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A Brief Analysis of Automobile Market in Turkey

In: Business and Management

Submitted By mrtk
Words 687
Pages 3
In this analysis, automobile market in Turkey will be evaluated in terms of the market structure. In the analysis, automobile producers which sell their products in Turkey (car brands in Turkey) will be taken into consideration.

While making the analysis, the basic structural and behavioral assumptions of the market structures will be incorporated which are number of sellers, cost conditions, number of buyers, demand conditions, objective function, strategic variable, expectation of rivals’ reactions.

Structural Assumptions:
Number of Sellers: There are about more than 30 automobile companies operating in Turkey which are engaged in directly or indirectly (via distributors) selling automobiles in Turkey. Regarding the structural assumption of seller number, it can be concluded that there are few number of sellers in the market. The reason behind the few number of sellers is the substantial barriers to entry into the market, which is due to the high investment amount needed to start production.

Cost Conditions: Given the scale of productions as constant, the companies face with diminishing returns which results in an increase in marginal costs in the short run.

Number of buyers: Mentioned production companies generally sell the products to either individual consumers or to the distributors of the brands. That’s, it can obviously said that there are many buyers in the market.

Demand conditions: In the market, there are different segments of cars that are sold such as Compact segment, B segment, SUV segment etc. Each company produces different types of cars for each segment, however, different brands in the same segment can easily be substituted for each other. That’s, the products in the same segments are close substitutes of each other.

Behavioral Assumptions:
Objective function: As in all other markets, aim of the automobile market in Turkey is the short-run profit maximization. Those companies try to decrease the production costs via allocating some of the production processes (producing spare parts or establishing assembly lines) to different regions of the world. Moreover, some companies make joint productions with each other to reach a scale economics and decrease costs. On the other hand, they make different sales campaigns to increase the revenues. That’s, they try to maximize short-run profits in the sense that increasing revenues and decreasing production costs simultaneously.

Strategic variable: The companies use price and quantity as strategic variables to reach the maximum possible profit. However, since the cross-price elasticity of the products is considerably high in the market, there is an invisible range for the price of the cars in each segment. That’s, the companies does not have so much margins to increase the total revenue via higher product prices. Therefore, they exploit some other variables such as promotional efforts, product design, distribution channels, after-sales services to increase the demand for the products and thus to use price and quantity as strategic variables more effectively.

Expectation of rivals’ reactions: As a company makes a strategic decision, the others might ignore or match the action of the decision maker regarding its own strategic variables. Such as a price decrease in the product of a company can ben ignored by a rival who does not prefer to underestimate its brand value, on the other hand, another rival having relatively low level of production cost may match this action by decreasing its own sale price.

To conclude the properties of the automobile market in Turkey; it can be said that there are few number of sellers due to the high amount of investments needed to enter into the market; producers face with diminishing returns in the short-run; there are many buyers in the market; market players have close substitute products in their own segments; aim of the companies is the short-run profit maximization and the tools they use are mainly price and quantity, with the others variables such as promotional efforts, product design and distribution channels; rivals in the market can ignore or match each others’ actions.

Therefore the automobile market in Turkey can be classified as a typical Oligopoly regarding the characteristics of the market mentioned above and the basic assumptions about the market structures.

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