Market structure — practice question

Car production is undergoing change. Up to recently, car manufacturing firms held the most market power. At present, however, firms making car parts are becoming more powerful. The markets for cars and for car parts both contain a fairly large number of firms ranging from very large to small. In 2014, the market was dominated by sixteen major car firms, with each selling more than one million cars a year. In that same year there were ten major car part firms, and these were increasing their influence over the car producers. The world's largest car part supplier by revenue says that it supplies at least one part in every car sold worldwide. The firm has expanded through mergers and is moving towards complete market control. It is aiming to build strong barriers to entry and to become the only producer. The ten largest car part firms made up 63% of total car part output in 2013, producing US$250 billion of car parts in that year. These ten firms now have the capacity to build 85% of a car's internal systems, leaving car manufacturing firms to do little more than make the engine. Car production is rising in several developing countries but falling in some developed countries. Car manufacturing increased in the UK between 2013 and 2014, although the industry had already been facing problems before 2013. In 2008 the average wage of car workers dropped. In that year the UK experienced a recession. Real wages in the UK car industry for the lowest paid workers also fell after 2008, and employment fell between 2008 and 2012. This was despite output per worker rising, partly because some less skilled workers lost their jobs and the industry replaced some of these workers with capital equipment. Car buyers often borrow money from commercial banks to pay for their purchases. In some cases buyers use their savings, which may be taken out of commercial banks, to buy cars. The conduct and performance of car firms are shaped by the economic system of the country where they operate. In countries with a market system, consumer sovereignty is likely to be greater. Car firms in such countries may be more inclined to innovate, bringing in new methods of production and developing higher-quality products.