The markets for cars and tyres are closely related. The five largest tyre firms used to make 66% of all tyres. The entry of more than 250 Chinese firms has reduced the global market share of the largest five firms to less than 50%. This also changed the price elasticity of demand (PED) for individual firms' tyres. Some of these firms are state-owned enterprises and some are in the private sector.

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. [2] sole trader; public limited companies; cooperatives; multinationals
2. [4] Will increase competition (1) more substitutes will be available (1) a rise in the price of one firm's tyres would cause people to switch to other firms' tyres (1) demand would become more elastic (1).
3. [6] Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or P and Q (1). Demand and supply curves correctly labelled (1). Shift in the demand curve to the right (1). Equilibriums correctly identified either by lines or by e.g. E1 and E2 (1). Up to 2 marks for written analysis: Price of tyres will increase / quantity traded will rise (1). Tyres are a complement of cars (1). More tyres may be purchased by drivers / car firms (1).
4. [8] Up to 5 marks for why it might: May be able to take advantage of economies of scale (1) examples (2) lower average cost (1) permitting a lower price to be charged raising sales / enabling more profit to be made even if the price charged is the same (1). May have funds available to spend on advertising (1) create a brand image / brand loyalty (1) allowing the firm to raise price (1). May have more market power (1) may be able to keep competitors out of the market/have high barriers to entry (1) allowing the firm to raise price (1). Up to 5 marks for why it might not: Large firm may experience diseconomies of scale (1) examples (2) higher average cost (1). Small firms may be subsidised by the government (1) lower average cost/extra source of revenue (1). Small firms may be producing a new product (1) for which there may be a high demand (1). Small firms may be in a niche market (1) consumers may be willing to pay a high price (1). Small firms may respond quicker to a change in demand (1) reducing surpluses and shortages (1). Small firms may provide a personal service / develop a personal contact (1) increasing demand / enabling a higher price to be charged (1).