Chapter 10: Problem 10

The "Big Three" U.S. automobile industry is described as a. a monopoly. b. perfect competition. c. monopolistic competition. d. an oligopoly.

Short Answer

Expert verified

The "Big Three" U.S. automobile industry is best described as an oligopoly, as it is characterized by a few large firms dominating the market, offering differentiated products, and facing significant barriers to entry.

Step by step solution

1. Understand Monopoly

A monopoly is a market structure where there is only one seller, who provides a unique product with no close substitutes. The monopolist has a significant control over price and market conditions and often faces barriers to entry.

2. Understand Perfect Competition

Perfect competition occurs when there are a large number of buyers and sellers, each producing a homogeneous product. In this market structure, no individual firm can manipulate the price since they must accept the market-determined price. Firms in perfect competition are price takers and essentially have no market power.

3. Understand Monopolistic Competition

Monopolistic competition is a market structure characterized by a large number of firms that produce differentiated products. Each firm competes for a specific segment of the market and operates as a price maker to some extent, which enables them to earn a profit in the short run. There is a reasonable amount of market power, but firms face low barriers to entry, meaning that new firms can easily enter or leave the industry.

4. Understand Oligopoly

An oligopoly is a market structure where there are only a few large firms dominating the industry. These firms offer either homogeneous or differentiated products and have significant control over price and market conditions. They face significant barriers to entry, which prevent new competitors from entering the market. Firms in an oligopoly interact strategically and often engage in actions to protect their market share.

5. Identify the US Automobile Industry Market Structure

The U.S. automobile industry, particularly the "Big Three" - General Motors, Ford, and Chrysler, is characterized by a few large firms dominating the market, offering differentiated products, and facing significant barriers to entry. This description is consistent with an oligopoly. So, the answer is: d. an oligopoly.