Usually, monopolies are bad for business and consumers. When there is only one manufacturer or service provider, they set the price. Competition makes companies compete for the market, driving down prices.
There is a very unusual situation in racing, called a spec series. One manufacturer makes all of the cars, and everyone has to use them. Simple economic logic would suggest that this is a very bad thing, and the costs would be astronomical. But it is widely known in the racing community that spec series are very affordable. How can this be?
This happens because there is still competition. Not inside the market, as there usually is, but competition for the market. What I mean to say is that one customer cannot choose a Chevy to race in a Honda spec series. This means that Honda has no competition in the series. But if Chevy introduced a spec series with a car that cost a good amount less and that offered the same performance, everyone racing in the Honda series would switch to the Chevy series.
A real example of this is the IndyCar series. It is more or less a spec series. The only supplier of chassis is a company called Dallara. Before the Dallara was used, there was a different spec chassis. They chose to move to the new chassis because it was cheaper and offered better performance. In this instance, Dallara competed against the previous supplier without being able to sell any product.
An IndyCar chassis right now costs $385,000. That number is from " IndyCar's New Chassis Will Reduce Costs, offers teams more freedom" by Tim Tuttle, a writer from Sports Illustrated.
In contrast, a new price cap was introduced to Formula One in 2010. The cap is at $640,560,000. This included everything but transportation, engines, and a few other things. More info can be found on Formula One's official website. Even though the numbers are for 2010, the staggering costs of F1 are relatively the same, and 2010 offers the closest comparison to IndyCar, when engines were not counted. Formula One teams have 2 cars. so we can multiply the cost of an IndyCar by two. Then we can multiply it by two again because the price cap includes more than the car. The difference is still immense.
But why do Formula One cars cost so much more? The answer is research and development. Dallara tested their product before selling it to consumers. Ferrari, on the other had, had to design their own car. As did BMW. As did Mercedes. As did Renault. When these major companies with major sponsors are competing so fiercely, it turns into a spending battle. They all try to develop the best car that money can buy. Which is why the price cap was set at such an insanely high number. The teams were spending more than that. And other, smaller teams, couldn't keep up. The idea in a spec series is that everyone has a more or less equal car, and cannot win by spending more.
This all sounds great about spec series, but many claim that they hurt innovation and technological advancements. If you were going to make a top level race series, would you make it a spec series? I, personally, do not, as I believe top series should have top level cars.
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