Answer to Question #324488 in Microeconomics for Ian Penn

Question

State what market structure currently exits in the US automobile market.

Explain if excess profit will exist in the long run.

Answer 1

The US automobile industry structure has an oligopolistic market structure. This structure is characterized by an industry with a few large numbers of companies that significantly influence the market. The major firms are Chrysler, Ford, and General Motors. With this structure, no firm has a higher market power than the other; thus, no firm can steal the market share. There are differentiated products and substantial market entry barriers in an oligopolistic market structure.

In the long run, the automobile industry in the United States will have excess profit. This will be made possible by the oligopolistic market structure for the industry since it hinders new firms from getting into the industry to capture the surplus profits and thus will earn sustained revenues for an extended period.