ECO/365 Version 4
Principles of Microeconomics
Learning Team
Competitive Strategies and Government Policies
As a team, choose an industry. Assume management in that industry has recognized the effect of changes in the real-world competitive environment and government policies on other industries and anticipates similar events occurring in their industry, so they ask you for a report considering the following points.
Write a 1,400 – 1,750 word paper in which you describe how each of the following are now, and will in the future, affecting your chosen industry:
• New companies entering the market, mergers, and globalization, on pricing and the sustainability of profits: Identify the type of merger activity in your industry or one with which you are familiar–horizontal, vertical, or conglomerate–and explain why you made that choice.
• Current and expected government policies and regulations, including taxes and regulations in place to address issues related to externalities
• Global competition on the decisions made by management with regards to change in labor demand, supply, relations, unions, and rules and regulations in your chosen industry
Recommend how the industry you chose may respond to each of the previous points.
Format your paper consistent with APA guidelines.

Competitive Strategies and Government Policies

In 1769, the first human transport automobile was created by using a steam engine. In 1806, the automobile evolved from the steam engine to an internal combustion engine which was powered by fuel gas. Nearly eighty years later, the petrol-fueled internal combustion engine was created. Electric power was briefly introduced in the 20th century. From 1769 until today, the automobile industry has experienced tremendous breakthroughs and there is no telling what lies ahead. According to the Economist (2013) “A variety of driver assistance technologies are appearing on new cars, which will not only take a lot of the stress out of driving in traffic but also prevent many accidents.” The Economist also states that “Sergey Brin, a co-founder of Google, predicts that driverless cars will be ready for sale to customers within five years.”
The automobile industry has changed throughout the years and so has the competition. Governments have also become more environmental conscious and imposed policies and regulations for automakers which are almost certain to continue in the future. Management has not only recognized the changes that have occurred in the past, but they also recognize the changes that have yet to occur and must properly plan to ensure long-term profitability.
New Companies
The United States automobile industry consists of the same major companies that pioneered its existence. Such companies as General Motors and Ford have claimed their fair share of the market; however foreign automobile makers Toyota and Honda have interjected themselves in the U.S. automobile industry and have done so in a competitive fashion. The automobile industry is categorized as an oligopoly. In this particular market structure, outside companies are capable of entering the automobile industry, but in some cases there can be barriers of entry and exit. According to Colander, D. (2010) “Implicit collusion among U.S. automobile firms led to foreign firms’ entry into the U.S. automobile market.” Basically, a collective decision is made to reduce or increase pricing in the industry without companies specifically meeting to do so. In the global market, the automobile industry is competitive and creates opportunities to increase production along with establishing operations in other countries throughout the world. The ability to sustain a level of profits will be a challenge. With fluctuating market pricing, market share of the automobile industry can be increased or reduced. In some cases, making a significant price reduction can eliminate a competitor from the industry, which can result in long-term profits.
Merger Activity
The automobile industry has a long history of mergers, acquisitions, partnerships and alliances. In 1904 Ford Motor Company partnered with a Canadian carriage-maker. Though not a vertical merger, the partnership increased Ford’s production efficiency. The most recent automobile acquisition was Chrysler completed by Fiat Corporation. Fiat eventually purchased a controlling share in Chrysler’s stock and now has controlling ownership. A bankrupt Chrysler was pulled up by the bootstraps and the initial alliance with Fiat provided Chrysler with a platform to build more fuel-efficient cars. Fiat has increased the firm’s globalization and economies of scale by strategically gaining control of Chrysler. Government regulations, globalization and competitive advantage are factors that influence