Analysis of Heterogeneous Indian Auto Component Replacement Suppliers: A Perspective On Simultaneous Entry

Competition on price alone is no longer sustainable. Increasingly, firms are competing on multiple dimensions such as service quality, performance quality, process technology, and product variety. In this paper we study how firms might make some of these decisions in a high margin and fragmented Indian auto component replacement market. Using game theoretic principles, we analyze the replacement market when the non-OES (original equipment suppliers, national/regional) makes decisions in presence of an OES. Along with this, we analyze the market when the OES and non-OES enter simultaneously and make decisions based on their risk appetite. Our results indicate that the investment in a more capable technology doesn’t necessarily lead to higher optimal price. More capable technology decreases the marginal cost which allows the firm to decrease the price but more capable technology also increases the share of market demand which allows the firm to price higher.