In 2005, AutoEdge’s board of directors decided that the company needed to make some drastic changes because of the high cost of labor, rigid American regulations, and increased competition from other engine and transmission part suppliers. Their solution was to gradually close all manufacturing operations in Detroit and begin outsourcing to a well-known factory in South Korea. The board reasoned that this change would allow the company to compete with the growing industry, meet the automotive manufacturing demands, and increase company profits. Some board members were skeptical about the move, however, because AutoEdge had built a reputation for high-quality, detailed craftsmanship, and they feared that transitioning the manufacturing operations overseas would cause quality to diminish.
For the next 5 years, this strategy proved successful. The company showed signs of financial growth and company profit.
However, in 2010, the company was found guilty of supplying products that failed quality tests. As a result, millions of automobiles had to be recalled. The recall was highly publicized, and the issue of poor quality products impacted negatively on American automotive companies. AutoEdge’s $51 per-share stock has fallen to $4 per share, and brand acceptance has come under scrutiny among even its most loyal customers. Although some economists blame these negative effects on the products, others believe that it had to do with the termination of AutoEdge’s Chief Executive Officer, Fred McFadden.
assignment in 900 words ******
I understand that there are four different types of market structures: monopoly, oligopoly, monopolistic competition, and pure competition,” he says. “I know that each of these market structures differs in the number of companies that compete in each one, the level of competition, entry and exit in the economy, the product price range, and the product range.”
“I’m with you so far,” you say.
“Normally, I wouldn’t go into all of these economic terms with shareholders,” he says, “but I’ll be talking to a small group of sophisticated businesspeople who understand the terminology. I’m not an expert in this end of the business, and I want to check my understanding of it. What type of market structure does AutoEdge fit into? How does this market structure impact our level of competition, elasticity of demand, price, and position in the industry?”
“Well, there’s a long and a short answer I could give you,” you say. “I’m on my way to a lunch meeting right now and will be out of the office for the rest of the afternoon. Would it be okay if I send an e-mail later this afternoon?”
“Yes,” he says. “That would be fine, but I want some research to support the information, too. Would you be able to send me a report about this by the end of this week?”
“Sure,” you say. “I’ve already done some of the research, so that deadline is doable.”
“Oh good,” he says. “I appreciate your help!”