An Article on the Daily Mail’s, Essay Example

An article on The Daily Mail’s online edition states that Nissan intends to exploit Chinese luxury car market by manufacturing and marketing its Infiniti line of products in China. Nissan will enter into a joint venture with Dongfeng Motor Corp. with which the company already has a working relationship. The company hopes to sell 100,000 cars in China by 2018. This marketing strategy has also been designed to fill the market gap being vacated by car brands with opulent image due to Chinese crackdown in corruption in the public sector. This strategy is already being followed by other auto manufacturers such as GM through its Cadillac brand. The Chinese luxury market is currently dominated by German brands such as Audi, BMW, and Mercedes-Benz(Reuters).

The article directly or indirectly addresses several economic concepts. First of all, there is concept of demand. As the luxury brands currently associated with opulence face declining demand due to crackdown on government corruption, the demand for alternative luxury brands will go up. Nissan understands this which is why it is introducing its Infiniti brand in China. We also encounter the concept of supply in this article. The local supply from opulent brands may decline while the supply from alternative luxury brands such as Cadillac and Infiniti may increase.

The article also helps us address another economic concept which is the price elasticity of demand. The price elasticity of demand for luxury brands currently associated with opulence will most likely increase which may erode their pricing power. One of the reasons the price elasticity of demand for a particular product increases is due to greater number of substitutes. With the introduction of Infiniti brand, the customers of luxury car market will have even greater number of substitutes to opulent luxury brands. It may force the opulent luxury brands to decrease their prices to some extent in order to both protect if not increase market share and may also be a good strategy for them to increase revenue. This is because total revenue increases when the price of a particular product declines if the demand for that particular product is elastic. The simple reason is that the proportional increase in demand exceeds the proportional decrease in price, resulting in higher total revenue.

The article also hints at the potential of introduction of price floors by the Chinese Government. It is mentioned at the end of the article that the government has been cracking down on anti-competitive behaviors due to complaints that foreign brands are overcharging Chinese customers. Thus, a likely course of action by the Chinese Government may be to introduce price ceilings or setting an upper limit to prices in order to ensure customers are not overcharged.

It is also reasonable to assume that Chinese GDP may get a positive boost because Nissan plans to build Infiniti cars in China, just like German and American brands. This strategy helps decrease production costs. If the Chinese Government forces automakers to reduce prices, the focus will be even greater on reducing production costs to protect profit margins.

The article has taught us that the demand for substitute products may increase if the product in question faces lower demand. We can also conclude that the price elasticity of demand for opulent brands will increase with the introduction of Infini brand and number of substitutes and price elasticity of demand have positive relationship. Similarly, the Chinese Government may also introduce price ceilings to curb abusive pricing policies by foreign bramds.

Work Cited

Reuters. Nissan says to make, market Infiniti cars in China to boost demand for luxury line. 22 September 2014. 16 October 2014 <http://www.dailymail.co.uk/wires/reuters/article-2764892/Nissan-says-make-market-Infiniti-cars-China-boost-demand-luxury-line.html>.