is large enough to dominate the market.

The key characteristics of market structures are:

Ð'* The number of firms in the market and their size

Ð'* The number of firms which might enter the market

Ð'* The ease or difficulty with which new entrants might come in

Ð'* The extent to which the goods in the market are similar

Ð'* The extent to which firms in the market share the same knowledge

Ð'* The extent to which the actions of one firm will affect another firm

Perfect information is given to buyers in order for them to make adequate purchases within the market. Perfect information exists when all buyers within a market are informed of prices and quantities for sale, whilst the producers have the same access to information on production techniques.

Barriers to entry are factors that make it difficult or in some cases impossible for a firm to enter an industry/market and compete against existing producers within that industry/market.

Homogeneous goods are goods which are identical; this gives customers a wide choice of suppliers to buy from resulting in perfect competition.

II) As mentioned before an Oligopolistic market exists when there are a few different suppliers or producers in the market. In an oligopoly small firms compete with each other and firms must be interdependent, the actions of one firm will affect another firm within the same market. The neo-classical theory of oligopoly assumes that there are barriers to entry to the industry. If there were no barriers then firms would enter the industry and take advantage of profits and would also reduce market share of the large firms within the industry. Non-price competition is an important feature of oligopoly markets, price in Oligopolistic markets change less then those in a perfectly competitive market this is because firms are often observed to maintain prices at a constant level.

This proves the argument that the car industry is an oligopoly market because the motor car industry exists with many different suppliers/producers within the same market. The UK has the most diverse range of car producers in comparison to any other country in the world. There are several different car producers manufactured in the UK some of these are Ford, BMW, VW, Rover, Honda, Nissan, Toyota and General Motors. Although cars manufactured by the different car producers in the UK are different and not identical to one another's, few different producers exist and they are all in competition against each other in trying to beat competition and manufacturing a better car then one manufactured by another producer. Customers have a wide range of suppliers to choose from, the cars manufactured are of different sizes, colours and makes to one another but the selling price of cars are similar.

An oligopoly market causes firms such as Ford and General Motors to manufacture new cars so that they are different from ones manufactured by a competing firm. Such firms introduce new and better cars with new, updated features to the industry all the time in order to stay on top of competition, increase profits and attract more customers/buyers. Such firms also try to compete against car prices ensuring that they do not price their cars too high so customers are not lost. In such a market firms compete to keep prices of cars low and match them to apposing competitors thus leading to most firms having similar prices for the cars manufactured in the market. When a new car is manufactured by one firm, the new car is advertised, this encourages the competitors within the same industry to gather ideas and manufacture a new car for their own firm, which is also then advertised until another firm manufactures their new car and so on.

III) There are many factors which influence oil prices in the current period. One of the main factors relates to the strong economic growth in the US and China. Higher growth amongst the US economy is causing competition between Asia and US for supplies; this is because the US devours 25% of the world's oil.

Another factor which influences oil prices is the demand and supply of oil, if demand for oil increases more then the supply of oil the price of the oil will increase, whereas when there is more supply of oil then demand, the price of oil falls. The fear of a major shortage of oil also affects the oil price, this causes the price of the oil to increase and become more expensive in order for people to stop buying too much oil.

Small fluctuations in the demand or supply can lead to large fluctuations in price because of the short term price inelasticity of demand for oil.

Demand and supply diagrams can indicate exactly what is happening to the price of oil in