The market is characterized by oligopolistic relations. Oligopoly in the economy is a kind of middle link that allows, on the one hand, to control everything largest enterprises and manage them, and on the other hand, create conditions for entering a competitive environment in the future. In any case, the topic is very relevant for Russia, because it is in our country that there are plenty of examples to study.

What is an oligopoly

Let us consider in more detail how this type differs from others. Oligopoly in market economy is a meeting point for a small number of manufacturers and many buyers. As a rule, the number of firms does not exceed 10-12 units. The most interesting thing is that an oligopolistic market can have both monopolistic and competitive features, depending on the behavior of its main participants.

You need to understand that when there are only a few large players on the market, they have only two behaviors: in the first, they cooperate and solve pricing issues together, and in the other, they compete and consider each other the worst enemies. In the first case, we are talking about "secret agreements", when the leaders over a cup of coffee or in a steam room simply agree on what kind of game to play. in the second model of behavior do not always benefit manufacturers, but reducing the cost of products or improving their quality attracts new potential customers.

Characteristic features of an oligopoly

Oligopolies in modern economy have their own specific features. There are only a few of them:

1. There are only a few leading firms on the market. Usually they occupy approximately the same share in such a way that their power cannot be called a pure monopoly.

2. If we consider the graph, then the demand curve for each individual firm will have a falling character, from which we can conclude that the market is not competitive.

3. Home hallmark is that any action on the part of one of the manufacturers will not go unnoticed by competitors. If even the most important participant raises the price, its competitors will be forced to take similar actions or provoke demand for their products. At the same time, unlike in a competitive market, it is difficult to predict the behavior of buyers. An oligopoly in the economy is always an impetus to improve quality or reduce prices.

4. Often standardized products are produced in an oligopolistic market. Thus, manufacturers can only play price wars, since they cannot change the quality or type of products. At the same time, another subtype - a differentiated oligopoly (for example, the automotive industry) - allows for large-scale races between manufacturing firms for consumer attention.

5. Any oligopoly can be characterized by the concentration of production. The higher the value of this indicator, the less competition in the market. The degree of concentration can be calculated using the Herfindahl-Hirschman index.

Features of entering the market

It is very difficult for young firms to enter a market in which there are only a few large manufacturers. And this is not surprising. Oligopolies in the Russian economy have firmly strengthened their status, and their names appear on an international scale. As a rule, all industries that can be called oligopolistic are those where there are limited resources, complex technologies, and large equipment.

It is clear that it will be very difficult for a young company not only to start operations, because this requires huge investments, but also to continue to work at a competitive level. When the name "Lukoil" is on everyone's lips, it will be difficult to surpass it. In world practice, there are only two examples of successful entry into the oligopolistic market of a new company. These are Volkswagen in the USA and AvtoVAZ in Russia. And then, it was possible only with the condition state support, so we are not talking about normal competition here.

Oil production market in Russia

The role of oligopolies in the modern Russian economy can be clearly seen in the example of the oil production market. This is one of the most striking examples of how a few major players can pursue a policy of "secret agreements".

To begin with, consider which firms appear in this market and which segment they occupy. For this we need the following figure.

As can be seen from this figure, only 11 Russian companies produce almost 90% of oil. Of these, four own a 60% stake. They become the biggest players, dictating their terms. Distribution production capacity in Russia is shown in the following figure.

What is really happening in the oil market

Oligopolies in the Russian economy, and in particular in the oil industry, behave like monopolists. In particular, there are vertically integrated systems that fully control the entire process from oil production, its refining and to sale to end consumers both on the external and internal markets.

As noted by the Antimonopoly Committee, the activity of the main players in this market is by no means transparent. Theoretically, the price of petroleum products should be formed under the influence of many external and internal factors, but in reality it is significantly overestimated, and, as calculations show, gasoline could cost 20% cheaper without harming producers. There is a conspiracy in which the main participants agree on a price and sell it on the domestic market.

Mobile operator market in Russia

If we consider the role of oligopolies in the modern Russian economy, then another good example shows the market mobile operators. Competition here has long ceased to be exclusively price. For the right to attract the attention of the buyer, real wars are fought, sometimes even

Consider what is the state of affairs and which players are in the lead.

As can be seen from the figure, the Big Three, which includes MTS, VimpelCom (Beeline) and MegaFon, hold the majority of the market. Recent times Tele 2 is increasing its turnover, although access to the most profitable sites in Moscow and St. Petersburg is still closed for it. As statistics show, for last year there is an outflow of customers from all operators by a few percent. At MTS the number of clients decreased by 0.1%, at MegaFon - by 0.3, and at Beeline - by as much as 2.6%.

How does oligopoly manifest itself in the market of cellular operators

The "Big Three" controls almost the entire market of cellular operators. New technologies such as 3G and 4G Internet are in their power. In principle, the place of the oligopoly in the modern Russian economy can be seen from the way the operators behave. In 2006, the "big three" were involved in a major scandal and were accused of conspiring against regional operators. It was during that period that a merger of some small companies or their complete disappearance was observed.

In 2010, the Antimonopoly Service fined the largest market leaders for deliberately inflating tariffs for the provision of roaming services. Each company was fined, which amounted to 1% of their revenue received for their actions. total amount FAS revenues amounted to 8.1 million rubles. One has only to calculate how many billions of rubles the companies themselves received.

"Big Three" and "Tele 2"

In 2006, the Swedish operator Tele 2 abruptly appears on the scene. It was formed back in 2001, but the persistent ones prevented it from settling in the central regions. Thanks to cunning manipulations with the shares of regional operators, in just one year, Tele 2 managed to secure competitive advantages in 13 regions. Next, the company pursued a very aggressive pricing policy, which allowed it to win back 4.3% of the market. It was a breakthrough that the main players could not help but notice cellular communication.

The "Big Three" began to interfere with "Tele 2" in every possible way, and completely non-competitive methods were used. So, a request was made to the Ministry of Internal Affairs from one deputy, after which all Tele 2 stations and offices began to be carefully checked to see if they were functioning correctly.

But the Swedish company did not back down and main goal outlined for itself the conquest of the Krasnodar Territory. The "big three" could not allow this, and they had to cut prices by one and a half times in order to adequately resist the competitor. This example clearly shows the role of oligopolies in the modern economy. We are not talking about fair competition at all, and if new company wants to survive and gain a foothold here, you need to have very strong support either from the state or from more influential companies.

Oligopoly and its place in a market economy

All economists agree on a single point of view: oligopolies are needed modern world and market economy. And although such a market is sometimes difficult to control, sometimes there are real wars against competitors, there are still positive sides to form a healthy economic system. Namely:

1. First of all, large firms have significant finances that can be directed to the development of the industry, scientific and technical developments.

2. It follows from the first point that since there is money and it is possible to invest in development, the product will become more profitable for the buyer, and thus, it is possible to bypass competitors. Oligopoly in the economy is the most powerful engine of progress.

3. In a realm where only giants exist, there is no such destructive force competition, as free market. Here are observed low prices and high quality products.

4. Another advantage is barriers to entry. Only well-funded firms can compete with leaders.

Disadvantages of oligopolies

Almost all the advantages are the negative aspects that arise in the realities of the modern economy.

Let's start with the fact that leading firms are completely unafraid of competitors and behave willfully, doing whatever they please. They confirm the legality of their actions by secret agreements so that others act in a similar way. By colluding, they play buyers, forcing them to buy low-quality products at a higher price. And people have no choice, because the oligopoly in the modern economy is akin to a monopoly: either buy or stay (for example) without gasoline.

Although oligopolies can influence scientific and technological progress, and only they can do this, large firms are in no hurry to introduce new technologies and invest in development. Everything is explained by the fact that, again, the company is in no hurry, because it knows: they will buy anyway. Until all the previously invested money is paid off, nothing new will develop.

Consequences of market oligopolization

The negative attitude towards monopoly and oligopoly in the economy is clearly unjustified. Perhaps this is due to the fact that in our country there is too much distrust and too many of those who want to profit from the money of ordinary people. But in fact, the big ones in one industry are needed by the economy.

First of all, it is connected with the scale of activity. This is reflected on fixed costs. For small firms, almost all costs are variable. But on large industries due to scale, you can save on the introduction of some new technologies. For example, the development of a new drug will cost $600 million, but these costs will be carried over for years until the problem is solved, and the costs can be added to the cost of already manufactured products, and the price will not change much.

Conclusion

Oligopoly in the economy is a very powerful tool for the development of scientific and technological progress. If you correctly direct the direction along which you need to move, then all the shortcomings and negative aspects observed in the current situation in our country will be hidden.

The market economy is a complex and dynamic system, with many connections between sellers, buyers and other participants business relations. Therefore, markets, by definition, cannot be homogeneous. They differ in a number of parameters: the number and size of firms operating in the market, the degree of their influence on the price, the type of goods offered, and much more. These characteristics define types market structures or otherwise market models. Today it is customary to distinguish four main types of market structures: pure or perfect competition, monopolistic competition, oligopoly and pure (absolute) monopoly. Let's consider them in more detail.

The concept and types of market structures

Market structure- a combination of characteristic industry features of the organization of the market. Each type of market structure has a number of characteristics that are characteristic of it, which affect how the price level is formed, how sellers interact in the market, and so on. In addition, the types of market structures have varying degrees of competition.

Key characteristics of types of market structures:

• the number of sellers in the industry;
• firm sizes;
• number of buyers in the industry;
• type of goods;
• barriers to entry into the industry;
• availability of market information (price level, demand);
• the ability of an individual firm to influence the market price.

The most important characteristic of the type of market structure is level of competition, that is, the ability of a single seller to influence the general market situation. The more competitive the market, the lower this possibility. Competition itself can be both price (change in price) and non-price (change in the quality of goods, design, service, advertising).

Can be distinguished 4 main types of market structures or market models, which are presented below in descending order of the level of competition:

• perfect (pure) competition;
• monopolistic competition;
• oligopoly;
• pure (absolute) monopoly.

table with comparative analysis The main types of market structure is shown below.

Table of the main types of market structures

Perfect (pure, free) competition

Market perfect competition (English "perfect competition") - characterized by the presence of many sellers offering a homogeneous product, with free pricing.

That is, there are many firms on the market offering homogeneous products, and each selling firm, by itself, cannot influence the market price of this product.

In practice, and even on a global scale national economy Perfect competition is extremely rare. In the 19th century it was typical for developed countries, but in our time, only agricultural markets, stock exchanges or the international currency market (Forex) can be attributed to markets of perfect competition (and even then with a reservation). In such markets, a fairly homogeneous product (currency, stocks, bonds, grain) is sold and bought, and there are a lot of sellers.

Features or conditions of perfect competition:

• number of sellers in the industry: large;
• size of firms-sellers: small;
• goods: homogeneous, standard;
• price control: none;
• barriers to entry into the industry: practically absent;
• competitive methods: only non-price competition.

Monopolistic competition

Monopolistic competition market (English "monopolistic competition") is characterized large quantity sellers offering a diverse (differentiated) product.

In conditions of monopolistic competition, entry to the market is fairly free, there are barriers, but they are relatively easy to overcome. For example, in order to enter the market, a firm may need to obtain a special license, patent, etc. The control of firms-sellers over firms is limited. The demand for goods is highly elastic.

An example of monopolistic competition is the cosmetics market. For example, if consumers prefer Avon cosmetics, they are willing to pay more for it than for similar cosmetics from other companies. But if the price difference is too big, consumers will still switch to cheaper counterparts, such as Oriflame.

Monopolistic competition includes markets for food and light industry, market medicines, clothes, footwear, perfumery. Products in such markets are differentiated - the same product (for example, a multi-cooker) from different sellers (manufacturers) can have many differences. Differences can manifest themselves not only in quality (reliability, design, number of functions, etc.), but also in service: the availability of warranty repairs, free shipping, technical support, payment by installments.

Features or features of monopolistic competition:

• number of sellers in the industry: large;
• size of firms: small or medium;
• number of buyers: large;
• product: differentiated;
• price control: limited;
• access to market information: free;
• barriers to entry into the industry: low;
• competitive methods: mainly non-price competition, and limited price.

Oligopoly

oligopoly market (English "oligopoly") - characterized by the presence on the market of a small number of large sellers, whose goods can be both homogeneous and differentiated.

Entry into an oligopolistic market is difficult entry barriers very high. The control of individual companies over prices is limited. Examples of an oligopoly include the automotive market, the mobile phone market, household appliances, metals.

The peculiarity of an oligopoly is that the decisions of companies about the prices of a product and the volume of its supply are interdependent. The situation on the market strongly depends on how companies react when the price of products is changed by one of the market participants. Possible two kinds of reaction: 1) follow reaction- other oligopolists agree with the new price and set prices for their goods at the same level (follow the initiator of the price change); 2) reaction of ignoring- other oligopolists ignore price changes by the initiating firm and maintain the same price level for their products. Thus, an oligopoly market is characterized by a broken demand curve.

Features or oligopoly conditions:

• number of sellers in the industry: small;
• size of firms: large;
• number of buyers: large;
• goods: homogeneous or differentiated;
• price control: significant;
• access to market information: difficult;
• barriers to entry into the industry: high;
• competitive methods: non-price competition, very limited price competition.

Pure (absolute) monopoly

Market pure monopoly (English "monopoly") - characterized by the presence on the market of a single seller of a unique (having no close substitutes) product.

Absolute or pure monopoly is the exact opposite of perfect competition. A monopoly is a one-seller market. There is no competition. The monopolist has full market power: it sets and controls prices, decides how much goods to offer to the market. In a monopoly, the industry is essentially represented by just one firm. Barriers to market entry (both artificial and natural) are virtually insurmountable.

The legislation of many countries (including Russia) fights against monopolistic activity and unfair competition (collusion between firms in setting prices).

Pure monopoly, especially on a national scale, is a very, very rare phenomenon. Examples are small settlements(villages, towns, small towns), where there is only one shop, one owner of public transport, one Railway, one airport. Or a natural monopoly.

Special varieties or types of monopoly:

• natural monopoly- a product in an industry can be produced by one firm at a lower cost than if many firms were engaged in its production (example: public utilities);
• monopsony- there is only one buyer in the market (monopoly on the demand side);
• bilateral monopoly- one seller, one buyer;
• duopoly– there are two independent sellers in the industry (such a market model was first proposed by A.O. Kurno).

Features or monopoly conditions:

• number of sellers in the industry: one (or two, if we are talking about a duopoly);
• company size: various (usually large);
• number of buyers: different (there can be both a multitude and a single buyer in the case of a bilateral monopoly);
• product: unique (has no substitutes);
• price control: full;
• access to market information: blocked;
• barriers to entry into the industry: virtually insurmountable;
• competitive methods: absent as unnecessary (the only thing is that the company can work on quality to maintain the image).

Galyautdinov R.R.

© Copying material is allowed only if you specify a direct hyperlink to

The term oligopoly comes from the Greek words oligos (several) and poleo (sell).

Fundamental due to the small number of firms on the market are their special relationship, manifested in close interdependence and sharp rivalry between. In contrast to or pure monopoly, in an oligopoly, the activity of any of the firms causes a mandatory response from competitors. This interdependence of the actions and behavior of a few firms is key characteristic of an oligopoly and applies to all areas of competition: price, sales volume, market share, investment and innovative activity, sales promotion strategy, after-sales services, etc.

We have already mentioned coefficient of volume, or quantitative, cross elasticity of demand, which serves to quantify the interdependence of firms in the market. This coefficient shows the degree of quantitative change in the price of firm X with a change in the firm's output Y on the 1% .

If the volume cross elasticity of demand is equal to or close to zero (as is the case under perfect competition and pure monopoly), then an individual producer can ignore the reaction of competitors to his actions. Conversely, the higher the elasticity coefficient, the closer the interdependence between firms in the market. Under oligopoly Eq>0, however, its exact value depends on the specifics of the industry in question and specific market conditions.

Homogeneity or differentiation of the product

The type of product produced by an oligopoly can be either homogeneous or diversified.

• If consumers have no special preference for any brand, if all products of the industry are perfect substitutes, then the industry is called a pure or homogeneous oligopoly. The most typical examples of practically homogeneous products are cement, steel, aluminium, copper, lead, newsprint, viscose.
• If the goods have trademark and are not perfect substitutes (moreover, the difference between goods can be both real (according to technical specifications, design, workmanship, services provided), and imaginary (brand name, packaging, advertising), then the products are considered differentiated, and the industry is called a differentiated oligopoly. Examples are the markets for cars, computers, televisions, cigarettes, toothpaste, soft drinks, beer.

Degree of influence on market prices

The firm's degree of influence on market prices, or its monopoly power high, although not to the same extent as under pure monopoly.

Bargaining power is determined the relative excess of a firm's market price over its marginal cost(under perfect competition P=MS), or

L=(P-MC)/P.

The quantitative value of this coefficient (Lerner coefficient) for the oligopolistic market is greater than for perfect and monopolistic competition, but less than for pure monopoly, i.e. fluctuates within 0

barriers

Market entry for new firms is difficult but possible.

When considering this characteristic, it is necessary to distinguish between the already established, slow growing markets and young, dynamically developing markets.

• For slow growing oligopolistic markets characteristic very high barriers. As a rule, these are industries with complex technology, large equipment, high dimensions, minimal efficient production, significant spending on sales promotion. These industries are characterized by positive , due to which the minimum (min ATC) is achieved only with a very large output. In addition, entering a market dominated by well-known brands inevitably leads to high initial investment. Only large competitive firms with the necessary financial and organizational resources can afford to enter such markets.
• For young emerging oligopolistic markets it is possible for new firms to enter because demand expands quickly enough that an increase in supply does not have a downward effect on prices.

oligopoly market - this is a form of market organization in which several large firms operate on the market, producing a homogeneous or differentiating product, and independently setting the price for their products, taking into account the possible reaction of competitors. An oligopoly exists only when the number of firms is so small that each of them must take into account the reaction of competitors when formulating its pricing policy.

The oligopoly market is a typical form of modern market organization. An example of an oligopoly market with a homogeneous product is the market for potash fertilizers. The car market is a typical oligopoly market with a differentiated product.

The oligopoly market is characterized by the following traits :

1. there are several large firms;

2. the share of each firm in the market is significant;

3. each firm independently sets the price, taking into account the possible reaction of competitors;

4. there are obstacles to entry into the market of new firms (natural and artificial);

5. non-price competition prevails, which happens

subject (between the same goods with different quality characteristics: cars),

specific (between different products that satisfy the same need: juices, mineral water, etc.)

functional (between goods that satisfy different needs: food production and clothing production).

oligopoly market arises for the following reasons:

1. the effect of patents on scientific discoveries and inventions;

2. control over scarce resources;

3. the effect of economies of scale in production;

4. privileges from the state;

5. price and non-price competition, the use of non-economic methods of competition.

The oligopoly market is characterized by a wide variety of forms of organization. The economic literature describes various approaches to the classification of the oligopoly market. Exist oligopoly market classification on:

1) At. Fellner, which highlights:

The market is in the conditions of maximizing the profit of the industry;

Market in conditions of fundamental antagonism.

2) F. Mahlupu, which highlights:

The market is fully coordinated;

A market partly coordinated by:

a) a leading company

b) voluntary cooperation;

A market without coordination of actions, which can be represented as:

a) a price war

b) pursuing an aggressive trade policy;

c) chain oligopoly.

3)according to the degree of antagonism

Market at war;

The market is in a state of truce;

The market is at peace.

Thus, there are several possible situations in the market:

a) price wars between firms;

b) price stability in the conduct of non-price competition;

c) agreements on prices and volumes of production, official or implicit;

d) predictable behavior of firms.

7.6.2. Oligopoly market in the absence of collusion

If firms compete on price, then the oligopoly market is similar to the perfectly competitive market and is described by the corresponding models. This situation is quite rare, since large firms can compete on price for a long time due to their large financial capabilities, which can lead to large financial losses.

One of the first models of the oligopoly market is the model of the duopoly market, that is, the market in which two firms operate. It was proposed in the 40s of the nineteenth century. O. Kurno .he suggested , that there are two firms that are the same size. These firms experience constant economies of scale, that is, when the volume of production changes, the average cost, and hence the price, does not change. Each firm decides on the volume of production independently, focusing on the free market share. As we already know, the firm achieves maximum sales revenue provided that the price elasticity of demand is equal to one. This state is achieved if the firm produces a volume of products that satisfies half the needs of the market. Therefore, if there is one firm on the market, then it will produce products in the amount of 50% of the market capacity, since in this case the maximum revenue is provided (Fig. 711.a). If the second firm enters this market, then it will focus on the market share not occupied by the first firm and will produce 50% of this share, i.e. 25% of the market volume (Fig.7.11.b).

a) one firm in the market b) the appearance of a second firm c) the reaction of the 1st firm d) the final equilibrium

Rice. 7.11 Cournot duopoly market

This situation cannot persist for a long time, since the first firm is not in an optimal position. She will decide to reduce the volume of production, focusing on the market share free from the second firm (75%), and the firm will set the volume of production corresponding to 50% of the free share, that is, 37.5% of the total market demand (Fig. 7.11.c) . The decrease in the production volume of the first firm creates conditions for the expansion of the production of the second firm. This adjustment process will continue until each firm produces 33.3% of the total market (Fig.7.11.d). Such a situation will characterize the establishment of a stable equilibrium in the market, as it guarantees each firm maximum revenue.

In the 30s of the twentieth century. German economist G. von Stackelberg considered a duopoly market in which one firm is larger than the other (asymmetric duopoly).

He came to the conclusion that equilibrium can be established, since in this case a large firm, being a leader, is trying to achieve a position of independence and independently sets the price, while another, smaller, firm, being an outsider, at the same time tries to reach a position of dependence, to adapt to terms of sale in that market. The smaller firm is actually a price-taking firm, acting in the same way as a firm with a perfect competitor. The adjustment process can be illustrated through reaction curves (Figure 7.12). In this case, the dominant firm chooses the most favorable point on the reaction curve, and the subordinate firm shows a Cournot-type reaction curve. G. von Shtakkelberg concluded that an asymmetric duopoly is an unstable form of market organization.

Figure 7.12 Stackelberg duopoly market

As already noted, the oligopoly market is characterized by the absence of price competition and the stability of the price level. This situation is reflected in broken demand curve models (Fig.7.13).

Figure 7.13 Broken demand curve model

According to this model, if an equilibrium price has formed in the oligopoly market, then firms are not interested in changing this price, since in any case they incur losses in the long run.

If one firm decides to increase the price, other firms are likely to leave the price unchanged. As a result, the firm that raised the price will lose a large number of buyers, since demand will be elastic, and, consequently, the firm will reduce revenue and profit. If a firm lowers the price of its product, then other firms are likely to lower the price as well. As a result, the expansion of sales volume will be insignificant (demand will be price inelastic), does not compensate for the losses associated with the price reduction, and, consequently, the company's revenue and profit will decrease. Thus, any deviation of the price from the equilibrium leads to a reduction in the firm's revenue and profit.

This theory also explains why firms in an oligopoly market keep prices the same even if production costs change.

In the 60s. American economists Efroimson and P. Sweezy developed a kinked demand curve model that explains the upward trend in the price level during a period of economic growth (Figure 7.14).

Fig. 7.14 Model of a broken demand curve in the context of economic growth

During the period of economic growth, the volume of production and incomes of the population increase. Therefore, the company raises the price, hoping that the growth in incomes of the population will allow selling products at higher prices. The decrease in sales will be small (inelastic demand) because buyers' incomes have increased and they can afford to buy the product at a higher price. Due to this, the company will increase the revenue from the sale of products. If a firm lowers the price of its product, other firms are likely to leave the price unchanged, believing that with increased income there will always be buyers willing to pay the same price for the product offered. As a result, the firm that reduces the price will significantly expand the volume of sales of products and income. Comparing the two options, the company's management comes to the conclusion that it is more profitable to raise prices, since no additional efforts are required to expand production.

There is an oligopoly in the market a large number of various options for the behavior of firms and this leads to the use of simulation mathematical models that allow you to describe the behavior of competitors in the market and choose the optimal course of action. In particular, it is used game theory - a section of applied mathematics, with the help of which the optimal strategy for the behavior of a subject in conflict situations is established, which is understood as a situation of a conflict of interests of two or more parties pursuing different goals. Each of the participants in the conflict can have some influence on the course of events, but does not have the ability to fully control it.

The mathematical model should describe:

Multiple stakeholders;

Possible actions of each party;

The interests of the parties, represented by payoff functions for each player.

In game theory, it is assumed that the payoff functions and the set of strategies available to each player are well known.

Games are classified based on one principle or another.

By way of interaction they can be cooperative if firms cooperate in making decisions, or non-cooperative if firms compete with each other.

By type of win games are zero-sum, when one player's gain is equal to the other's loss, and constant difference, when all players win or lose at the same time.

The decision of the model provides managers with a decision matrix that reflects the payoffs for all possible strategies and situations. Based on the matrix, they must make a decision. The choice of solution depends on the nature of the manager. Allocate solutions for:

Criterion maximax (optimism), i.e. the manager focuses on the maximum gain;

Criterion maximin (pessimism), i.e. the manager seeks to choose a behavior strategy that minimizes losses;

Indifference criterion (focus on the maximum average result for the best strategy).

Most often, the pessimistic option is chosen, since it is assumed that the opponent is a qualified specialist who chooses the best solutions.

Suppose we have two firms ( BUT and AT) having the same volume of sales in the market and two strategies of the firm's behavior are possible BUT: raise the price of products or leave the price unchanged (Table 7.1).

Since a competitor will take retaliatory action, one of four situations can occur in the market:

1) firm BUT raises the price, firm AT leaves the price unchanged;

2) firm BUT AT raises the price;

3) firm BUT raises the price, firm AT raises the price;

4) firm BUT leaves the price unchanged AT leaves the price unchanged.

Assume that the loss in case of a price increase by the firm BUT in our case will amount to 10,000 cu, since part of the buyers will start buying goods from the company AT which does not raise the price. If the firm AT will also increase the price, then the losses of each firm will amount to 5000 USD. The economic outcomes of each situation for firms are presented in tabular form.

Table 7.1

Decision Matrix

Firm decision BUT will depend on the chosen strategy. One such strategy is the loss minimization strategy. In this case, the company's management evaluates the possible losses for each strategy and chooses the strategy that brings the least losses. In our case, the management BUT will raise the price, assuming that the firm AT will also raise the price.

If the firms coordinated their actions (cooperative game), then the prices in the market would remain unchanged. Studies have shown that if the payoffs of the players are asymmetric, then there are inevitably elements of cooperation in the choice of strategies.

The oligopoly market, as we have already noted, is characterized by a wide variety of behaviors that, ultimately, are oriented towards obtaining maximum profit. In modern economic literature, works appear that state that large firms do not set as the goal of their behavior to maximize profits, but to achieve other results: increasing sales, maintaining market share, conquering new markets, and so on. All this complicates the analysis of the oligopoly market and expands the scope of application of simulation modeling in the practice of making managerial decisions.

Oligopoly is a type of market imperfect competition characterized by the action of several sellers on the market, and the emergence of new ones is difficult or impossible.

If there are two producers in the market, then this type of market is called a duopoly, which is a special case of an oligopoly that is more common in theoretical models than in real life.

Signs of an oligopoly

Oligopolistic markets have the following features:

• a small number of firms and a large number of buyers. This means that the volume market supply is in the hands of a few large firms that sell the product to many small buyers;
• differentiated or standardized products. In theory, it is more convenient to consider a homogeneous oligopoly, but if the industry produces differentiated products and there are many substitutes, then this set of substitutes can be analyzed as a homogeneous aggregated product;
• the presence of significant barriers to entry into the market, i.e. high barriers to market entry;
• firms in the industry are aware of their interdependence, so price controls are limited.

Examples of an oligopoly

Examples of oligopolies include manufacturers of passenger aircraft such as Boeing or Airbus, manufacturers of automobiles, household appliances, and so on.

Another definition oligopolistic market may be a Herfindahl index value greater than 2000.

The pricing policy of an oligopolistic company plays a huge role in her life. As a rule, it is not profitable for a firm to increase the prices of its goods and services, since it is likely that other firms will not follow the first one, and consumers will "pass" to a rival company. If the company lowers prices for its products, then in order not to lose customers, competitors usually follow the company that lowered prices, also reducing prices for the goods they offer: there is a “race for the leader”.

Thus, so-called price wars often occur between oligopolists, in which firms set a price for their products that is no higher than that of a leading competitor. Price wars are often detrimental to companies, especially those that compete with more powerful and larger firms.

Oligopoly Models

Exist four models price behavior of oligopolists:

1. broken demand curve;
2. collusion;
3. leadership in prices;
4. cost-plus pricing principle.

The broken demand curve model was proposed by the American economist P. Sweezy in the 1940s. XX century, which analyzes the reaction of an oligopolist to a change in the behavior of their competitor. There are two types of reaction of market participants to price changes by an oligopolistic firm. In the first case, when a firm raises or lowers prices, competitors can ignore its actions and maintain the same price level. In the second case, competitors can follow the oligopolistic firm, changing prices in the same direction.

Conspiracy (cartel) when firms come to an agreement among themselves regarding prices, production volumes, sales.

Price leadership is a model in which oligopolists coordinate their behavior by tacitly agreeing to follow the leader.

Cost-plus pricing is a model associated with production and profit planning, in which the price of products is set according to the principle: average costs plus profit, calculated as a percentage of the level of average costs.

Similar articles

Monopsony is a situation where there is only one buyer and many sellers in the market.

If a monopoly is a certain phenomenon of controlling the market price by a monopolist firm, when only one seller acts, then in the case of a monopsony, the power over the price belongs to the single buyer.

Special merit in research this market belong to the English economist D. Robinson. It is generally accepted that the concept of "monopsony" was introduced into scientific circulation by D. Robinson, however, in his work " Economic theory imperfect competition” she refers to B.L. Halvard, who suggested this term to her.

Monopolistic competition is a type of market structure, consisting of many small firms producing differentiated products, and characterized by free entry into the market and exit from the market. The products of these firms are close, but not completely interchangeable, i.e. each of the many small firms produces a product that is somewhat different from that of its competitors.

Distinctive features of monopolistic competition

Through product differentiation, a monopolistic competitor reduces the price elasticity of demand. By raising the price, the monopolistic competitor does not lose all consumers, as happens in conditions of perfect competition. The market will shrink somewhat, but there will be those who consistently prefer the products of only this manufacturer.