The automobile industry is a wide range of companies and organizations. There are many parts involved such as development, manufacture, and motor vehicles. In this essay I will focus more on the motor vehicles part. The automobile industry is one of the most important economics sectors in the world, by the magnitude of the revenue. There is a nearby industry to the automobile industry, which is the manufacturing industry. The manufacturing industry is also a wide range of companies building big and small part of products to be used in other industries. The manufacturing industry seems to be the inputs for the automobile industry. For example, the body part of the vehicles is belonged to the manufacturing industry. The manufacturing industry also produces seat in the vehicle, doors, and many other parts. The automobile industry combines those input together to build a vehicle, and this is solely from automobile industry. The manufacturing and the automobile industry are neither substitute nor complement. Therefore, both industries are isolated from each other.
The automobile industry could be investigated on the interaction between innovation and market structure. During 1995, Berry et al. [1995] and Goldberg [1995], it revealed that the consumers willingness to pay for this industry seems to be so high and much higher than marginal cost for each automobile produced. There are 3 levels of firms included in this market. There are many firms in the first level structure, which produces input and sell it to the car manufacturer, car manufacturer then transform inputs into a vehicle and sell it to the retailer. The manufacturers are likely to have the power to control their retailers. Consumers who want to buy cars, let's say Honda, cannot go to buy the car directly from the manufacturer. They have to buy at the retailer company. .
Manufacturers will choose whether who will be their retailer and sell the car to them.