Maruti Suzuki India Limited: Sustaining Profitability
(6 pages of text)
The passenger car industry in India has witnessed intense competition since the Indian economy’s liberalization in the early 1990s. Although Maruti Suzuki India Limited has been the most dominant player for the last three decades — with many Indians using “Maruti” as a synonym for “car” — it has been unable to raise the prices of its cars over the last ten years due to a price war among rivals. Though Maruti has been a profitable company, rising input costs and poor price maneuverability are making it very challenging for the firm to remain profitable in the future. In 2014, Maruti is contemplating a major investment in a new plant. The chairman of Maruti must determine whether investing in the new plant would reduce costs significantly and help the company remain profitable.
This case is primarily intended for management students in a managerial economics course at the postgraduate level. Specifically, the case deals with firm behaviour in an oligopolistic market. The case highlights the importance of product differentiation in the context of an oligopoly. Other economics concepts such as average cost, marginal cost, cross price elasticity and economies of scale can also be effectively demonstrated through the use of this case. The case highlights the difficulty in sustaining profits in the face of fierce competition. It can be used in business strategy courses to explore the pros and cons of a new investment decision by a company that requires huge investments in fixed costs.
India, Large, 2000-2014
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