Oligopoly in the car market. The main characteristics of the oligopoly market. What is oligopoly

An oligopolistic market is a type of market structure characterized by the strategic interaction of a few firms with market power that compete for sales.

An oligopolistic market can be represented by both a standardized (pure oligopoly) and a differentiated product (differentiated oligopoly).

Its most important features are:

A limited number of firms that have divided the industry market among themselves;

Significant concentration of production among individual firms, which makes each firm large relative to the total market demand (this characteristic indicates that with small volumes of market demand, even a small firm can operate in conditions of oligopolistic interaction.);

Limited access to the industry, which may be due to both formal (patents and licenses) and economic (economies of scale, high penetration costs) barriers;

The strategic behavior of firms, which is a fundamental characteristic of the oligopolistic market, means that firms aware of their interdependence build their competitive strategy taking into account the possible reaction of competitors to the actions taken.

In conditions of oligopolistic interaction (reacting to each other's actions), the peculiarity of the market is that firms are faced not only with the reaction of consumers, but also with the reaction of their competitors. Therefore, in contrast to the previously considered market structures, under oligopoly the firm is limited in making decisions not only by the sloping demand curve, but also by the actions of competitors.

Depending on the current situation, firms operating in the oligopolistic market may choose different response strategies. Therefore, for oligopolistic markets, there is no single equilibrium point towards which firms strive, and firms of the same industry can interact both as monopolists and as competitive firms.

When firms in an industry implement a cooperative strategy of interaction, coordinating their actions by imitating pricing or competing strategies with each other, price and supply will tend to be monopoly. If firms pursue a non-cooperative strategy, pursuing an independent, position-based strategy, prices and supply will approach competitive ones.

Depending on the nature of the response to the actions of competitors in an oligopoly, various models of interaction between firms can form:

With a cooperative strategy deliberately implemented by firms, the market is organized in the form of a cartel, which is characterized by the restriction of market supply and the establishment of monopoly high prices;

A cartel is a group of firms united by an agreement on the division of the market and carrying out coordinated actions in relation to supply (limiting the volume of output) and price (fixing) in order to obtain monopoly profits.

Despite the obvious benefits for the participants, the cartel is an unstable entity. First, there are always factors that counteract its occurrence. The more the number of firms in the industry and the differences in the level of their production costs, the more diverse their products and the lower the sectoral barriers, the more unstable the sectoral demand, the more difficult it is to achieve coordination of firms' activities and the likelihood of a cartel falling.

Secondly, even if a cartel is formed, the problem of ensuring its stability arises, which is a much more difficult task than its creation. In this regard, the most important problem for the preservation of the cartel is the problem of control over the implementation of the agreement, especially since the mechanism of its destruction is also embedded within the cartel itself.

The success of the cartel depends on the ability of its members to identify and stop violations of the agreements reached. The practical implementation of such a requirement is feasible only if the procedures for monitoring and sanctioning compliance with the agreement do not require large costs, and the sanctions applied to violators exceed the benefits of violating the agreement.

Under the conditions of the dominance of an individual firm in the market, a price leadership model arises, in which the leading firm sets the price based on the demand for its products, and the rest of the industry's firms accept it as a given one and act as completely competitive firms;

When there is a dominant firm in an industry that provides a significant share of the industry's supply, other firms in the industry choose to follow the leader in their pricing policy. The stability of the price leadership model is ensured not only by possible sanctions from the leader, but also by the interest of other market participants in the presence of a leader who takes on the burden of market research and development of the optimal price. The essence of the interaction of firms in this model is that the price that maximizes the profit of the price leader is a factor that sets the production conditions for the rest of the firms in the sectoral market. (Fig. 6.)

Knowing the market demand curve D and the supply curve (the sum of the marginal cost curves) of other firms in the industry Sn, the price leader determines the demand curve for its products DL as the difference between the industry demand and the supply of competitors. Since at a price of P1 all industry demand will be covered by competitors, and at a price of P2 competitors will not be able to supply and all industry demand will be satisfied by the price leader, the demand curve for DL ​​leader's products will be formed in the form of a broken curve P1P2DL.

Having a curve of marginal costs MCL, the price leader will set the price PL, which ensures his profit maximization (MCL = MRL). If all firms in the industry market accept the leader's yen as the equilibrium market price, then the supply of the new leader will be QL, and the other firms in the industry will be Qn (PL = Sn), which will add up to the total volume of industry supply Qd = QL + Qn. With scrap, the supply of each individual firm will be formed in accordance with its marginal costs.

Rice. 6. Price Leadership Model

If there is a dominant firm on the market, market coordination is carried out by adjusting firms to the leader's price, which is a factor that sets the production conditions for the rest of the firms in the industry.

The competitive strategy of a price leader is to focus on long-term profits by aggressively responding to competitors' challenges in terms of both price and market share. On the contrary, the competitive strategy of firms occupying a subordinate position consists in avoiding direct confrontation with the leader, using measures (most often of an innovative nature) to which the leader will not be able to respond. Often the dominant firm does not have the capacity to impose its price on competitors. But even in this case, it remains for the industry firms a kind of pricing policy guide (announces new prices), and then they talk about barometric price leadership.

When firms enter into a conscious competition for sales, the industry will drift towards a long-term toward a long-term competitive equilibrium;

Interaction between firms can take the form of a blocking pricing model if firms seek to maintain the status quo in the industry by increasing barriers to entry into the industry, selling products at prices close to the level of average long-term costs.

One of the manifestations of barometric price leadership is pricing, which limits the entry of new firms into the industry. The peculiarity of oligopolistic interaction is that firms tend to preserve the existing status quo in the industry, in every possible way counteracting its violation, since it is the current equilibrium in the industry that provides them with the most favorable conditions for making a profit. If the barriers to entry into an industry are low, then firms in the industry can artificially raise them by lowering the market price. For example (Fig. 7), implementing a cooperative strategy, firms in the industry could receive economic profits by producing Q products and by setting the price P. However, the presence of economic profit would become an attractive factor for new firms to enter the industry, which would be followed by a decrease in profits. , and possibly the displacement of some firms from the industry.

Rice. 7. Blocking pricing model

Therefore, knowing the level of industry demand and costs, as well as assessing the minimum possible average costs of applicants to enter the industry, firms operating in the industry can set the market price P1 at the level of minimum long-term average costs, which will deprive firms of economic profit, but at the same time make penetration " outsiders ”into the industry is impossible. What price level firms actually choose depends on both their own cost curves and the potential of outsiders. If the costs of the latter are higher than the industry average, then the sectoral price will be set at a level higher than the minimum costs, but below the minimum costs that can be provided by firms that threaten to enter the market.

In an effort to consolidate their market power, oligopolistically interacting firms can coordinate their activities to resist the entry of new firms into the market.

A similar practice can be used to oust competitors from the industry, when the dominant firm in the industry sets prices below the minimum short-term average costs, hoping to compensate for the resulting losses in the long term.

When interacting firms produce standardized products, they can build their strategy based on the given volume of output of competitors (Cournot's model) or the invariability of their prices (Bertrand's model);

Implementing cooperative strategies in practice is difficult, if not impossible. Therefore, in order to increase profits, firms enter into deliberate competition for increasing market share, leading to "price wars".

Suppose an industry is represented by a duopoly, and firms have the same and constant average costs. (Fig. 8.) With the industry demand for Domp, firms will divide the market, producing Q products at a price P, and will receive economic profits. If one of the firms lowers the price to P1, then by increasing the supply to q1, it will capture the entire market.

AC = MS Dotr

Fig. 8. The price war model

If the competitor also lowers the price, let us say to P2, then the entire market q2 will go to him, and the company that has lost its profit will have to go for a further price reduction. The competitor's retaliatory actions will force the firm to lower the price until it drops to the level of average costs and its further reduction does not bring any benefits to the firm - a Bertrand equilibrium.

Bertrand equilibrium describes a market situation in which, under a duopoly, firms compete, lowering the price of a product and increasing output. Equilibrium stability is achieved when the price is equal to the marginal cost, that is, competitive equilibrium is achieved.

As a result of the “price war,” the output q3 and the price P3 will be at the level characteristic of the case of perfect competition, at which the price is equal to the minimum average cost (P3 = AC = MC), and firms do not receive economic profit.

When firms in an industry market do not coordinate their activities and are consciously competing for sales, equilibrium in the industry will be achieved at a price equal to average costs.

A price war is a cycle of gradually decreasing the existing price level in order to oust competitors from an oligopolistic market.

Undoubtedly, price wars are beneficial to consumers, since they lead to a redistribution of surplus wealth in their favor, while at the same time they are burdensome for firms because of the significant losses incurred by all participants in the competition, regardless of the outcome of the struggle.

In addition, the very possibilities of using the strategy of price rivalry in an oligopoly are severely limited. First, such a strategy is quickly and easily imitated by competitors, and it is difficult for a firm to achieve its goals. Second, the ease of adaptation of competitors is fraught with the threat of a lack of competitive potential for the firm. Therefore, in oligopolistic markets, preference is given to non-price methods of competition, which are difficult to copy.

The Cournot duopoly model demonstrates the mechanism for establishing market equilibrium in conditions when two firms operating in an industry simultaneously make decisions on the volume of output of a standardized good, based on a given volume of output of a competitor. The essence of the interaction of firms is that each of them makes its own decision about the volume of output, taking the volume of production of the other constant (Fig. 9).

Suppose market demand is represented by curve D, and the marginal cost of the MC firm is constant. If firm A believes that another firm will not produce, then the profit-maximizing volume of its output will be Q. If it assumes that firm C will supply in the amount of Q units, then firm A, perceiving this as a shift by the same amount of demand for its products, D1 will optimize its output at the Q1 level. Any further increase in supply by firm B, firm A will perceive as a shift in demand for its product D2 and optimize output in accordance with this Q2. Thus, changing depending on the assumptions about the volume of output of firm 5, decisions on the volume of production of firm A represent the response curve QA to changes in output by firm B. Acting in a similar way. firm B will have its own response curve QB to the proposed actions of firm A. (Fig. 10.)

Rice. 9. Firm response curves Fig. 10. Establishing market equilibrium

under the Cournot duopoly for the Cournot duopoly

Duopoly (duopoly) is a market structure when two firms operate on the market, the interaction between which determines the volume of production in the industry and the market price.

By reflecting the profit-maximizing output of one firm versus the output of another, the response curves track how equilibrium output is established. If firm A produces QA1, then, in accordance with its response curve, firm B will not produce, since in this case the market price of the product is equal to the average cost and any increase in output will lead to its decrease below the average cost. When firm A makes production at the QA2 level, firm B will respond by issuing QB1. In response to the output of competitor QB1, firm A will reduce output to QA3. Ultimately, by setting the volume of output in accordance with their response curve, firms will achieve equilibrium at the point of intersection of these curves, which will give an equilibrium level of their production volume Q * A and Q * B.

This is the Cournot equilibrium, which testifies to the best position of the firm from the point of view of profit maximization for given actions of the competitor.

Cournot equilibrium is achieved in the market when, under the conditions of a duopoly, each firm, acting independently, chooses the optimal volume of production that another firm expects from it. Cournot equilibrium arises as the intersection of the response curves of two firms. The response curve shows how the output of one firm depends on the output of another firm; however, the model itself does not explain how equilibrium is achieved, since it assumes the output of a competitor to be constant.

If firms produced at the marginal cost level A = QA2; B = QB3 they would reach a competitive equilibrium in which they would carry out more output, but would not receive economic profit. In this sense, achieving the Cournot equilibrium is more profitable for them, since it allows them to extract economic profit. However, if firms colluded and limited their total output so that marginal revenue equals marginal cost, they would increase their profits by choosing a combination of output on the QA2QB3 curve called the contract curve.

In the case of uncertainty of market conditions and target preferences of firms, the interaction of firms can lead to several, moreover, different, equilibrium positions, depending on the chosen strategy of behavior.

The broken demand curve model reflects the case of price competition under oligopoly conditions, when it is assumed that firms always respond to price decreases by competitors and do not respond when prices rise. The broken demand curve model was proposed independently by P. Sweezy and also by R. Hitch and K. Hall in 1939, and then developed and modified by a number of researchers of uncoordinated oligopoly.

Suppose similar firms sell an identical product at price P, selling Q units (Fig. 11). If one of the firms reduced the price to P1, then it could increase sales to Q1. But since other firms in the industry follow suit, the firm can only implement q1. If the firm increases the price (P2), then in the absence of a reaction from other firms, it realizes q2, and if there is such a market supply will increase to Q2. Thus, the sectoral demand curve takes the form of a broken curve Dref, the inflection point of which is the point of the prevailing sectoral price.

Rice. 11. Model of a broken demand curve

It is easy to see that the demand curve for the products of each oligopolist tends to be highly elastic above the inflection point and not elastic below it, because marginal revenue MR becomes sharply negative and the gross income of firms will decline. This means that oligopolistic firms will refrain from unjustified price increases, fearing losing their market share and profits, as well as unmotivated price reductions, fearing loss of potential for growth in sales, market share and profits. Given the position of the marginal revenue curve MR, it can be assumed that even if marginal costs change within the vertical part of the marginal revenue curve (MC1, MC2), prices and sales volumes will not change.

In conditions of close oligopolistic interaction, competitors do not respond to an increase in prices by an individual firm and adequately respond to a decrease in prices.

In practice, the model does not always work this way, since not every price reduction is perceived by competitors as a desire to conquer the market. Since goods are easily replaceable, participants in an oligopolistic market tend to sell their product under a pure oligopoly at the same prices, and under a differentiated oligopoly at comparable prices.

By persisting in lowering prices, an oligopolistic firm runs the risk of causing a chain reaction of competitors' retaliation and a decrease in demand for its products. And as a result, not to increase your profit, but to reduce it.

Fundamentally the same thing happens when prices rise. Only in this case, the factor of uncertainty is no longer the "sanctions" of competitors, but the possible "support" from their side. Those can join the increase in prices, and then the loss of customers by this company will be small (in the conditions of a general rise in prices, buyers will not find more advantageous offers and will remain faithful to the products of the company). But competitors may not raise prices. With this option, the loss of popularity of products that have risen in price compared to their counterparts will be significant.

Thus, both with a decrease and with an increase in prices, the demand curve for the firm's products in an uncoordinated oligopoly has a broken shape. Until the start of the active reaction of competitors, it follows one trajectory, and after it - along another.

We especially emphasize the unpredictability of the breakpoint. Its position depends entirely on the subjective assessment of the actions of the given firm by competitors. More specifically, on whether they consider them acceptable or unacceptable, whether they will take retaliatory measures. Changes in prices and production volumes in an uncoordinated oligopoly therefore become a risky business. It's very easy to trigger a price war. The only safe tactic is the principle of "Do not make sudden movements." It is better to make all changes in small steps, with a constant eye on the reaction of competitors. Thus, an uncoordinated oligopolistic market is characterized by price inflexibility.

There is one more possible reason for the price inflexibility, to which the first researchers of the problem paid special attention. If the marginal cost (MC) curve crosses the marginal revenue line along its vertical section (and not below it, as in our figure), then a shift of the MC curve above or below the initial position will not entail a change in the optimal combination of price and output. That is, the price stops responding to changes in costs. Indeed, as long as the point of intersection of marginal costs with the marginal revenue line does not go beyond the vertical segment of the latter, it will be projected onto the same point on the demand curve

Game theory models

When there are interactions between firms and the behavior of each of them is determined by many institutional conditions - incompleteness of information, uncertainty, the presence of transaction costs, multiple goals, actions of competitors based on the stability of preferences and absolute rationality of market participants, completeness of information and the existence of a single Pareto optimal equilibrium of the model neoclassical theories become of little use for economic analysis. Institutional economic theory is more preferable for analyzing the interaction of market participants and the conditions that determine such interaction. It proceeds from the fact that preferences are not given and stable, but are formed under the influence of many changing conditions (institutions). Given the presence of information costs and limited knowledge, she uses satisfaction rather than optimality as a principle determining the choice. One of the methods of institutional analysis of the interaction of firms are formal models built on the basis of game theory.

Game is the relationship of economic agents in situations with predetermined rules, when it is necessary to make responsible decisions.

Game theory is a science that explores the behavior of participants in situations (players) associated with decision-making by mathematical methods. It is a way of analyzing interdependent behavior, when the decisions of one participant influence the decisions of another, and vice versa. It does not require complete rationality in behavior and does not imply a single balance.

Since we are talking about interdependent behavior, the whole game is based on the principle of evaluating the results of the strategies of the participants in the game. For this, a matrix of winnings is created, representing the options and assessments of the results of decisions of the participants in the interaction, and the game itself can be presented in a strategic or expanded form. Moreover, games can be non-cooperative, when the exchange of information between the participants during the game is impossible, and cooperative, when such an exchange is possible. Expanded form

Strategic form

Both forms illustrate possible solutions and an assessment of the results of those decisions. If firm A lowers the price of its products, then it will increase its profits by increasing the volume of sales, only if firm B does not reduce the price of its products - (15; -10). If firm B follows the example of firm A and lowers the price, then this will lead to a decrease in profits for both firms (-5; -5). On the contrary, in the case of a decrease in the price by firm B and keeping it by firm D, profits of the latter will decrease, and firm B will grow (-10; 15). Only if the existing price remains the same for firms, there is no change in profits (0; 0). The essence of the game is to work out an equilibrium, that is, the most acceptable from the point of view of consequences, strategy of interaction under conditions of uncertainty in the behavior of a competitor.

Various types of equilibrium can be achieved within the framework of the interaction of firms. When the actions of firm A provide the maximum result, regardless of the nature of the response of firm B, one speaks of an equilibrium of the dominant strategy. It is achieved when the dominant strategies of both firms intersect. The situation in which the strategy of firm A provides the maximum result depending on the actions of firm B is called Nash equilibrium, which means that none of the firms can increase its payoff unilaterally. If equilibrium is achieved under the condition that it is impossible to improve the position of one of the firms without worsening the position of the other, then Pareto equilibrium takes place. In the case when the maximization of the results of the participants in the game is achieved as a result of a decision made by one firm on the basis of the decision of another firm known to it, a Stackelberg equilibrium arises, which is always the case.

In the given game, there is no equilibrium of dominant strategies, since there are no strategies that give the maximum payoff regardless of the actions of the competitor. Nash equilibrium will be achieved at the point (0: 0), since with this strategy, none of the participants is interested in changing it. Pareto equilibrium is achieved at the points (0; 0) and (-3; -3), since in these situations it is impossible to improve the position of one participant without worsening the position of the other. As for the Stackelberg equilibrium, it will be for firm A at point (5; -10), and for firm B - (-10; 5).

Game theory models make it possible not only to analyze the behavior of market participants in a given situation, but also to identify problems arising in the process of their interaction - coordination, compatibility and cooperation. Since in real practice firms are in constant interaction (repetitive games), their decisions are based on previous experience, and they themselves come to the conclusion that in the long run, cooperative behavior is more beneficial than non-cooperative behavior.

The relative inflexibility of prices for products of oligopolistic industries in comparison with products of competitive industries, convincingly explained in the model of a broken demand curve, is a firmly established empirical fact that is constantly observed in the real economy. The consequences of this phenomenon for the fate of the market system are extremely great.

Recall that the general logic of proving the advantages of a market economy is based on the mechanisms of price self-regulation of the market. In the case of an uncoordinated oligopoly, this mechanism, if not completely destroyed, is blocked: prices have become inactive, they no longer flexibly respond to changes in supply and demand, except for the most dramatic changes in these parameters. In the conditions of an uncoordinated oligopoly, serious distortions of prices and production volumes in comparison with the objective demands of the market become possible. Destructive price wars of giant corporations also emerge, when these imbalances break out and oligopolists turn to open competitive battles. Examples of such wars were especially common in the early stages of the formation of big business - at the end of the 19th century - the first half of the 20th century.

It is clear that such large-scale failures in the work of market mechanisms have attracted close attention of various schools of economists.

From the point of view of Marxism, oligopolization of the market (or, in Marxist terminology, its monopolization. in the non-Marxist tradition (their closest analogue is the concept of oligopoly, which was not used at all in Marxist works) is the threshold of the collapse of capitalism. Indeed, the market economy is superior to other types of economic organization due to the self-regulation mechanism associated with the presence of competition. But small enterprises cannot withstand competition and cannot be the basis of technical progress. Large enterprises inevitably arise, and with them an oligopoly.

That is, competition itself gives rise to oligopoly (monopoly). Oligopoly, on the other hand, destroys or, at least, sharply weakens the mechanism of market self-regulation. Thus, capitalism becomes its own gravedigger.

It is in such reasoning that one of the main theoretical foundations of Marxist radicalism lies. If we proceed from the inevitability of the collapse of the capitalist system, then it is natural not to think about how to repair the historically doomed building of bourgeois society. On the contrary, it is logical to make energetic efforts to create a new, better system - socialism.

Most non-Marxist scientific schools do not deny the significant destructive potential of the market system in the oligopolization of the economy. However, the conclusions from the analysis of the situation are more optimistic.

First, the adaptive capacity of the market is emphasized. Oligopoly does not completely eliminate competition. In its pure form, it (like monopoly) is rare on the market. As a rule, there are noticeably more major “players”: 3-4 largest manufacturers and even more second-tier companies. In addition, in addition to national firms, foreign companies usually have access to the market in modern conditions. And more complex models of oligopoly than those considered in this course clearly show that with an increase in the number of oligopolists, Cournot equilibrium approaches competitive equilibrium. That is why prices continue to remain a mechanism of self-regulation of the economy even in an oligopolistic market (although, of course, not as effective as in perfect competition).

Second, the survivability of small business should not be underestimated. On the threshold of the XXI century. from 2/3 to 3/4 of all employed in developed countries continue to work in small firms. Therefore, the process of oligopolization of the economy is not of a total character. The islands and continents of the oligopoly are still washed by the ocean of free competition, and it is this ocean that determines the general climate of the market.

Third, the government plays a significant positive role by pursuing an active antimonopoly policy and thus reducing the degree of market imperfection.

The dispute about the relationship between the process of oligopolization (monopolization) and the historical fate of the market economy is not over. It is obvious, however, that it did not lead to the rapid collapse of capitalism, as Marxists expected about a hundred years ago. However, in the early 30s, one of the varieties of oligopoly - cartels - really brought this system almost to the brink of death.

The cartels have had a dramatically negative impact on the market economy. Moreover, all the shortcomings of pure monopoly in practice are known to mankind mainly from the experience of cartels. It was the cartels that gave the worst examples of overpricing and underpricing. Incidentally, Russia first encountered such a terrible concept as "commodity shortage" not during the war, not under socialism, but before the First World War as a result of the deliberate containment of the volume of production by the syndicates.

We practiced cartels and deliberate deterioration in product quality. The international electrotechnical cartel "Phoebus", for example, in the 30s recommended limiting the service life of electric bulbs to 1 thousand hours, although there was already a technology that made it possible to bring it to 3 thousand. The calculation was simple: the faster the lamps burn out, the more new ones are needed buy for a replacement. Often, cartels hindered technical progress: in order to save costs, new inventions were “shelved” until the machines that produced goods using the old technology were worn out.

The cartels had a particularly strong negative impact on the economy during the period of severe crises of overproduction - in the 30s. Although the goods at this time did not find sale, the cartels did not reduce their prices, preferring to reduce production and lay off workers. For each cartel separately, this was a completely rational tactic: it is better to sell one product at full price than two at half. Indeed, with equal revenue, variable costs in the first case will be half as much, which means there is a chance, despite the crisis, to keep profits. Nevertheless, the economy as a whole paid for this with a deepening crisis: the decline in production and unemployment during the years of the Great Depression (1929-1933) reached the highest values ​​in the entire history of capitalism. Comparing the oppressed market economy of those years with the dynamically developing USSR of the era of the first five-year plans, many major non-Marxist economists of that era (including the great J.M. Keynes) expressed the fear that capitalism was leaving the historical scene.

The lesson was not in vain. In most countries, cartels at the same time or a little later were legally prohibited. The creation of cartels is not allowed under modern Russian legislation. Currently, cartels exist (and are prosecuted by the authorities of all countries) as collusion. They are legally allowed only in some special areas of the economy (for example, in old, dying industries or in export activities) and only under state control.

Cartels in modern Russia

Due to the legal prohibition, cartels do not officially exist in modern Russia. However, the practice of one-time price fixing is widespread. Suffice it to recall how periodically on the consumer market there is a shortage of either butter or sunflower oil, or gasoline. And how then these goods reappear with strongly increased prices at the same time for all sellers. Why, despite the sober logic, the buyer, frightened by the loss of the desired product, only rejoices.

Often, various associations try to carry out functions close to cartel on a more permanent basis: tea importers, juice producers, etc. In October 1998, for example, the State Antimonopoly Committee of the Russian Federation launched an investigation into the increase in gasoline prices by members of the Moscow Fuel Association, which unites about 60 companies that own gas stations and controls 85-90% of gasoline sold in Moscow.

However, the future raises even greater fears in this sense. The high concentration of production, the inability to win customers by market methods, the close contacts of all enterprises in the main industries that developed in the pre-reform era, and a number of other factors contribute to the massive emergence of cartels. If the development of events really follows this scenario, the economy could be seriously damaged. Its prevention is therefore an important task of state economic policy.

In conclusion, let us dwell on the problem of social efficiency of oligopoly as a special type of market. There is no doubt that oligopoly in the form of a cartel is extremely ineffective. We have already said that in this case we are actually talking about a group monopoly.

The situation is more complicated with an uncoordinated oligopoly and "playing by the rules", where competition is incomparably stronger than in cartelized industries. Of course, all the disadvantages of imperfect competition are inherent in these forms of oligopoly. Moreover, due to the significant degree of market control, these shortcomings appear much more strongly under oligopoly than, say, under monopolistic competition.

The inevitability of oligopoly in the context of large-scale production

A popular proverb says: a cow is always bought with horns, i.e. the disadvantages and advantages of each phenomenon must be considered together. Are not all the listed weaknesses of oligopoly the flip side (and absolutely integral!) Side of the merits of large firms? And maybe it is worth putting up with them, since any industry where large-scale production is effective necessarily becomes oligopolistic? In fact, as has already been shown, the number of large enterprises in the industry cannot be large, which creates the prerequisites for its oligopolization. Which side ultimately outweighs: the disadvantages of imperfect competition or the advantages of large-scale production?

At first glance, it may seem that from the theory of oligopoly one can only glean a negative attitude towards large firms. However, the works of a number of scientists, in particular, a prominent modern American economist, winner of the Pulitzer and Bancroft Prizes Alfred D. Chandler, revealed the positive aspects of the activities of large oligopolistic enterprises and developed practical recommendations for the formation of an effective market strategy of giants, in particular, the main directions of investment were identified, which they have to exercise.

Oligopolization and productivity growth in the world and in Russia

First of all, on the basis of the most extensive factual material, the following pattern has been established: the transition of an industry to an oligopolistic state is usually accompanied by a sharp increase in productivity. Let us cite at least the most famous examples from world history.

The creation by JD Rockefeller of the giant oil trust "Standard Oil" led to a 6-fold decrease in the price of 1 gallon of kerosene (from 2.5 to 0.4 cents) in just 6 years. In the same way, the oligopolization of ferrous metallurgy caused not an increase (as one might think), but a rapid reduction in costs and prices. The giant founded by E. Carnegie was selling 1 ton of rails for $ 23 in 1889, while back in 1880 it cost $ 68.

In modern Russia we can observe the same process in those industries where initially small enterprises dominated, but now the process of concentration of production is rapidly going on. This situation is very typical for our country: most branches of new private business have gone this way, where the tone is set not by privatized companies, but by companies created “out of the blue” - and therefore initially small - companies. Let's cite, for example, the low price level in the rapidly oligopolizing beer industry.

Characterized by the action of several sellers in the market, and the appearance of new ones is difficult or impossible.

If there are two manufacturers on the market, then this type of market is called duopoly, which is a special case of oligopoly, which occurs more often in theoretical models than in real life.

Oligopolistic markets have the following characteristics:

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

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

Another definition of an oligopolistic market can be the value of the Herfindahl index exceeding 2000.

The pricing policy of an oligopolistic company plays a huge role in its life. As a rule, it is not profitable for a firm to raise prices for its goods and services, since there is a high probability that other firms will not follow the first, and consumers will "go" to the rival company. If the company lowers the prices of its products, then, in order not to lose customers, competitors usually follow the company that lowered prices, also reducing the prices of the goods they offer: a "race for the leader" takes place. 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 competitor-leader. Price wars are often fatal to companies, especially those competing with more powerful and larger firms.

There are four models of the price behavior of oligopolists:

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

Broken demand curve model was proposed by the American economist P. Sweezy in the 40s. XX century, which analyzes the reaction of an oligopolist to a change in the behavior of their competitor. There are two types of reaction of market participants to price changes by an oligopolistic firm. In the first case, when the price rises or falls by the firm, competitors can ignore its actions and maintain the same price level. In the second case, competitors can follow the oligopolistic firm, changing prices in the same direction.

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

Price Leadership- a model in which oligopolists coordinate their behavior by tacit consent to follow the leader.

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

An oligopoly is a market structure in which very few (oligo) sellers dominate in the sale of a product, and the emergence of new sellers is difficult or impossible.

The product from different vendors can be both standardized (for example, aluminum) and differentiated (for example, cars).

Typically, these markets are dominated by 2 to 10 firms, accounting for 50% or more of total product sales. For example, the 8 largest US photographic equipment companies account for more than 85% of production. The Kodak company dominates this market.

Oligopolistic markets have the following characteristics:

• - a small number of firms and a large number of buyers. This means that the volume of the market supply is in the hands of several large firms that sell the product to many small buyers;
• - differentiated or standardized products. In theory, it is more convenient to consider a homogeneous oligopoly, but if an industry produces differentiated products and there are many substitute goods, then this set of substitutes can be analyzed as a homogeneous aggregated product.
• - the presence of significant barriers to entry into the market, i.e. large barriers to entry into the market as in a pure monopoly market: scale of production, patents, licenses, etc.
• - firms in the industry have and are aware (as opposed to monopolistic competition) their interdependence, therefore, price control is limited. Only firms with large shares in total sales can influence the price of a product.

The measure of market dominance of one or more large firms is determined by the concentration coefficient (the percentage of sales of the four largest firms to the total industry output) and the Herfindahl-Hirschman index, which is calculated by summing the results obtained by squaring the market percentages of firms that sell products to this market:

HHI = S21 + S22 + S23 +… S2N,

Where S1 is the market share of the company providing the largest volume of supplies; S2 is the market share of the next largest supplier, etc.

Oligopoly is the predominant form of modern market structure. The reasons for its appearance and existence are largely determined by the level of development of modern production, which is based on the use of scientific and technological revolution. Their use and implementation is costly and pays off largely due to the achievement of positive economies of scale and lower production costs (prime cost). On the one hand, this serves as a barrier to entry of new firms into the industry, and on the other, such costs can be recouped only through a significant share of the firm in the total volume of market sales.

The behavior of firms in oligopolistic markets is likened to the behavior of armies in war. Firms are rivals, and profit is the trophy. Their weapons are price controls, advertising, and output. That is, in an oligopoly, sellers are aware of their interdependence and must reckon with the reaction of their competitors to an increase or decrease in prices. At the same time, the reaction that the seller expects from his competitors is the main factor determining his decision about the price of the product and the volume of output. The equilibrium in the oligopolistic market and the nature of the model, which can explain the behavior of the firm in specific situations, largely depend on this reaction.

The action of competing firms is an additional constraint that firms must take into account when determining optimal prices and output. Not only cost and demand, but also competitor responses, drive decision making. Therefore, the model of oligopoly must reflect all three of these points.

Thus, under conditions of oligopoly, both price and non-price competition are possible. But price competition methods are usually less effective, so non-price competition methods - from advertising to economic espionage - are more effective and are used more often.

The complexity and diversity of the oligopolistic market did not allow economists to develop a single model of oligopoly, and for this reason there are several models of oligopoly.

1) The content of the first model consists of price wars, which are a cycle of successive price reductions by firms competing in the oligopolistic market. It is one of the many possible consequences of oligopolistic rivalry. Price wars are good for consumers but bad for sellers' profits. Wars continue until the price falls to the level of total average costs equal to marginal costs and sellers in equilibrium charge the same price as in perfect competition:

This equality is called the Bertrand equilibrium. It assumes that firms compete by lowering prices at a constant volume of output. The decline in price occurs until it is equal to the marginal cost.

Total market output is the same as in perfect competition. Equilibrium exists when no firm can any longer benefit from falling prices, i.e. the price is equal to the average cost, and the economic profits are equal to zero. A price drop below this level will lead to losses. Moreover, each firm proceeds from the assumption that if other firms do not change their prices, then it also has no incentive to raise the price. Unfortunately for buyers, price wars are usually short-lived. Oligopolistic firms, after some time, enter into cooperation with each other in order to avoid wars and, consequently, undesirable effects on profits in the future.

2) Model of oligopoly based on collusion. As you know, in an oligopoly, each firm has a choice: between uncooperative (noncooperative) and cooperative (cooperative) behavior. In the case of non-cooperative behavior, firms are not bound in their behavior by any explicit or secret agreement with each other. It is this strategy that engenders price wars. Firms come to cooperative behavior if they intend to reduce mutual competition. If, under conditions of an oligopoly, firms actively and closely cooperate with each other, this means that they are conspiring. This concept is used in cases where two or more firms have jointly set fixed prices or volumes of output and divided the market or decided to do business together. Collusion is a generic term for a cartel or trust.

A cartel is a group of firms that work together to agree on output and price decisions as if they were a single monopoly.

In most of the developed countries of the world, cartels are prohibited by law. However, firms often succumb to the temptation to collude to insulate themselves from competition without resorting to open agreement. The benefits of collusion, if successful, can be enormous. The main problem faced by the cartel is the problem of agreeing decisions between member firms and establishing a system of restrictions (quotas) for these firms.

To form a cartel, you need the following:

• - make sure that there is a barrier to entry into the industry to prevent other firms from selling products after the price rises;
• - organize a meeting of all manufacturers of a given product in order to establish a joint benchmark for the overall release level;
• - to establish quotas for each member of the cartel;
• - to establish a procedure for conducting approved quotas.

Cartels impose fines on those who do not fulfill the agreement by exceeding quotas. Cartels face a challenge in making decisions about monopoly price and output level. Firms with higher average costs seek higher cartel prices. There are disagreements regarding the division of the territory.

In modern conditions, cartels exist in more flexible and rather diverse forms: patent pools, licensing agreements, consortia for scientific research. Cartels are categorized into four main categories.

Cartels are formed with the aim of:

• - control of sales conditions;
• - setting prices;
• - separation of activities, territories, sales and consumers;
• - establishing a share in a specific area of ​​business.

There are two main types of cartels:

cartels aiming to maximize total or industry profits;

cartels that aim to allocate and fix market shares or regulate market delimitation.

• 3) The third model of oligopoly reflects the firm's reaction to price changes by competitors. It is called the bent (broken) demand curve model and also assumes firmness in prices. This model was proposed in 1939 by the Americans R. Hall, K. Hitch and P. Sweezy.
• 4) The fourth model of oligopoly is price leadership. She explains why firms often follow the firm's pricing policy as the leader in price announcements.

The lead firm assumes that other firms in the market will not react in a way that changes the price it has set. They will decide to maximize their profits at the price set by the leader. In fact, these firms are beginning to accept the price set by the leader as given.

• 5) The fifth cost-plus-benefit model shows that often firms set prices for their goods simply by adding to their costs the industry average rate of return. Or an oligopolist can use a formula, a technique, to determine the cost per unit of output, and a cape is added to the cost to determine the price. This pricing has particular advantages for firms that produce many products that would otherwise face the difficult and costly process of approximating demand and cost conditions for hundreds of different items of goods and services.
• 6) The sixth model, which is called pricing, restricting entry into the industry. It shows how firms can set prices so as not to maximize current profits, but to maximize profits in the long run by preventing new competing sellers from entering the market.

To do this, firms either collude or follow the lead of other firms in setting prices that would prevent outsiders from entering the market. To achieve this goal, they estimate the lowest possible average cost of any new potential producer and can set the price of the product lower than the LATC minimum potential producer. This serves as a powerful barrier to entry of new firms into the industry.

7) The seventh model of oligopoly is a model based on game theory. So, when defining its own strategy, the firm estimates the likely profits and losses. Which will depend on which strategy the competitor chooses.

Suppose that firms A and B control the bulk of market sales. Each of them seeks to increase sales and thereby ensure their own growth in profits. The result can be achieved by lowering prices and attracting additional buyers, activating advertising activities, etc.

However, the outcome for each firm depends on the response of the competitor. If firm A begins to cut prices and firm B follows, none of them will increase their market share and their profits will decline. However, if firm A lowers prices and firm B does not, then firm A's profits will increase. In developing its pricing strategy, firm A calculates possible responses from firm B.

If firm A decides to lower the price, and firm B follows it, the profits of firm A will be reduced by 1000 thousand rubles. If firm A lowers the price. In firm B does not do the same, then the profits of firm A will increase by 1,500 thousand rubles. If firm A does not take any steps in the area of ​​prices, and firm B lowers its prices, the profits of firm A will be reduced by 15,000 thousand rubles. If both firms leave prices unchanged, their profits will not change.

monopoly market competition

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Several large firms operate on the oligopoly market. Typically, an industry is classified as oligopolistic if 2 to 8 firms produce more than half of the output. Each of these firms has sufficient market power, and its behavior has a significant impact on the rest of the market. Small firms may operate alongside large firms in the same market, but they do not have significant market power. The product can be either homogeneous or differentiated. If there is some product differentiation, it is more difficult for customers to switch from one firm's product to another due to brand loyalty, habit, differences in product use, etc. If the product does not imply the possibility of differentiation, then even with a small difference in price, the buyer will easily switch from the product of one firm to the product of another. Market share is of great importance in the oligopoly market, and a real struggle often unfolds for it. In this type of market, the dynamics of mergers and acquisitions is much higher than in other types of markets. The market is sensitive to the technical re-equipment of one of the firms. This process usually poses a real threat to competing firms. Only the giants can influence the price, because if one of the large firms reduces production, this will noticeably affect the general market supply, and prices will rise. In cases where it is differentiated, there is non-price competition in the oligopoly market. In this case, the oligopoly market acquires some features of the market of monopolistic competition. In the case of a homogeneous product, only price competition is possible. The barrier to entry for large firms is very high. For the oligopoly market, there is such a situation as a cartel agreement. A cartel conspiracy is the conspiracy of a group of firms that agree on decisions about prices and output as if they were one firm. In accordance with economic practice, several models of firm behavior have been developed: 1. Cournot model. 2. Curved demand curve model. For the Cournot model, there are two limitations: there are only two firms on the market, and each of these firms takes the volume and price of competitors as outgoing, and determines its production volume and its own price. Cournot's model for oligopolistic competition is shown in Figure 7.

Rice. 7. Cournot model for the oligopolistic market

The second model takes into account the reaction of firms to the behavior of competitors. In an oligopoly market, an increase in the prices of one firm tends to equalize the other in order to take away the share of consumers from a competing firm. This model is shown in Figure 8.

Rice. 8. Model of a curved demand curve in an oligopolistic market

Examples of oligopolies are the aircraft industry, metallurgy, and the oil industry. The pros and cons of the monopolistic competition market are presented in Table 6.

Table 6. Pros and cons of oligopoly for society

Table 7 provides a brief comparative description of the two studied market types.

Table. 7. Brief comparative characteristics of market types

The coefficient of market power of a firm in an oligopoly market is higher than that of a firm operating in a market of monopolistic competition.

Rice. 9. Producer Bargaining Power in Different Markets

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

An oligopoly is a market structure, most of which is produced and sold by a small number of relatively large enterprises. Sometimes it is also defined as "the market of the few" or "competition of the few". Let us dwell on the most significant characteristics of the oligopolistic market.

A small number of firms in the industry.

The principal consequence of the small number of firms in the market is their special relationship, manifested in close interdependence and intense rivalry between enterprises. Unlike perfect competition or pure monopoly under an oligopoly, the activity of any of the firms evokes an obligatory response from competitors. This interdependence of actions and behavior of a few firms is a key characteristic of an oligopoly and applies to all areas of competition: price, sales volume, market share, investment and innovation, sales promotion strategy, after-sales services, etc.

To quantify the interdependence of firms in the market, the coefficient of volumetric, or quantitative, cross-elasticity of demand is used. This coefficient shows the degree of quantitative change in the price of firm X when the volume of output of firm Y changes by 1%.

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

Uniformity or differentiation of the product.

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

If consumers do not have special preferences for any brand name, if all products in the industry are perfect substitutes, then the industry is called a pure, or homogeneous oligopoly. The most typical examples of practically homogeneous products are cement, steel, aluminum, copper, lead, newsprint, rayon.

If the goods have a trademark and are not perfect substitutes (and the difference between the goods can be both real (in terms of technical characteristics, design, workmanship, services provided) and imaginary (brand name, packaging, advertising), then the products are considered differentiated, and the industry is called a “differentiated oligopoly.” Examples include the markets for cars, computers, televisions, cigarettes, toothpaste, soft drinks, and beer.

The degree of influence on market prices.

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

Market power is determined by the relative excess of the firm's market price of its marginal costs (with perfect competition P = MC), or

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

Barriers.

Entry to the market for new firms is difficult, but possible.

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

Slow-growing oligopoly markets are characterized by very high barriers. As a rule, these are industries with complex technology, large equipment, high sizes of minimally efficient production, and significant sales promotion costs. These industries are characterized by a positive economies of scale, due to which the minimum average costs (min ATC) are achieved only with a very large volume of output. In addition, penetration into a market dominated by well-known brands inevitably leads to high initial investment. Only large competitive firms with the necessary financial and organizational resources can afford to enter such markets.

For young emerging oligopoly markets, new firms may emerge, since demand is expanding fast enough and an increase in supply does not have a downward impact on prices.

The specifics of the behavior of oligopolists in the market.

The interdependence of oligopolistic firms in the market predetermines the specifics of the behavior of oligopolies in the market. Unlike other market structures, an oligopolistic enterprise must always take into account that the prices and output it chooses directly depend on the market strategy (behavior) of its competitors, which (behavior) in turn is determined by the decision it has chosen. Because of this, the oligopolist:

Cannot regard the demand curve for its products as given;

Does not have a predetermined marginal revenue curve (just like demand, MR changes depending on the behavior of the firm itself and its competitors);

Does not have a clear point of equilibrium (similar to how it exists under perfect competition or under pure monopoly);

Cannot use the equality MR = MC to find the optimum point.