A MARKET SHIFT FROM PERFECT COMPETITION TO OLIGOPOLY FOR DRIVERLESS CARS

Posted: August 25th, 2021

A MARKET SHIFT FROM PERFECT COMPETITION TO OLIGOPOLY FOR DRIVERLESS CARS

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The world auto industry is directing billions of its revenue into autonomous vehicle technology. The demand for self-driving cars has grown massively among the road users encouraging manufacturers to develop new technologies. In the past few years, automobile manufacturers significantly restructured the auto sector focusing their business on self-driving cars as an alternative strategy for future mobility. While there is a high possibility of first entirely self-driven cars operating by 2021, consumer readiness to embrace these changes is still not apparent. Despite the current rush by many companies to introduce self-driving vehicles, in the future, only the powerful auto companies will be able to control the industry.

While The Economist argues that the market for driverless cars will go towards monopoly, it will be easier to shift to oligopoly than to manage a monopoly. Based on the current trends, different auto firms are making their way into this supposed lucrative opportunity.[1] Thus, these car manufacturers are enjoying a perfectly competitive model in which all producers have a say and can freely enter and exit the market.[2] However, since there are no transaction costs incurred by buyers and sellers in this market, especially at this point when nearly all organizations are testing their capacity to produce the most efficient autonomous cars, this competition might not last any longer. Not all automobile companies will sustain the unbearable cost that comes alongside the innovative phase before the actual implementation of driverless vehicles.

Economically, two factors will shape the market in the long run. First, powerful companies will exercise their stronger economies of scale to influence their position and presence.[3] Initially, the adoption of driverless cars will require powerful computers which will manage to read and interpret large data of road signs and subsequent users. These computers will attempt to learn what an actual driver can do while on the road. Collection and storage of this information require a significant amount of capital to realize the most efficient prediction machines.[4] Therefore, instead of the recently overcrowded market, some companies will ultimately opt out giving room for a few organizations to dominate the market for autonomous vehicles. Based on their size, these large car manufacturing entities will command the introduction of autonomous cars for as long as they will still have interest in driverless cars.

Over time, the rate of competition will intensify among the large established companies creating barriers for new entrants. An oligopolistic market encourages stronger organizations to retain market control by creating conditions that other firms will not be able to implement to gain access.[5] For instance, some of these dominant companies will enjoy exclusive resource ownership. The principal objectives that the car manufacturing companies intend to achieve are road safety and general reliability. It would mean that certain organizations will design computers with a better safety profile and will be ableto guarantee a reduction in accidents from broken machines.[6] The primary group of companies will operate differentiated products to ensure the availability of a variety of vehicles. It goes against the perfectly competitive market in which the firms produce similar goods and services.

Whereas the initial stage involves free entry of firms and the subsequent freedom of exit, once the market shifts to oligopoly, prevailing conditions will prevent other firms from gaining access back to the market. The most probable strategies that have succeeded in favor of large organizations range from regulation to cost control.[7] As shown in TheEconomist, authorities can decide to thin the market by setting up guidelines that will instantly eliminate some organizations out of the mix.[8] In a transport sector, government can play a role by setting up standards that only the best and the most compliant manufacturers can attain. Secondly, competing against and trying to outsmart the established brands is not easy no matter what capital a given company could be willing to invest in the autonomous vehicles.[9] Thus, such an organization will have to spend mainly on promotion and advertising, a venture which could be very expensive.

In conclusion, the arguments presented in the Economist are genuine and practical. However, the predicted changes will only favor a few firms practicing product differentiation for survival purposes. Restricted entry and economies of scale will not be a preserve for a single company but for the few with financial capacity and an established brand image. It will not be easy for other firms to enter this closed market due to the challenges involved. (737 words)

Bibliography

“The Market for Driverless Cars will Head towards Monopoly,”The Economist,2018.https://www.economist.com/finance-and-economics/2018/06/07/the-market-for-driverless-cars-will-head-towards-monopoly.

1.”The Market for Driverless Cars will Head towards Monopoly,” The Economist, 2018, https://www.economist.com/finance-and-economics/2018/06/07/the-market-for-driverless-cars-will-head-towards-monopoly.

2.”The Market for Driverless Cars will Head towards Monopoly,” The Economist,2018.

3. “The Market for Driverless Cars will Head towards Monopoly,” The Economist,2018.

4. “The Market for Driverless Cars will Head towards Monopoly,” The Economist,2018.

5. “The Market for Driverless Cars will Head towards Monopoly,” The Economist,2018.

6. “The Market for Driverless Cars will Head towards Monopoly,” The Economist,2018.

7. “The Market for Driverless Cars will Head towards Monopoly,” The Economist (2018).

8. “The Market for Driverless Cars will Head towards Monopoly,” The Economist (2018).

9. “The Market for Driverless Cars will Head towards Monopoly,” The Economist (2018).