Oligopoly occurs when there is no market functioning a large number of firms, and the barriers to entry into the industry are quite high.

Characteristics of oligopoly

Oligopoly is a market structure that has the following characteristic features:

1) a relatively small number of firms;

2) barriers of different permeability that prevent new firms from entering the industry;

3) products are homogeneous (for example, aluminum or steel) or differentiated (automobiles or drinks);

4) price control;

5) interdependence between all oligopolistic firms.

So, an oligopoly is characterized by a small number of firms (from 2 to 10), fenced with barriers that prevent new firms from entering the industry, have control over prices, but in collusion with other oligopolists.

The main feature of an oligopoly is that the number of firms is so small relative to the size of the market that each of the oligopolistic firms recognizes a close relationship with each other. The theory of oligopoly is more complex than the theory of perfect competition, pure monopoly or monopolistic competition. For example, a perfectly competitive firm only needs to equate marginal cost and marginal revenue. In the case of oligopoly, things are not so simple. Because there is general interdependence, the oligopolist earns marginal revenue by charging a higher price depending on the response of rival firms. If their reaction is not provided for, then the oligopolist will not receive marginal revenue (see Example 10.3).

Example 10.3

Prisoner's dilemma

The situation in an oligopoly with attempts to predict the behavior of competitors in economic literature explained using the example of two unlucky robbers. Two robbers with guns went to rob a bank at night. However, almost at the bank, they came across a police ambush, and each of them ended up behind bars. Each of them was obliged to foresee the behavior of his fellow sufferer: if they both “conspire”, each receives 5 years in prison for attempted robbery; if only one “speaks” and the second remains silent, then the first will be released, and the second will be imprisoned for 20 years; if both remain silent, they will receive 1 year for illegal possession of weapons. What should everyone do? As a rule, the matter ends with the fact that first one “speaks”, and then the second robber.

General interdependence

An oligopoly is defined as a market with a relatively small number of firms, but each firm must take into account the reactions of competing firms. One firm must consider how competing firms will react to its actions, etc. If firms in an area need to consider the responses of competing firms, then the industry is characterized by overall interdependence.

So, general interdependence- the main feature of oligopoly. The actions of one firm affect other firms in the industry. When making decisions on prices, quantity of goods and their quality, an interconnected company needs to take into account the reaction of competing firms. A competing company, reacting to the actions of the first company, must take into account how the first company will react to its actions.

In some oligopolistic industries, the type of response may be well understood by all participants; it may be dictated by custom or convention. In other industries, the reactions of rival firms may be unpredictable, and participants must use strategic behavior to anticipate and outwit their rivals (see Example 10.4).

Example 10.4

Collapse of the Cocoa Producers' Organization

The International Cocoa Producers' Organization (ICCO), which was based in London, set its price for cocoa by purchasing surplus cocoa whenever there was a threat to reduce the price below the level it had set.

In 1977, cocoa prices were high: approximately $5,500 per ton. Real profit of $5,500. For each ton, cocoa producers in the region could receive cash, but this real income acted like a magnet, attracting new producers to the market. Expecting high prices, new planters planted cocoa trees in countries such as Brazil, Ivory Coast and Malaysia. As new cocoa producers entered the market, the market price began to fall. ISCO agreed to buy up surplus cocoa to support the price, but this lasted only until February 1988, when the volume of cocoa stored in warehouses reached 250 thousand tons. Since the International Organization of Cocoa Producing Countries was unable to keep the price at the same level, the price decreased to $1,600 per 1 ton.

The example of the bankruptcy of an international organization of cocoa-producing countries illustrates one of the key problems of oligopolies in the sphere of pricing: how to prevent other producers from entering the market when the price is high enough to generate monopoly profits.

Strategic behavior

Firms A and B are oligopolists and they are interconnected. Each firm's profit depends on the price charged by the other firm. Suppose the prices of the two goods are the same and both firms earn exactly equal profits. If one of them reduces the price slightly, then, despite this, it will receive a high profit, while the company with a higher price will receive a lower profit.

In Fig. 10.5 presents possible results. Each company has the opportunity to choose a price: 20 or 19 UAH. Firm A's price choice is illustrated on the left side, and firm B's along the top horizontal line. The profits that firms A and B earn depend on the prices they pay. The profit of firm A is presented in the lower left corner of each rectangle, of firm B - in the upper right corner. If firms set a price of 20 UAH, then both receive 2500 UAH; if they set the price at 19 UAH, then both receive 1500 UAH. If one company sets a price of 20, and another - 19 UAH, then the company with a lower price receives 3,000 UAH, and the company with a higher price receives only 1,000 UAH.

Rice. 10.5. Making a profit by an oligopoly, which consists of two firms

Each rectangle (sector) shows the profit that firms receive at various combinations of prices that they set themselves. If firm A sets a price of 19, and firm B - 20 UAH, then firm A makes a profit of 3000, and firm B - 1000 UAH. What strategy should each firm follow?

It is clear that the oligopolist begins to earn high profits (at the expense of another company), establishing more low price, provided that the competitor maintains a high price. Both firms will earn smaller profits if they both cut prices. If both set a higher price, then each of them makes a larger profit. However, each oligopolist has to set the price without knowing what the other firm is going to do.

Reasoning drives an oligopoly firm's price decisions? These may be assumptions about how a rival firm will react. The reasoning could be something like this: “My competitor will not risk setting a higher price - 20 UAH, fearing that I will set a low price - 19 UAH. Thus, if I set a high price - 20 UAH, I will only receive 1000 UAH. And if I choose a lower price - 19 UAH, then I will get 1500 UAH. So, I will set a low price - 19 UAH." If a rival firm thinks the same way and decides to set a lower price, it turns out that both firms correctly predicted each other's actions and chose the appropriate strategy.

In such a situation, both firms would decide to set the price at 19 UAH and would receive a profit of 1,500 UAH each. However, they know that if they offered a price of 20 UAH, they could make a profit of 2,500 UAH. If firms A and B made the same price decisions over the course of long term, then it is likely that they somehow knew that they would become richer if they set prices higher. Firms could learn to cooperate and choose a strategy (price 20 UAH) that maximizes the profits of both. There is another method by which both firms decide to set a price of 20 UAH - they could agree that both set a high price.

Oligopoly, which is based on collusion

If oligopolists have learned to cooperate, then they begin to receive high incomes. Conspiracy within an oligopoly can take various forms. Oligopolists can secretly agree on prices and output volumes. They can officially register this in a secret deal (but such agreements are illegal) or open (provided that such agreements are legal and even agreed with the government of the country). A conspiracy can be carried out in a free form, that is, on the basis of customs and traditions, or in the form of an informal agreement. The effectiveness of such collusion varies for different oligopolies. In some cases, the plot is quite reliable, and in others it is fragile and tends to collapse.

Cartel

For an oligopoly, a simple means of coordinating pricing policies and output is to create a cartel, which obliges all parties to set certain prices and a certain market share for each producer. With luck, such an agreement will allow oligopolistic firms to obtain monopoly profits in the industry as a whole.

So, cartel is an agreement under which companies participating in an oligopoly coordinate output and pricing in order to obtain a monopoly profit.

In Fig. 10.6 illustrates an oligopolistic industry that consists of three firms (that produce the same product at the same cost). Each of the three firms agrees to 1/3 of the market and sets the same monopoly price. Since all three firms participating in the cartel have agreed to divide the market equally, then firm A's demand will be equal to 1/3 of market demand, etc. Firm A's monopoly price lies at the point of intersection of the marginal revenue curve with the marginal cost (MC) curve. Given such a demand curve, firm A will maximize its profit by producing 100 units of the product at a price of 50 UAH per unit. Other 2 companies also offer a price of 50 UAH. and produce 100 units each. The production volume for the industry as a whole is 300 units. (100 o 3).

However, Firm A is susceptible to the temptation to deceive its rivals. While two other firms are selling 200 units at a price of 50 UAH, Firm A could set the price at 49.5 UAH and sell slightly more than 1/3 of the market. The price of 49.5 UAH undoubtedly exceeds the marginal cost of firm A (20 UAH). The actual real income will go to the firm that breaks the agreement. Firms B and C are prone to the same temptation. If they "cheat" for a short time (and no one else does the same), they can increase their income. Violation of the agreement is a cost for them in the long run. If other companies discover the deception, they terminate the agreement. As a result, a price war may break out and economic profits will decline.

The thirst for profit underlies the creation and collapse of cartels. Cartels provide a share of the monopoly profits to their members for as long as each of them adheres to the cartel agreement. However, each of the cartel members can make large profits by deception, provided that the others do not deceive. Cartel members are faced with a dilemma. If one "cheats" and the other doesn't, then the "cheater" wins. If both play unfairly, then both lose. If both comply with the agreement, then this situation is beneficial for them than the option when one “cheats.” But each of them is prone to deception.

Cartels are unstable because it is quite difficult to force agreements on anyone. A very small number of cartels are successful over the long term. Most of the cartels that were involved in the sale of sugar, cocoa, and coffee quickly disappeared or did not have a significant influence on prices. There are many examples of cartels that are created based on pricing agreements. Representatives of states that are members of the Organization of Petroleum Exporting Countries (OPEC) regularly hold meetings that are widely covered by the world press. They are held with the aim of harmonizing oil prices. Thus, the International Air Transport Association also holds open meetings with the consent of the governments of the participating countries.

Many cartels come and go, despite the government giving them legal assistance. They, as historical experience shows, are traditionally unstable, since it is very difficult to force someone to collude. The thirst for profit leads to the fact that cartels disintegrate. Very few cartels operate successfully over the long term. Even the most successful cartel in the history of OPEC was unable to establish a strictly monopoly price. There are too many temptations for its members (especially those who need cash) to break the agreement.

Obstacles to conspiracies

There are many obstacles that reduce the chances for an effective and reliable conspiracy within the cartel. The competitive struggle between cartel members intensifies when there are:

1) a large number of sellers;

2) low barriers to entry of new firms into the industry;

3) the presence of differentiated goods;

4) high rates of scientific- technical progress;

5) high fixed costs and low marginal costs;

6) legal restrictions (for example, antitrust laws). A large number of sellers. The more sellers or firms in

industry, the more difficult it is to create a reliable cartel. With a very large number of members, it is quite difficult to establish contacts between member firms. Small firms that have signed an agreement are more susceptible to the temptation to break it: they are not only less well-known than large firms, but may also suffer from delusions of grandeur.

Low barriers to entry of new firms into the industry. If new firms can easily enter an industry, then existing firms will be reluctant to enter into price-increasing deals. With sufficiently free access to the industry, prices cannot be significantly higher than the cost of production.

Availability of differentiated products. The more diverse or differentiated the products, the more difficult it is to negotiate in such an industry. Reaching an agreement can be both unprofitable and profitable. Achievement will be more unprofitable if there is a differentiated product. For example, steel is homogeneous, and agreement on prices and market share among steel corporations can be easily achieved. But it is quite difficult to conclude an agreement between aircraft manufacturers on prices for the DC-10 and Boeing 747 due to discrepancies regarding quality.

High rates of scientific and technological progress. At a high rate of scientific and technological progress, a conspiracy may be impossible, since now industry is constantly releasing new products and developing new technology. A firm that uses an innovation can make greater profits than within the cartel. It is quite difficult to imagine the existence of a secret conspiracy between Kodak and Polaroid or IBM and Apple.

High fixed costs and low marginal costs. Fixed costs associated with total costs are higher, but marginal costs are usually low. The temptation to "cheat" in a cartel is a function of the difference between price and marginal cost. Thus, relatively high fixed costs encourage certain cartel members to "cheat."

Legal restrictions. The Sherman Antitrust Act (1890) in the US states that associations intended to restrain trade are illegal. Such legislation could certainly prevent conspiracies and thus price increases resulting from the creation of cartels.

Since each industry is marked by product differentiation, entry conditions, the number of firms, the relative rates of marginal and fixed costs, and the rate of technical progress, the degree of oligopolistic coordination cannot be the same. So, some oligopolies, unlike others, can enjoy near-monopoly power.

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 determine types of 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 look at them in more detail.

Concept and types of market structures

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

Key characteristics of types of market structures:

• number of sellers in the industry;
• firm size;
• number of buyers in the industry;
• type of product;
• 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 an individual selling company to influence the overall market conditions. The more competitive the market, the lower this opportunity. Competition itself can be both price (price changes) and non-price (changes in the quality of goods, design, service, advertising).

You can select 4 Main Types of Market Structures or market models, which are presented below in descending order of level of competition:

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

A table with a comparative analysis of the main types of market structures is shown below.

Table of main types of market structures

Perfect (pure, free) competition

Perfectly competitive market (English "perfect competition") – characterized by the presence of many sellers offering a homogeneous product, with free pricing.

That is, there are many companies on the market offering homogeneous products, and each selling company, by itself, cannot influence the market price of these products.

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

Features or conditions of perfect competition:

• number of selling companies in the industry: large;
• size of selling companies: small;
• product: homogeneous, standard;
• price control: absent;
• barriers to entry into the industry: practically absent;
• methods of competition: only non-price competition.

Monopolistic competition

Market of monopolistic competition (English "monopolistic competition") – characterized by a large number of sellers offering a variety of (differentiated) products.

In conditions of monopolistic competition, entry into the market is fairly free; there are barriers, but they are relatively easy to overcome. For example, in order to enter the market, a company may need to obtain a special license, patent, etc. The control of selling firms over firms is limited. 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 them than for similar cosmetics from other companies. But if the price difference is too large, consumers will still switch to cheaper analogues, for example, Oriflame.

Monopolistic competition includes food and light industry, market medicines, clothes, shoes, perfumes. Products in such markets are differentiated - the same product (for example, a multicooker) 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: availability of warranty repairs, free delivery, technical support, installment payment.

Features or features of monopolistic competition:

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

Oligopoly

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

Entry into an oligopolistic market is difficult and entry barriers are very high. Control individual companies above prices limited. Examples of oligopoly include the automobile market, cellular communication markets, household appliances, metals.

The peculiarity of oligopoly is that the decisions of companies on prices for goods and the volume of its supply are interdependent. The market situation strongly depends on how companies react when one of the market participants changes the price of their products. Possible two types 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;
• firm size: large;
• number of buyers: large;
• product: homogeneous or differentiated;
• price control: significant;
• access to market information: difficult;
• barriers to entry into the industry: high;
• methods of competition: non-price competition, very limited price competition.

Pure (absolute) monopoly

Pure monopoly market (English "monopoly") – characterized by the presence on the market of one single seller of a unique (without close substitutes) product.

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

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

A pure monopoly, especially on a national scale, is a very, very rare phenomenon. Examples include small settlements (villages, towns, small towns), where there is only one store, one owner 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 lower costs than if many firms were involved 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 (this market model was first proposed by A.O. Cournot).

Features or monopoly conditions:

• number of sellers in the industry: one (or two, if we are talking about a duopoly);
• firm size: variable (usually large);
• number of buyers: different (there can be either many or a single buyer in the case of a bilateral monopoly);
• product: unique (has no substitutes);
• price control: complete;
• access to market information: blocked;
• Barriers to entry into the industry: almost insurmountable;
• methods of competition: absent as unnecessary (the only thing is that the company can work on quality to maintain its image).

Galyautdinov R.R.

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13. What are the advantages of large firms over small ones in terms of stability and risk?

14. How is the riskiness of securities assessed?

15. How is the required rate of return related to risk?

16. What is the economic content of the Bain ratio?

17. What are the possibilities of using the Lerner coefficient in determining the degree of market competitiveness?

18. What is the meaning of Tobin's coefficient?

19. What are the capabilities of the Papandreou coefficient in assessing the level of monopoly power?

Chapter VII. Degrees and concepts of partial competition

Monopolies, oligopolies and effective competition in the market. Dominant firms and their monopoly influence.

Close oligopolies, the range of their interactions and influence on the market. Weak oligopoly, features of its behavior.

Features and results of monopolistic competition.

When analyzing the degree of competition in the market, all elements of the market structure must be combined. The methodological basis for performing the procedure provides for a certain order of judgments.

First of all, the market share of the leading company is calculated, on the basis of which certain conclusions can be drawn.

If the market share is very significant (more than 40%), there are no close competitors, then the market power of such a company is great. The free entry of other firms into a given market can destroy the market power of a given firm, if, of course, the firms entering the given market have great market power. To complete the market analysis, it is also necessary to evaluate the behavior of the dominant company in relation to other companies in the market and the level of its profitability.

If the market shares of large firms are in the range of 25–50%, then a close oligopoly appears to exist, since the concentration ratio of four firms will exceed 60%. It is necessary to take into account pricing strategy and profit margins when assessing the degree of competition.

If the largest market share is no more than 20%, the concentration of four firms is no more than 40%, then it can be argued that, most likely, there is effective competition in the market, entry barriers will not be high and secret agreements will be minimal.

Usually in economic analysis It is customary to distinguish three categories of degree of competition:

- dominant firm;

- close oligopoly;

- weak oligopoly (including monopolistic competition).

1 . DOMINATING FIRMA.

As noted, dominance requires more than 40% of the market and the absence of immediate rivals. With a very high market share, the firm effectively occupies a monopolist position: the demand curve is the general demand curve in the market, it is inelastic. The dominant firm operates essentially as a pure monopoly, and some competition between small firms does not particularly affect the dominant firm's profit-maximizing policy and its demand curve.

A dominant firm usually faces the challenge of capturing a high market share and long-term dominance, the latter being the most difficult to achieve.

IN Examples include dominant firms, oligopolies

And monopolistic competitors:

- for the markets of dominant firms - computers, airplanes, business newspapers, overnight delivery correspondence – average market share – 50–90%, with high or medium barriers;

- for markets of close oligopolies (cars, artificial leather, glass, batteries, etc.) – an indicator of concentration by 4 companies 50-95%;

- for the market of weak oligopolists and monopolistic competition (cinema, theater, commercial publications, Retail Stores, clothes) – concentration indicator according to 4 companies 6-30%.

Dominant firms typically exercise the following monopoly power over prices:

- increase the price level;

- create a discriminatory price structure.

The action of these factors allows you to receive excess profits (Fig. 15.). The dots in the figure conventionally represent some statistical observation data that allows us to relate the rate of profit to the value of entry barriers and the behavior of oligopolists; The relationship between market share and the rate of profit in the market is very close and increases with the level of monopoly.

Price discrimination of a dominant firm lies in the fact that the firm can divide the market into segments, within which differentiated price-cost ratios are established for different groups of consumers in accordance with the inelasticity of demand. For example, computers may have higher prices, some do not have worthy competitors, electronic devices for parameter signaling production processes etc.

If a company is close to a monopoly, the basic provisions and concepts of a monopoly are used to analyze it. At the same time, it is possible (and in many cases a productive approach) to the analysis of temporary dominance in accordance with the concept of J. Schumpeter, which, as is known, differs from the neoclassical approach. According to his approach, big business, even if it is associated with market dominance, is capable of giving best result compared to the neoclassical competing result.

Profit rate of the company, % 3

Competitive profit share

Market share of products, %

Rice. 15. Relationship between market share and rate of profit.

1- “normal” conditions are maintained;

2- entry barriers are low;

3- entry barriers are high;

4- oligopolists cooperate;

5- oligopolists are at odds

According to this concept (published in 1942), competition is defined as a process of disturbing equilibrium rather than establishing equilibrium conditions. According to this theory, competition and progress are consistent only in a series of temporary monopolies.

The “Schumpeterian” process is, in essence, the exact opposite of neoclassical approaches. According to him, the following scenario of events is playing out in the market. At any given time, each market may be dominated by one firm, which raises prices and obtains monopoly benefits. However, these gains attract the attention of other firms, some of which initiate efforts to create better products and lower costs in order to take the place of the dominant firm. This new firm can set monopoly prices and cause monopoly effects by being replaced by a new firm, and so on. This process is called “creating disruption” - innovation creates dominance, which allows one to extract monopoly benefits that stimulate “new innovation”, new dominance, etc. Average level monopoly income may increase; the scale of processes of imbalance, destruction, and market dominance can be very significant; however, the technological process can create profits that significantly exceed the costs of irrational use of resources (which is considered both as a negative result of the monopoly and as a reason for its destruction in the market).

In certain respects, this concept logically complements the approaches of neoclassical theory.

At the same time, this concept also requires some rather vulnerable assumptions. First, a dominant firm must have characteristics of vulnerability so that it can be defeated by competitors. Secondly, entry barriers should not be high to ensure entry of competitors into the market.

Let us note that the commonality of the Schumpeterian (evolutionary) and neoclassical approaches lies in the fact that effective competition also involves regulatory processes involving significant market shares.

The analysis reveals the fundamental features of the neoclassical approach - an effective equilibrium between firms, and the evolutionary one - a rough equilibrium, and the creation process causes a sequence of harsh actions of monopolies. A number of authors, researchers of the economics of industrial markets, consider them justified with equal probability.

It is of some interest to analyze passively dominant firms, i.e. adhering to tactics of a passive role, which allows small competitors to take away their dominance. However, for the most part, these considerations are quite questionable, since such firms exist, rather, hypothetically. Typically, dominant firms are still aggressive in their tactics to suppress potential rivals.

Interesting considerations are that parts of the economy can be considered subject to the approach of evolutionism - for example, electronics, chemistry, the automobile industry; As for agriculture and trade, they discover the possibility of using neoclassical approaches. Depending on the level of staticity and dynamism of certain markets, one or another approach turns out to be more productive. In the diverse world of markets, dominant firms are able to maintain sometimes long-term positions, or lose them very slowly. Apparently, the radicalism of scientific approaches cannot be based on one of the principles or conceptual approaches, but must be based on a multifactorial approach, the use of which in each specific case must be carefully specified.

2. T e c h a l o l i g o p o l i a

It is usually believed that a close oligopoly almost always implies the possibility of secret agreements, whereas in a weak oligopoly there are also agreements, then in a weak oligopoly such agreements are unlikely. The issues of the formation and existence of oligopolies continue to be largely controversial, since they reflect a significant variability of situations that are sometimes difficult to model.

So, oligopolies are characterized by scarcity and interdependence; they arise from a pure duopoly and develop into a free oligopoly of 8 to 10 firms. The small number of firms allows each of them to take into account the possible reaction to their actions from competitors, i.e. a certain system of actions and reactions is formed. The demand of each company, as well as the strategy of its actions, depend on the reaction of competitors, therefore a multifactorial and probabilistic system of competitive relations arises, in which each of the participants can show unexpected, extraordinary reactions. Hence the need arises for each participant to select an appropriate strategy with a set of possible alternatives or methods for developing scenarios, forecasting the development of the situation, etc. The reaction of competitors encourages the company to act step-by-step, use iterative procedures, adjust answer options, etc.

Oligopolists can use any spectrum of interaction - from full cooperation (in certain areas) to pure struggle; cooperate to achieve the results of a pure monopoly and maximize profits, or act independently and hostilely using elements of fierce competition; much more often they occupy some intermediate position, gravitating towards one pole or another. Therefore, naturally, it is extremely difficult to create a single model of behavior of oligopolists, including both polar points of behavior and intermediate states, especially taking into account the specifics of particular situations in which both markets and firms themselves find themselves. It is also necessary to take into account the significant diversity of oligopoly structures due to the influence of such parameters as:

- degree of concentration;

- asymmetry or equality between oligopolists;

- differences in costs;

- differences in demand conditions;

- the presence or absence of company strategies and long-term planning;

- level of technological development;

- the state of the company's management system, etc.

Thus, the development of the theory of oligopoly is faced with the need to construct multifactor probabilistic and nonlinear models, which must satisfy one requirement - correspond to the practice of the present and forecasts of the future in a fairly large range of practical structures and time periods. So far, as in most approaches and models, options are proposed based on unusual approaches and assumptions, which in itself characterizes not only the extremely complex nature of the processes, but also obvious shortcomings methodological approaches. Apparently, for these purposes it is necessary to develop the mathematical apparatus of the theory of nonlinear, multifactorial probabilistic and multiply connected systems - a task for the near future.

The fundamental prerequisite for the existence of oligopolies lies in the following circumstances:

- incentives to compete;

- entering into a secret conspiracy;

- a combination of both (mixed incentives).

Competition encourages each firm to actively, intensively fight in order to maximize its income. Its aggressive behavior inevitably causes a sharp response from competitors, which may have unexpected elements of negative synergy and even a multiplicative, coherent effect (different from simple summation).

Entering into a secret conspiracy is usually attractive, since cooperation of efforts allows one to obtain an effect close to a monopoly, greater than with competition.

Mixed incentives lie in the fact that it is possible to use both secret collusion and price cutting, cooperation, choice of position in the market (for example, outside the price fixing ring), etc.

The behavior of oligopolists in the market can be very different - from convenient cooperation, where a “collective monopolist” operates, to a company that wages a continuous war, using innovations of a different nature (and above all, technological).

Representatives of different schools have different attitudes towards the behavior of firms concluding secret agreements. Representatives of the Chicago UCLA school believe that secret agreements are doomed to rapid collapse due to natural internal conflicts.

However, representatives of other schools rightly note that many cartels sometimes exist for decades, which certainly cannot be considered a quick collapse. Since real results depend significantly on chance, apparently, reality is not very consistent with certain scientific schools and indicates the need for further scientific research and generalizations.

Several generalized models can be cited that characterize the behavior of oligopolists.

1. With high concentration, there is a high probability of the existence of secret agreements for a number of reasons:

− high concentration creates objective preconditions for organizing mutual agreements; leaders with significant market shares experience little pressure from small firms;

− a small number of firms makes it possible to identify and punish a firm that reduces prices; with a large number of firms (10 - 15), such opportunities for price reductions increase significantly for one of the firms, which will not be discovered so quickly.

Secret agreements are characteristic of a close oligopoly, while in a weak one they are quickly destroyed; a close oligopoly always gravitates towards a “group monopoly” with profit maximization; a weak oligopoly strives for effective competition with lower prices.

2. Similarity of conditions between firms. If demand conditions and costs coincide sufficiently, then the interests of firms coincide, which encourages the development of cooperation. It is not difficult to see that these conditions have very definite time limits - technological innovations, for example, can sharply reduce a company's costs, and tendencies towards cooperation will be disrupted.

3. Establishing closer business relationships between firms. As business contacts are established between companies, mutual understanding at the top management level increases, which gives rise to mutually trusting relationships.

Thus, there are differences between close and weak oligopoly, but they are not only quantitative, but also qualitative in nature. Close oligopolies are characterized by fierce competition (but not always), weak oligopolies are able to enter into secret agreements (though not very often). Concentration can contribute to a significant increase in the rate of profit (prices), and this is especially true for the concentration range of 40 - 60%, reflecting the fixation of prices in a close oligopoly (Fig. 16.) Cases are marked with dots statistical observation; graphs illustrate the possibility of linear or stepwise approximation; The latter is characterized by an interval of sharp growth in the rate of profit.

Let's consider the types of secret agreements that take place in oligopolies - from close specific to informal.

At targeted agreements setting prices in close oligopolies can lead to a purely monopoly effect. A cartel, as an organization that is created by firms for control, coordination and cooperation, usually establishes

prices and develops a system of sanctions against violators of the agreement (collusion). Cartels can operate over a wide range of areas:

- set sales quotas;

- control capital investments;

- combine income.

A classic example of a cartel is OPEC - the Organization of Petroleum Exporting Countries. oil market planets.

50 Concentration, % 100

Figure 16. Relationship between the level of concentration and the level of profitability.

1- linear approximation;

2-step approximation.

American legislation has declared price fixing illegal in most sectors of the economy, but hidden price fixing remains in practice through a number of information messages (secret meetings, telephone information, e-mail, And

Tacit collusion (agreement) can be carried out in a variety of different and mild forms; firms do not sign any documents, but may give conditional signals about preferred price levels, which is a form of indirect agreement.

3. W a b a l i g o p o l i y.

A weak oligopoly is an area from moderate concentration to pure competition, i.e. it is quite voluminous and conditional.

According to the concept developed by Chamberlin, monopolistic competition is characterized by low levels of concentration, in which each firm has a weak degree of monopoly; Firms' demand curves have a slight negative slope and no firm has a market share greater than 10%.

The features of monopolistic competition include the following: 1. The existence of some product differentiation, which leads to the emergence of certain preferences among consumers. A weak degree of market power causes the firm's demand curve to decline slowly.

Product differentiation can be due to a number of reasons:

- physical differences in products (for example, different nutritional properties);

- differences in types of products (bread, clothing, shoes, etc.);

- location of retail outlets.

2. Barriers to free entry into the market for new firms, which can become attractive if there are excess profits in the market.

3. Since there are no firms with a sufficiently high market share, each firm is relatively independent and experiences pressure from other firms in the market.

The conditions considered characterize the sales markets for many types of products. We can note such typical cases of conditionally monopolistic competition as trade in clothing or food products: a stable customer center in a city block and stable but distant competition for retail outlets located further away. Demand is high and elastic; the demand curve is almost horizontal, but has a small niche for pricing.

Rice. 17. Monopolistic competition.

a) - demand is highly elastic; b) - demand is inelastic;

1 - marginal costs;

2 - average costs;

3. - demand;

4 - marginal income; AB - idle capacities;

CD is an addition to the price above the minimum cost.

For short term The situation shown in Fig. 1 may occur. 17 a. the demand curve is above the cost curve, which allows the company to receive excess profits in a short period of time (shaded rectangle), if the company produces products q s. The entry of new firms into the market lowers the firm's demand curve to a position tangent to the average cost curve and, thereby, destroys excess profits.

In Fig. 17 b None of the long-run demand curves is above the marginal cost curve, so excess profits are excluded. A firm can exist with output volume q L, at the point of equality of marginal revenues marginal costs upon achieving a competitive rate of return.

Monopolistic competition destroys long-term excess profits, even when demand is not perfectly elastic. Monopolistic competition causes the following deviations from the results of pure competition, as shown in Fig. 17 b. With it, demand falls down until

until average cost touches the demand curve. There is no excess profit, but the price is above the minimum average cost and there are unloaded production capacity. Both costs and prices will be slightly higher than under pure competition, which determine MES - both price and output volume qL are higher than MES. These added costs have certain benefits for consumers. For example, outlets in certain places they may set higher prices, which, at the same time, do not make other distant retail outlets more attractive. Preference may be based on the type of product (quality), the time of service, the level of service, etc.

Another deviation is excess capacity, since output qL< MES. В частности, в trading network this is expressed in empty aisles between store shelves or unfilled areas of restaurants and cafes. However, monopolistic competition usually approximates the results of pure perfect competition.

Basic concepts: categories of degree of competition; dominant firm; close oligopoly; weak oligopoly; market share and profit margin; price discrimination; variety of oligopoly structures; secret agreements and cartels; possibility of obtaining excess profits.

Conclusions to Chapter VII

The conditions for a firm's dominance in the market provide it with a monopolist position with corresponding consequences. In the area of ​​prices, this is an increase in the price level and a discriminatory price structure.

A close oligopoly has a tendency towards secret agreements and the possibility of using a wide range of interactions - from full cooperation to pure struggle, therefore the creation of a unified model of behavior of oligopolists remains problematic. Secret agreements are very diverse, dynamic, and have a different range of actions and consequences.

Weak oligopolies are quite conditional and voluminous, allowing for small excess profits in the short term.

Control questions

1. What are the conditions for the existence of monopoly, oligopoly and effective competition in the market?

2. What are the characteristics of dominant firms? Give examples of markets of dominant firms. What is their monopoly influence? What is the essence of the “Schumpeterian approach”?

3. What is the essence of a tight oligopoly? What are the spectrum of interactions between close oligopolies and the diversity of oligopoly structures?

4. What is a weak oligopoly and what is the behavior of weak oligopolists on

5. What are the features of monopolistic competition?

Chapter VIII. Structure models

The basic elements of market structure and the equation that relates them to the firm's average rate of profit.

Sectoral structure of the US industrial market. Census of US industry groups and problems of its objectivity.

1 . Elements of structure and their interaction

Elements of market structure, such as market share, concentration, entry barriers and others, form a complex multifactor system. They interact with each other in a not always predictable way and form quite complex cause-and-effect relationships. In some cases, depending on specific situations, market share, concentration, and entry barriers may come first. Each of the elements may be most important at a certain time and in a certain industry. Real models of interaction of elements can only relate to specific examples, to certain statistics, i.e. we can admit that there is no single universal model suitable for all life situations. Each real-life model is based on specific statistics and meets specific goals. However, there is a fundamental prerequisite that determines the degree of stability of the company and its normal functioning (and, accordingly, the principle of constructing the model) - this is the level of profitability of the company. This premise was substantiated and subsequently confirmed by a number of hypotheses. It is profitability and its increase that are the main motivator for any company, and the importance of any element can be assessed by its specific contribution to increasing the profitability of a fairly typical company.

In the early stages of research (1950s), attempts were made to identify the structure of value models of industry-wide concentration or an indicator of the level of concentration of four firms due to the availability of relevant economic data. Due to the fact that many specific conditions of individual firms were unwittingly underestimated and other elements of the structure were overlooked, such assessments were of very relative value. Studies of the period 1960-1970. were already focused on the extremely precise characteristics of individual firms and their market shares; they made it possible to clarify the role of individual elements of the company in the market structure. Series of studies 1960-1975. and 19801983 using the example 100-250 large corporations The US goal was to repeatedly test the basic elements to obtain some

Monopolistic competition

12. Model of monopolistic competition.

The market structure under which they operate numerous firms that sell close, but not perfect, substitute products. It is commonly called monopolistic competition.

Such a market is monopolistic in the sense that each producer has a monopolist over his own version of the product and competitive- since there are a significant number of competitors selling similar products. The main features that distinguish the monopolistic competition market from other market structures: a large number of sellers; product differentiation; non-price competition; relatively low barriers to entry and exit from the industry.

A). A large number of sellers. Similar to perfect competition, monopolistic competition is characterized by a large number of sellers such that an individual monopolistically competing firm has a small share of the market. industry market; characterized by both absolutely and relatively small sizes.

B) Product differentiation– a company giving its product such parameters that distinguish it from similar products of other companies is a key characteristic of this market structure. Within a given market structure, each firm: sells a special type or variant of a product that differs in quality, design or prestige; is a monopoly producer of its brand of goods.

Product differentiation creates the opportunity limited influence on market prices, because Many consumers remain committed to a particular brand and company even with a slight increase in prices. IN). Non-price competition- also a characteristic feature of monopolistic competition. A firm operating under conditions of monopolistic competition may use three main strategies influence on sales volume: change prices, produce goods with certain qualities (i.e. strengthen differentiation of your product by technical specifications , quality, services and other similar indicators), strengthen the differentiation of your product in the field of sales promotion.

D). Relatively low barriers to entry and exit from the industry.

Oligopoly

13. The concept of oligopoly. Structural and behavioral concentration. Oligopolistic interdependence

Oligopoly- This is a market structure, most of the production and sales are carried out by a small number of relatively large enterprises. Sometimes it is also defined as “the market of the few” or “competition of the few.” An oligopoly is a market structure that occupies a large and diverse market area between monopolistic competition And pure monopoly; combines the features of these market structures. Herfindahl-Hirschman index (IHH) allows you to determine not only the degree, but also the structure of market concentration. When calculating it, data on the share of the company's products in the market is used. All companies are ranked by specific gravity from largest to smallest. However, the concentration coefficient and IHH that we have considered allow us to determine only static concentration market. It is necessary to supplement the market analysis by identifying the characteristics of the behavior of firms at a given static concentration; in other words, we are talking about defining behavioral concentration of this market. Unlike static concentration, which is determined using quantitative indicators, behavioral concentration described through qualitative analysis. When conducting such an analysis Special attention is given to answering the following questions: can existing firms block the entry of new firms into the market, if they can, then how they do it; Do domestic firms face foreign companies or imported substitute goods; run companies price competition or enter into an unspoken agreement on prices; Is there intense competition between firms in the industry? innovation activity and other non-price areas, if there is, then how it is implemented. The main problem that all oligopolists face is the need to constantly monitor the activities of competing firms. The close oligopolistic interdependence of firms in the market predetermines the specifics of their behavior: unlike other market structures, the oligopolist always takes into account the fact that the prices and volume of output he chooses directly depend on the market strategy of his competitors, which, in turn, is determined by the decisions he chooses.
Because of this, a firm operating in an oligopoly market: a) cannot consider the demand curve for its products as given;
b) does not have a given marginal revenue curve (just like demand, MR varies depending on the behavior of the firm itself and its competitors);
c) does not have a clear equilibrium point (similar to what exists with perfect competition or with a pure monopoly);
d) cannot use the equality MR=MC to find the optimum point.

14. Models of non-cooperative oligopoly.

Model Cournot.
The model was developed by a French economist and mathematician Augustin Cournot(Augustin Cournot) in 1838 and describes market equilibrium in a non-cooperative oligopoly. This model assumes the presence duopolies, that is, situations where only two firms compete in the market. Both firms make decisions at the same time and each must decide how much product it should produce. When making decisions, each company takes into account what the other company sells. a certain amount of product and therefore part of the demand has already been satisfied. Since part of the demand is satisfied by the competitor, the demand curve consequently shifts by the amount of the demand taken into account. Thus, firms make decisions based on their understanding of various demand curves, the estimated form of which depends on the assumption of the competitor's sales volumes. Firms are similar both in size and in their level of costs. Each firm strives to maximize profits, guided by the MR=MC rule, based on the constant output of its competitor. The essence of the Cournot model thing is Each firm accepts the production volume of its competitor as constant, and then makes its own decision on production volume, based on the goal of maximizing profit, guided by the MR=MC rule.

Stackelberg model

Model asymmetric oligopoly was proposed by the German economist G. von Stackelberg. Just as in the Cournot model, each enterprise chooses the optimal production volume, but Stackelberg puts forward a new hypothesis: there may be duopolist leader And duopolist-follower. Follower adheres to the Cournot assumption, he makes decisions about the optimal output volume in accordance with his reaction curve, assuming the competitor's output is given and adapting its production to this volume. Leader, on the contrary, plays a dominant role in the market. He understands that the other firm is behaving as a follower and, knowing that firm's reaction curve, makes his output decisions as a monopolist.

It is usually believed that a close oligopoly almost always implies the possibility of secret agreements, whereas in a weak oligopoly there are also agreements, then in a weak oligopoly such agreements are unlikely.

The issues of the formation and existence of oligopolies continue to be largely controversial, since they reflect a significant variability of situations that are sometimes difficult to model.

So, oligopolies are characterized by a small number and

interdependence; they arise from a pure duopoly and develop into a free oligopoly of 8 to 10 firms. The small number of firms allows each of them to take into account the possible reaction to their actions from competitors, i.e. a certain system of actions and reactions is formed. The demand of each company, as well as the strategy of its actions, depend on the reaction of competitors, therefore a multifactorial and probabilistic system of competitive relations arises, in which each of the participants can show unexpected, extraordinary reactions. Hence the need arises for each participant to select an appropriate strategy with a set of possible alternatives or methods for developing scenarios, forecasting the development of the situation, etc. The reaction of competitors encourages the company to act step-by-step, use iterative procedures, adjust answer options, etc.

Oligopolists can use any spectrum of interaction - from full cooperation (in certain areas) to pure struggle; cooperate to achieve the results of a pure monopoly and maximize profits, or act independently and hostilely using elements of fierce competition; much more often they occupy some intermediate position, gravitating towards one pole or another. Therefore, naturally, it is extremely difficult to create a single model of behavior of oligopolists, including both polar points of behavior and intermediate states, especially taking into account the specifics of particular situations in which both markets and firms themselves find themselves. It is also necessary to take into account the significant diversity of oligopoly structures due to the influence of such parameters as: -

degree of concentration; -

asymmetry or equality between oligopolists; -

differences in costs; -

differences in demand conditions; -

the presence or absence of company strategies and long-term planning; -

level of technological development; -

the state of the company's management system, etc.

Thus, the development of the theory of oligopoly is faced with the need to build multifactor probabilistic and nonlinear models that

must satisfy one requirement - correspond to the practice of the present and forecasts of the future in a sufficiently large range of practical structures and time periods. So far, as in most approaches and models, options are proposed based on unusual approaches and assumptions, which in itself characterizes not only the extremely complex nature of the processes, but also the obvious shortcomings of methodological approaches. Apparently, for these purposes it is necessary to develop the mathematical apparatus of the theory of nonlinear, multifactorial probabilistic and multiply connected systems - a task for the near future.

The fundamental prerequisite for the existence of oligopolies lies in the following circumstances:-

incentives to compete; -

entering into a secret conspiracy; -

a combination of both (mixed incentives).

Competition encourages each firm to actively, intensively fight in order to maximize its income.

Its aggressive behavior inevitably causes a sharp response from competitors, which may have unexpected elements of negative synergy and even a multiplicative, coherent effect (different from simple summation).

Entering into a secret conspiracy is usually attractive, since cooperation of efforts allows one to obtain an effect close to a monopoly, greater than with competition.

Mixed incentives lie in the fact that it is possible to use both secret collusion and price cutting, cooperation, choice of position in the market (for example, outside the price fixing ring), etc.

The behavior of oligopolists in the market can be very different - from convenient cooperation, where a “collective monopolist” operates, to a company that wages a continuous war, using innovations of a different nature (and above all, technological).

Representatives of different schools have different attitudes towards the behavior of firms concluding secret agreements. Representatives of the Chicago UCLA school believe that secret agreements are doomed to rapid collapse due to natural internal conflicts.

However, representatives of other schools rightly note that many cartels sometimes exist for decades, which certainly cannot be considered a quick collapse. Since real results depend significantly on chance, apparently, reality is not very consistent with certain scientific schools and indicates the need for further scientific searches and generalizations.

Several generalized models can be cited that characterize the behavior of oligopolists. 1.

With high concentration, there is a high probability of the existence of secret agreements for a number of reasons: -

high concentration creates objective preconditions for organizing mutual agreements; leaders with significant market shares experience little pressure from small firms; -

a small number of firms makes it possible to identify and punish a firm that reduces prices; with a large number of firms (10 - 15), such opportunities for price reductions increase significantly for one of the firms, which will not be discovered so quickly.

Secret agreements are characteristic of a close oligopoly, while in a weak one they are quickly destroyed; a close oligopoly always gravitates towards a “group monopoly” with profit maximization; a weak oligopoly strives for effective competition with lower prices. 2.

Similarity of conditions between firms. If demand conditions and costs coincide sufficiently, then the interests of firms coincide, which encourages the development of cooperation. It is not difficult to see that these conditions have very definite time limits - technological innovations, for example, can sharply reduce a company's costs, and tendencies towards cooperation will be disrupted. 3.

Establishing closer business relationships between firms. As business contacts are established between companies, mutual understanding at the top management level increases, which gives rise to mutually trusting relationships.

Thus, there are differences between close and weak oligopoly, but they are not only quantitative, but also qualitative in nature. Close oligopolies are characterized by fierce competition (but not always), weak oligopolies are able to enter into secret agreements (though not very often). Concentration can contribute to a significant increase in the rate of profit (prices), and this is especially true for the concentration range of 40 - 60%, reflecting the fixation of prices in a close oligopoly (Fig. 16.) The dots indicate cases of statistical observation; graphs illustrate the possibility of linear or stepwise approximation; The latter is characterized by an interval of sharp growth in the rate of profit.

Let's consider the types of secret agreements that take place in oligopolies - from close specific to informal.

With targeted agreements, price setting in close oligopolies can lead to a purely monopoly effect. A cartel, as an organization that is created by firms for control, coordination and cooperation, usually sets prices and develops a system of sanctions against violators of the agreement (collusion). Cartels can operate over a wide range of: -

set sales quotas; -

control capital investments; -

combine income.

A classic example of a cartel is OPEC - the Organization of Petroleum Exporting Countries on the planet's oil market.

Figure 16. Relationship between the level of concentration and the level of profitability. 1-

linear approximation; 2-

stepwise approximation.

American legislation has made price fixing illegal in most sectors of the economy, but hidden price fixing remains in practice through a number of information messages (secret meetings, information by telephone, e-mail, etc.).

Silent collusion (agreement) can be carried out in a wide variety of mild forms; firms do not sign any documents, but may give conditional signals about preferred price levels, which is a form of indirect agreement.