The market economy is a complex and dynamic system, with many connections between sellers, buyers and other participants in 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 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 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.

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

Table of the main types of market structures

Perfect (pure, free) competition

perfect competition market (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 the scale of the entire 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") - characterized by a large number of 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 the food and light industry markets, the market for medicines, clothing, footwear, and 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 the oligopolistic market is difficult, entry barriers are very high. The control of individual companies over prices is limited. Examples of an oligopoly are the automotive market, the markets for cellular communications, household appliances, and 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 reactions: 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

Pure monopoly market (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.

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What is Oligopoly

Oligopoly is a market structure or model in which there are a small number of sellers in a market for homogeneous or differentiated products. It is important to note that only a structure that has more than two sellers can be considered a pure oligopoly.

What is OLIGOPOLY - definition in simple words.

In simple terms, oligopoly is a situation where there are a small number of large firms in the market for certain goods or services that occupy a large part of the market share. Most often, oligopolies can be observed in financially costly and technological areas, such as the metallurgical, oil and gas industries, railways, shipbuilding, aircraft building, and high-tech industries.

Speaking of oligopoly, it should be noted some connection with the more common well-known term -. In fact, these are quite similar concepts, although they have some differences.

• Monopoly- this is when one company or controls the market;
• Duopoly- this is when there are only 2 large players in the market;
• Oligopoly- this is when there are more than 2 influential sellers of services or goods on the market.

It should be noted that quite often the term "oligopoly" is also applied to duopoly models, since, in fact, a duopoly is a special case of an oligopoly.

Oligopoly examples.

There are many examples of oligopolies in the modern world, and many of them are familiar to almost everyone. For example, in the markets of certain countries there are a small number of oil companies. This can be observed in the markets for the production of cement, steel, pesticides and so on.

If you turn to the automotive market in a certain region, for example, in Germany, then it can be noted that Daimler AG concerns occupy the main market share there ( mercedes benz), BMW AG and Volkswagen AG.

A great example of a duopoly would be desktop and laptop microprocessor manufacturers, namely Intel and AMD. In fact, it is these 2 manufacturers that divide the entire processor market.

oligopoly market. conditions for the emergence of an oligopoly.

Oligopolies often arise naturally as companies grow and begin to capture more and more market share, gradually ousting or absorbing competitors. Over time, the number of companies offering certain products and services begins to dwindle to a few large corporations. Customers, in turn, when choosing products, tend to trust more eminent and reputable brands.

In the formed oligopoly, the dominant companies feel quite free and can afford to completely control pricing. For example, many mobile phone companies significantly inflate the price of their products just because they are popular and can afford it.

Another factor in the influence of dominant companies on the market as a whole is the relationship with competitors. So, for example, when a company cuts prices or introduces new services or products, competitors should follow suit. Otherwise, if they do not provide buyers with an alternative, they may lose those buyers altogether.

If we talk about the positive and negative aspects of the oligopoly as a structure, then it should be noted that there are both significant pluses and minuses. The pluses include the fact that large companies compete quite strongly with each other, which stimulates the growth of product quality and scientific and technological progress in general. However, such competition, combined with the huge opportunities of large firms, can significantly limit the emergence of new players in a particular product or service market.

Oligopoly A market in which a relatively small number of sellers serve many buyers. Oligopoly refers to a type of imperfectly competitive market structure dominated by a very small number of firms.

Examples of oligopolies include manufacturers of passenger aircraft, such as Boeing or Airbus, car manufacturers, such as Mercedes, BMW.

Conditions for the emergence of an oligopoly

Oligopolies often arise naturally as companies grow and begin to capture more and more market share, gradually ousting or absorbing competitors. Over time, the number of companies offering certain products and services begins to dwindle to a few large corporations. Customers, in turn, tend to trust more eminent and reputable brands when choosing products.

In the formed oligopoly, the dominant companies feel quite free and can afford to completely control pricing. So, for example, many mobile phone companies significantly inflate the price of their products just because they are popular and can afford it.

The main features of an oligopoly

When there are a small number of firms in the market, they are called oligopolies. In some cases, the largest firms in an industry can be called oligopolies. The products that the oligopoly supplies to the market are identical to the products of competitors (for example, mobile communications), or have differentiation (for example, washing powders).

At the same time, price competition is very rare in oligopolistic markets. As a rule, it is very difficult for new firms to enter the oligopolistic market. Barriers are either legal restrictions or the need for large initial capital. Therefore, big business is an example of an oligopoly.

Thus, oligopolistic markets have the following characteristics:

a small number of firms and a large number of buyers. This means that the market supply is in the hands of a few large firms that sell the product to many small buyers;

differentiated or standardized products;

decisions of oligopolists regarding production volumes and prices are interdependent, i.e. oligopolies imitate each other in everything. So if one oligopolist lowers prices, then others will definitely follow his example. But if one oligopolist raises prices, others may not follow suit, as they risk losing their market share;

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.

Price policy

One of the main factors influencing the dominant companies on the market as a whole is the relationship with competitors in terms of pricing policy. 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”. That is, when a company cuts prices or introduces new services or products, competitors should follow suit. Otherwise, if they do not provide buyers with an alternative, they may lose those buyers altogether.

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.

Types and structure of an oligopoly

Oligopolies can be classified as follows:

pure oligopoly is a situation in which firms produce homogeneous products (cement, steel, oil, gas.);

differentiated oligopoly is a situation where companies produce similar products (cars, planes, phones, computers, cigarettes, drinks, and so on);

A collective oligopoly is when firms cooperate with each other to determine the price or quantity of a product. Such a structure bears signs of collusion and monopolization of the market.

Oligopoly Behavior Strategies

The behavioral strategies of oligopolies are divided into two groups. The first group provides for the coordination of actions by firms with competitors (cooperative strategy), the second - the lack of coordination (non-cooperative strategy).

Oligopoly Models

In practice, the following models of oligopoly are distinguished:

price (volume) leadership model;

cartel model;

Bertrand model (price war model);

Cournot model.

Price (Volume) Leadership Model

As a rule, among the set of firms, one stands out, which becomes the leader in the market. This is due, for example, to the duration of existence (authority), the presence of more professional staff, the presence of scientific departments and the latest technologies, their higher market share. The leader is the first to make changes in price or output. At the same time, the rest of the firms repeat the actions of the leader. As a result, there is a coherence of common actions. The leader should be the most informed about the dynamics of demand for products in the industry, as well as about the capabilities of competitors.

cartel model

The best strategy for an oligopoly is to collude with competitors over production prices and output volumes. Collusion makes it possible to increase the power of each of the firms and use the opportunities for obtaining economic profits in the amount that would be received if the market were monopoly. Such collusion in economics is called a cartel.

Bertrand model (price war model)

It is assumed that each firm wants to become even larger and ideally capture the entire market. To force competitors to leave, one of the firms begins to reduce the price. Other firms, in order not to lose their shares, are forced to do the same. The price war continues until only one firm remains in the market. The rest are closed.

Cournot model

The behavior of firms is based on comparing independent forecasts of market changes. Each firm calculates the actions of competitors and chooses a volume of production and a price that stabilizes its position in the market. If the initial calculations are wrong, the firm corrects the selected parameters. After a certain period of time, the shares of each firm in the market stabilize and do not change in the future.

Pros and cons of an oligopoly

If we talk about the positive and negative aspects of the oligopoly as a structure, then it should be noted that there are both significant pluses and minuses.

The pluses include the fact that large companies compete quite strongly with each other, which stimulates the growth of product quality and scientific and technological progress in general.

However, such competition, combined with the huge opportunities of large firms, can significantly limit the emergence of new players in a particular product or service market.

Antitrust Law

Antitrust law is legislation against the accumulation of socially dangerous monopoly power by firms. The purpose of antitrust regulation is to force monopolists to charge a price for a product that provides them with only a normal profit, and not.

The measures of antimonopoly regulation are: regulation of prices of monopoly firms, reduction of the terms of validity of licenses of monopoly firms, splitting of monopoly firms, nationalization of monopolists.

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Oligopoly: details for an accountant

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The market is characterized by oligopolistic relations. An oligopoly in the economy is a kind of middle link that allows, on the one hand, to control and manage all the largest enterprises, and on the other hand, to 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. An oligopoly in a market economy is a meeting place for a small number of producers 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 the 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. The main distinguishing feature 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 of 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. The distribution of production capacities 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 overstated, 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 is provided by the market of 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. Recently, Tele 2 has been increasing its turnover, although access to the most profitable sites in Moscow and St. Petersburg is still closed for it. As statistics show, over the past year, there has been an outflow of customers from all operators by several 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. The total income of the FAS 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 areas. Further, 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 in cellular communications could not fail to notice.

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 retreat and set itself the main goal of conquering 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 a new company wants to survive and gain a foothold here, it needs 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: the modern world and market economy need oligopolies. And although such a market is sometimes difficult to control, sometimes there are real wars against competitors, there are still positive aspects for the formation of 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 field where only giants exist, there is no such destructive force of competition as in a free market. There are 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 in fixed costs. For small firms, almost all costs are variable. But in 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.

Output

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.

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. Exists 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 of this, the expansion of sales volume will be insignificant (demand will be price inelastic), does not compensate for the losses associated with a price decrease, 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.

In the oligopoly market, there are a large number of different 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 IN) 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 IN leaves the price unchanged;

2) firm BUT IN raises the price;

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

4) firm BUT leaves the price unchanged IN 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 IN which does not raise the price. If the firm IN 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 IN 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 maximizing profits. 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.