Economics

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Honda Motor Co,. Ltd

Find an annual report of a company that interests you. Use the economic theories that you have learnt to analyse the report. Make comments and suggestions/recommendations to this company’s business strategy. Use the latest economic news to support your findings, comments and suggestions/recommendations.

Introduction:

The car industry is a complex industry due to the large number of products, markets, buyers, suppliers and customers around the globe. Honda is a Japanese multinational corporation that was established in 1948 that manufactures Motorcycles, Automobiles, Financial Services and Power Products. The company is the world’s sixth largest automobile manufacturer, and has been the largest motorcycle and internal combustion engine manufacturer since 1959. It’s mission statement is ‘Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality, yet at a reasonable price for worldwide customer satisfaction.’ Therefore this demonstrates that Honda wants to be recognised worldwide for their quality and price.

My research aims and objectives for this report into Honda is to investigate Hondas market structure through looking at the company’s competitors in the automobile industry through market share and characteristics of each market structure. As well as looking at Hondas factors of production and the trade offs it makes. I am going to collect my data through Hondas annual report, online resources and various books and journals, which should allow me to get a number of varied research.

Market Structure:

“The markets in which firms operate vary a great deal. Some markets are highly competitive and profits are hard to come by. Some appear to be almost free from competition and firms in these markets earn large profits. Some markets are dominated by fierce advertising campaigns in which each firm seeks to persuade buyers that it has the best products.” (Economics: Seventh Edition; Parkin, Powell, Matthews, page 201) Market structure is the organisational and other characteristics of a market. “It is traditional to divide industries into categories according to the degree of competition that exists between the firms within the industry.” (Economics Fifth Edition, John Sloman, page 149) The most important features of market structure is the number of firms within an industry, the market share of the largest firms, the number of firms producing close substitutes to the product, and the ease to which firms can enter and exit the market for that product. There are four types of market structure: Perfect competition, monopolistic competition, oligopoly, and monopoly. In figure 2 it demonstrates the spectrum of the market structures in terms of an imperfect market.

Perfect competition is when there are a large number of small firms that produce a homogenous product. The firms in this industry have no market power, in terms of being able to influence market price or output, as the firms are too small to effect the industry. For a market to be perfectly competitive a number of conditions must be met: each small firm is a ‘price taker’, large number of buyers, there is perfect information for both buyers and sellers, the product is homogenous and there are no entry or exit barriers into the market.

Monopolistic Competition is a market structure where there are a large number of small firms in the industry that produce a differentiated product and there is freedom to enter and exit the industry. “Product differentiation gives each monopolistically competitive firm an element of monopoly power.” (Economics: Seventh Edition, Parkin, Powell, Matthews; page 201)

A pure monopoly is when there is a single seller of a certain product with no close substitutes, therefore making the firm the industry. The firm has no competitors as it is protected as the barriers to entry are so high, for example the firm having...
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