An autonomous car or a self-driving car is a vehicle that is operated without human input with the help of navigation and sensors. The automated cars are not fully permitted on the public roads as of now and it requires human driver behind the wheels. There are five different levels of automation that can be chosen by the consumers. The concept of autonomous cars would change the consumer world radically. The market of these cars has broken the monopoly of the tech companies. Previously the autonomous cars were associated only with companies like Google, but now there are several companies, that are focusing on changing the dimension of the autonomous car markets (Zhelobodko et al. 2012, p.2768). The industry of cars has an oligopoly market where there are high barriers for other companies to enter and this line of industry requires huge capital expenditure. With the emergence of making autonomous cars, the market for these types of car models can be monopolistic by 2030. Monopolistic competition is an imperfect type of competition, where there are many producers, who sell differentiated products. In monopolistic competition, every firm is known as the price makers. The price of products is based on the cost of production, type of market and product quality (Murphy, 2015, p.12). The main feature of this type of market is that the products are differentiated. The basis for the differentiation of the product can be physical product, marketing, human capital and distribution. On the other hand, oligopoly market is a market where small number of large sellers dominates the market. This market has very high barriers to entry. The sellers and producers in this market are the price setters. The products sold under this market are either differentiated or homogeneous. The characteristic of an oligopoly market is similar to monopolistic competition and monopoly market as well. However, in oligopoly market there are only a few numbers of sellers, who rule the market and have control the prices of the products (Foster et al. 2011, p.1).
The development of technology has brought innovation and economic prosperity in the world. The experiment for the autonomous cars began in the early 1920s and the trails began by 1950s. Since then, many companies like Mercedes-Benz, Bosch, Audi, General Motors, Volvo, BMW, etc have developed autonomous cars. The need for autonomous cars came into existence to prevent traffic collisions (Hall and Lieberman, 2012). The number of accidents has increased in most of the countries and the reason behind this is mostly the human-driver errors. These errors have resulted in deaths, severe injuries and high costs to humans. It was estimated by McKinsey & Company that the use of autonomous cars could curb down 90% of the accidents caused by cars and save more than $180 billion in health costs and damages every year in U.S (Feenstra, 2010, p.25).
The market of autonomous cars has great potential to revolutionise the way of driving. The full operation of automated cars would also reduce labour cost and it can provide the customers enhance mobility service. These cars have higher speed limits and gives smoother rides to the passengers. This would help to reduce traffic congestion and ensure better and safe transportation system (Nikaido, 2015). This industry requires huge investment for the R&D, manufacturing process and commercialization process. The demand for the autonomous cars is expected to go up to 138,000 units by 2024. According to National Highway Traffic Safety Association, the emergence of autonomous cars on the public roads can save thousands of lives every year (Le Vine et al. 2015, p.12).
Figure 1: Driverless Cars Global Market Units from 2017 to 2024
(Source: Carraro et al. 2013)
The current traffic regulations restrict the use of the driverless cars, but countries like U.S and New Zealand aim at revising their traffic regulations for letting the emergence of autonomous cars in the market. The automated cars are to be introduced in two phases. One would be as beta testing and consumer’s end testing and the other phase would be as the commercialized cars. The companies, which are into the manufacturing of autonomous cars, are aiming at collaborating with the companies that can develop autonomous systems. Companies like Alphabet Inc., Tesla Motors, Nissan Motor Company Ltd, The Volvo Group, Waymo, etc are expected to lead the market of autonomous cars (Gerla et al. 2014, p.242).
The other advantages of autonomous cars is that it would reduce the emission of CO2 to the environment, give more fuel efficiency and generate more revenue for the IT and electronics companies. The market of autonomous cars would be based on the level of automation and region (Carraro et al. 2013). There are five levels of automation, which can segment the market for the autonomous cars. The five levels are:
The market of the car industry reflects the monopolistic competition. There are huge numbers of sellers with huge variety of products. Each of the firm tries to sell cars with different features to lead the market. However, the car industry is mostly dominated by the automakers from America, Germany and Japan. These companies use different combination of quality and their reputation of brand to make their products different from other companies. All the firms tend to have control over prices (Lin, 2016, p.73).
Figure 2: Leading Automotive Manufacturers
(Source: Rödel et al. 2014, p.7)
Nevertheless, the automobile industry of U.S is an example of oligopoly market. In case of this country, the three main companies involved are Ford, General Motors and Chrysler. The prices of the these products and introduction of new models reflect the behaviour of an oligopoly market. In the US oligopoly market, one can find the price leaders and the price follower as well (Lechner and Boli, 2014). From the recent market trends, it can be said that the top most price leader in this oligopoly market of the car industry, the price leader is General motors and the price follower is Ford (Rödel et al. 2014, p.7). Ford generally follows the pricing arrangement of General Motor’s, whereas; Chrysler tends to reduce its price to grab more market share. When it comes to pricing decision, the above-mentioned companies (oligopolists) tend to become a single monopolist to gain more profit and avoid high competition from other companies like Tesla, Mercedes-Benz, Kia, Volvo, etc (Colonna, 2013, p.78).
However, it is predicted that these car companies, which are into the production of automated cars of different level, would have monopoly in the market. The entry for other companies would be more difficult.
Figure 3: Major Manufacturers
(Source: Lechner and Boli, 2014)
Advantages:
Disadvantages:
Given below are the three most well-known companies that have come up with automated cars in recent years. The description about their market type and product has been explained. These three companies are spending huge money after R&D to find out the best way to design their product and give a new picture to driving (Mehra, S.K., 2015, p.1323). The main of these companies is to revolutionize the world of cars and make driving safer. The testing of each model is done for months to make sure it operates properly on-road. There are other companies like Volvo, Nissan, Audi, BMW, Toyota, Daimler, etc. who is also coming up with their own automated car of different levels. These companies are expected to give tough competition to each other. Nonetheless, after their products are launched and sold in the market at their expected rate, they would tend to be oligopoly firms in the future.
Tesla Inc. is one of the major American car manufacturing companies, which was founded in the year 2003. It is known for coming up with the first-ever electric sports car in the year 2008. The company came up another electric luxury sedan car called Model S. Model S is the second-best selling electric car. It also came up with Model X and Model 3 (Berger and Rumpe, 2014, p. 208).
Figure 4: Tesla Model S
(Source: Baird, 2016, p.6)
Tesla Motors has been known for its uniqueness as it sells technology along with its cars. Tesla not only just creates innovative and tech-fast cars, but it also dominates the market for electric automobiles. The range is from luxury to less-expensive cars, so the customer base of Tesla is wide. With the help of supercharges, service stations and battery swap stations, Tesla is building a new network and grabbing the market of automobiles. In spite of having such a tough market, the unique position of Tesla is helping it to achieve all its objective and target. With the launch of Tesla Model S (Figure 4), the company has given huge competition to other car companies. Model S falls into the category of luxury cars and with just 10% of its sales has given high competition to other companies. The approach of this company is creating autonomy in stages. They try to put advanced cruise control at first to their products and then add other relevant features to it (Baird, 2016, p.6).
Figure 5: Market Share of US Electric Cars
(Source: Li et al. 2012, p.1005)
As shown in Figure 5, Tesla Motors Inc. has 42% of the market share in the Electric Car industry and it is known for being the leading car company of US. With such a high market share, Tesla gives strong competition to every car company in the oligopoly market. The cost to harness the electric energy is a bit costlier than using petroleum for auto production because of the high requirement of the technology. However, it is a bit difficult for the automated car companies to implement their rechargeable units into different gas station across the world and this makes their entry to the main automobile industry slightly difficult (Li et al. 2012, p.1005).
Figure 6
(Source: Campbell et al. 2010, p.4670)
As per Figure 6, it can be seen that Tesla is a small player in the market with good market share. However, its brand recognition and innovative technology would help it in the long run (Campbell et al. 2010, p.4670).
Alphabet Inc. being Google’s parent company started the project of Google Self-Driving Car and named the company as Waymo. The project began in the year 2009 with the aim of making car travelling easy and safe for the people. Google had tested the automated cars in 2016 and the cars travelled autonomously for 126,000 miles. The test was successful as out of 170,000 mile the car was fully in automated control for 126,000 miles. Waymo reported in 2017 that the cars were test driven for around 636,000 miles and there were only 126 disengagements (Broy et al. 2013, p.310). Google uses the LIDAR technology and the system of Google is designed for the luxury of the passenger. The LIDAR (light-sensing radar is technology, which can sense the map by using technology. This also has an oligopoly market at present, but as soon as the cars from Waymo gets fully launched and are permitted on the roads, the market of this company is sure to reach the level of monopoly (Fagnant et al. 2015, p.178).
Both Google and Tesla is pioneer in the industry of autonomous car technology. Even though the self-driving car of Google has been developing since 2009, Tesla’s Autopilot has taken over the market with its effective technology and new product (Model S and Model X). Both the companies give tough competition to each other and aim at launching their fully automated cars by 2020 on being permitted by the legislation. In such an oligopoly market, it would be not be very beneficial for the customers as the prices of these cars would be very high (Chan Positioniq, 2011, p.198). The companies in the industry of automated cars have the power to decide the price of the product. The strategies of both the companies have different market conditions. Google has its branches from the operating software and Tesla has been an important player in the auto industry. However, Google is looking forward to team up with an established car making companies, as it does not want to get into the manufacturing process of the automated cars. Whereas, Tesla has the competitive edge and is under pressure of earning profits as well. Tesla should use better technology and innovation to have more profit by selling maximum number of automated cars (White et al. 2011, p.285).
The Ford Motor Company was established in 1903 in the autonomous capital called Detroit. The company has spent millions after developing, marketing, testing, distributing and producing their cars. The company has announced to deliver fully automated cars by 2021 (Du et al. 2013, p.322). The company is a very prominent manufacturer of cars in the oligopoly market of the car industry. Ford would face competition from a very few autonomous car firms, which would give it a competitive edge. The company has good control over its prices and it can have a good hold in the market. The company faces huge competition from General Motors. It is essential for the company to come up with better features in their autonomous cars with different levels. Even Tesla has surpassed the stock value of Ford with its very promising reputation of autonomous cars. The company as of now has announced its four main investments, which would help it to expand its research in LIDAR, algorithms, radar, etc. There are certain risk factors involved as the market for the autonomous industry is oligopoly in nature (Kyriakidis et al. 2015, p.135).
Conclusion
In this assignment, the learner has chosen the topic of Monopolistic Competition and Oligopoly Market of Autonomous Cars. The industry of cars has always been operating as an monopolistic market. There are large numbers of car companies in the car industry that offer slightly differentiated products to the customers. There is a stiff competition between all the companies as the consumers strive for quality and durance. The price is not very big factor and even there are not much barriers to entry in the general auto industry. However, when it comes to autonomous car industry, it the market structure becomes oligopoly market. There only a few companies which are into the manufacturing process of automated cars. The production of automated cars require huge investments, technological advancements and innovative ideas to come up with a product that can render better services than a manually driven car. The main objective of all the companies for this product is to provide safety and easy travelling experience to people. The competition in this oligopoly market is very high as there are only a few companies. The prices of the products are generally very high as these few companies have the power to control the prices on their own. The prices of the automated cars would vary according to the facility, SAE automation level and customer service. The automated car industry also has another feature of oligopoly market, which is regarding the entry of new firms. The entry of new firms is restricted because of the economies of scale. Even if a new company enters the market, it would have to invest huge money and build good brand reputation in the market. As explained with the help of three autonomous car companies, Tesla, Google and Ford, it can be said that the business goal of these companies are same. However, when these companies would get the chance to launch their products fully on road, the market of these companies can change from being an oligopolist to monopolist.
References
Books
Carraro, C., Katsoulacos, Y. and Xepapadeas, A. eds., 2013. Environmental policy and market structure (Vol. 4). Springer Science & Business Media.
Hall, R.E. and Lieberman, M., 2012. Microeconomics: Principles and applications. Cengage Learning.
Lechner, F.J. and Boli, J. eds., 2014. The globalization reader. John Wiley & Sons.
Nikaido, H., 2015. Monopolistic Competition and Effective Demand.(PSME-6). Princeton University Press.
Journals
Baird, V., 2016. Smilely-faced monopolists. Guardian (Sydney), (1740), p.6.
Berger, C. and Rumpe, B., 2014. Autonomous driving-5 years after the urban challenge: The anticipatory vehicle as a cyber-physical system. arXiv preprint arXiv:1409.0413.
Broy, M., Kirstan, S., Krcmar, H., Schätz, B. and Zimmermann, J., 2013. What is the benefit of a model-based design of embedded software systems in the car industry?. Software Design and Development: Concepts, Methodologies, Tools, and Applications: Concepts, Methodologies, Tools, and Applications, p.310.
Campbell, M., Egerstedt, M., How, J.P. and Murray, R.M., 2010. Autonomous driving in urban environments: approaches, lessons and challenges. Philosophical Transactions of the Royal Society of London A: Mathematical, Physical and Engineering Sciences, 368(1928), pp.4649-4672.
Chan, J., Positioniq, Inc., 2011. Automated Targeted Information System. U.S. Patent Application 12/987,974.
Colonna, K., 2013. Autonomous cars and tort liability. Browser Download This Paper.
Du, S., Ibrahim, M., Shehata, M. and Badawy, W., 2013. Automatic license plate recognition (ALPR): A state-of-the-art review. IEEE Transactions on Circuits and Systems for Video Technology, 23(2), pp.311-325.
Fagnant, D.J. and Kockelman, K., 2015. Preparing a nation for autonomous vehicles: opportunities, barriers and policy recommendations. Transportation Research Part A: Policy and Practice, 77, pp.167-181.
Feenstra, R.C., 2010. Measuring the gains from trade under monopolistic competition. Canadian Journal of Economics/Revue canadienne d’économique, 43(1), pp.1-28.
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Gerla, M., Lee, E.K., Pau, G. and Lee, U., 2014, March. Internet of vehicles: From intelligent grid to autonomous cars and vehicular clouds. In Internet of Things (WF-IoT), 2014 IEEE World Forum on (pp. 241-246). IEEE.
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Li, S.E., Peng, H., Li, K. and Wang, J., 2012. Minimum fuel control strategy in automated car-following scenarios. IEEE Transactions on Vehicular Technology, 61(3), pp.998-1007.
Lin, P., 2016. Why ethics matters for autonomous cars. In Autonomous Driving (pp. 69-85). Springer Berlin Heidelberg.
Mehra, S.K., 2015. Antitrust and the robo-seller: Competition in the time of algorithms. Minn. L. Rev., 100, p.1323.
Murphy, P., 2015. New class conflicts in America’s post-creative economy. Quadrant, 59(3), p.12.
Rödel, C., Stadler, S., Meschtscherjakov, A. and Tscheligi, M., 2014, September. Towards autonomous cars: The effect of autonomy levels on acceptance and user experience. In Proceedings of the 6th International Conference on Automotive User Interfaces and Interactive Vehicular Applications (pp. 1-8). ACM.
White, J., Thompson, C., Turner, H., Dougherty, B. and Schmidt, D.C., 2011. Wreckwatch: Automatic traffic accident detection and notification with smartphones. Mobile Networks and Applications, 16(3), p.285.
Zhelobodko, E., Kokovin, S., Parenti, M. and Thisse, J.F., 2012. Monopolistic competition: Beyond the constant elasticity of substitution. Econometrica, 80(6), pp.2765-2784.
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