SINGAPORE:

The car industry is characterised by heavy research and development activity. This activity has a high fixed cost and can only be undertaken by large firms with significant monopoly power. Sometimes the innovations of the car industry spill over into other industries. There is also a great deal of product differentiation, with certain brands enjoying reputation and loyalty. What are the likely effects of these aspects of the industry on the market structure for High Performance Cars? Examine this industry using the theory and models of industry structure. Should government be worried about any aspect of how an industry with this market structure will perform?