What is oligopoly in social science. Types of market structures: perfect competition, monopolistic competition, oligopoly and monopoly

Competition where only one or a few firms dominate. Today, a good example is the passenger airliner market. It is almost impossible to compete with Airbus and Boeing. A similar situation has developed in the car market.

Basic Concepts

Oligopoly is a market condition where a small number of companies or brands compete for dominance. Of course, the leaders of the race are large companies, which have higher authority and a well-promoted PR campaign. The goods and services provided by the oligopoly market are similar to those of competitors. A striking example is mobile phones, washing powders, etc.

It is noteworthy that on modern markets So-called price competition is practically not used. Today, firms, on the contrary, are trying to become sales leaders through alternative types of oligopoly. That is why it is extremely difficult for new participants to enter such a market. To enter the race for leadership, you must follow legal restrictions and have huge initial capital for business development.

To enter an oligopoly, it is important to comply with a number of conditions. One of them is information content and openness. Any company is afraid of rash actions of competitors that could reduce its profits. Therefore, the subjects of the “alliance” are obliged to inform each other about possible changes and innovations. This consistency binds competitors together, preventing other firms from gaining leadership positions. Such a vision of the situation is called strategic. Moreover, any changes in the activities of a competitor cannot be short-term.

On at the moment There are 2 groups of oligopolies. The first is called cooperative. The main point here is consistency. The second group is non-cooperative. According to this strategy, competitors fight for market leadership in all possible ways. In addition, there are many models of oligopolies. However, in reality only a few of them are used.

Features of the cartel model

This is a type of oligopoly that is based on collusion. Each market representative has the right to choose individual or cooperative behavior. Both strategies can be winning in the right hands. The advantages of the first type of behavior are the possibility of concluding secret alliances, increasing prices, etc.

The cooperative strategy allows you to enter into collusion with the most powerful competitors. As a result, companies jointly set prices, produce equal volumes of products, evenly divide the market, and jointly fight various sanctions.

In this case, oligopoly is a powerful weapon in the fight against the crisis. Firms are not obliged to help each other, but all aspects relating to products and services are strictly agreed upon. Such oligopoly models are based on the strategy of a cartel (a group of companies that act in concert). This includes levers for controlling prices, volumes, and product quality.

Price war model

Another strategy is called Bertrand competition. This model was formulated by a French economist at the end of the 19th century. Here, oligopoly is competition based on the cost of products and services.

The model describes the strategy for changing prices. The main law of Bertrand's theory is to assign the cost of a product equal to the maximum cost under conditions of marginal competition.

For the model to be effective, the following propositions and conditions are necessary:

1. The market must consist of at least two large homogeneous companies.
2. Firms may behave inconsistently.
3. Under normal price competition, the demand function should be linear.
4. With the same cost of production, the profit of the companies is comparable.
5. As prices fall, the demand for goods and services increases markedly.
6. Product cost regulation is based on production volume.

Price leadership model

There is only one company on the market that sets a maximum barrier to the cost of products. Thus, the leading company tries to increase its profits to the maximum possible extent. The remaining representatives of the market are only trying to catch up with the main competitor, while simultaneously competing with each other. Here, an oligopoly is a series of non-cooperative companies, one of which has complete control over the pricing of goods.

The leadership model is an integral part of the monopoly. When one firm controls both prices and profits, others accept its terms of competition. In such a strategy, only large companies. There is no information content in this model. Market dominance and high level demand are the main conditions for oligopoly leadership. At the same time, large firms always keep production costs to a minimum.

Concept of the Cournot model

The strategy is based on a market duopoly. It was proposed back in 1838 by the French philosopher and mathematician Antoine Cournot. This oligopoly model has a number of advantages. Product production is strictly regulated, pricing is standardized, and the quality of services depends on the technological equipment of the company. This strategy is also called healthy competition.

A duopoly is a market structure where there are only two sellers. They are protected from the emergence of new companies. Both competitors are manufacturers of the same type of product, but do not have common denominators. Duopoly clearly shows how one seller beats another in the struggle for leadership under equal market conditions.

The Cournot model assumes that competitors do not have complete information about each other's plans and actions.

Market power theory

This strategy is aimed at regulating and setting prices for products. Sources of market power are the availability of substitute goods, the elasticity of cross-demand, temporary fluctuations in growth rates, legal barriers, monopoly on certain resources, and the technological capabilities of competitors.

The main indicators of the strategy are the percentage of sales to output volume, the sum of squared shares of sales, the difference between prices and costs.

Such an oligopoly market is always controlled by law to prevent the emergence of monopoly power.

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

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

Signs of oligopoly

Oligopolistic markets have the following characteristics:

• a small number of firms and a large number of buyers. This means that the volume of market supply is in the hands of a few 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 many substitutes can be analyzed as a homogeneous aggregated product;
• the presence of significant barriers to entry into the market, i.e. high barriers to entry into the market;
• Firms in the industry are aware of their interdependence, so price controls are limited.

Examples of oligopoly

Examples of oligopolies include manufacturers of passenger aircraft, such as Boeing or Airbus, car manufacturers, household appliances etc.

Another definition of an oligopolistic market would be a Herfindahl index value greater than 2000.

The pricing policy of an oligopoly 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 one, and consumers will “move” to a rival company. If a 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: a “race for the leader” occurs.

Thus, so-called price wars often occur between oligopolists, in which firms set a price for their products that is no more than that of the leading competitor. Price wars can often be devastating for companies, especially those competing with more powerful and larger firms.

Oligopoly models

There are four models price behavior of oligopolists:

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

The kinked 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 oligopoly firm. In the first case, if the firm raises or lowers prices, competitors may ignore its actions and maintain the same price level. In the second case, competitors can follow the oligopoly firm, changing prices in the same direction.

A secret conspiracy (cartel) when firms reach an agreement among themselves regarding prices, production volumes, and sales.

Price leadership is a model in which oligopolists coordinate their behavior through tacit agreement to follow the leader.

Cost-plus pricing is a model associated with planning 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.

Related articles

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

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

Special merits in the study of this market belong to the English economist D. Robinson. It is generally accepted that the concept of “monopsony” was introduced into scientific circulation by D. Robinson, however, in her work “The Economic Theory of Imperfect Competition” she refers to B.L. Halvard, who suggested this term to her.

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

Distinctive features of monopolistic competition

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

Understand that an oligopoly (from the Greek oligo - few and poleo - sell) is a market structure in which a few large firms dominate, i.e. a few sellers facing many buyers. Although there is no clear quantitative criterion for oligopoly, there are usually 3-10 firms in such a market.

Based on the type of product, a distinction is made between a pure oligopoly—an oligopoly producing a homogeneous product (cement, mineral fertilizers, steel products) and an oligopoly producing differentiated products (cigarettes, electrical appliances, cars).

Firms operating in an oligopolistic market earn high profits because, as in the case of a pure monopoly, it is difficult for outsider firms to enter the industry. The barriers to entry into the industry for newcomers are the same as in a pure monopoly: economies of scale, ownership of patents and licenses, control over sources of raw materials, etc.

An oligopoly is characterized by the following features:

1. A small number of firms in an industry, when several firms can control the bulk of the market, producing both homogeneous and differentiated products.

2. High barriers to entry into the industry.

3. Greater interdependence of oligopolistic firms with each other, both in price and in output.

4. Price control is either limited or significant due to the collusion of competing firms.

Since an oligopoly includes a small number of enterprises, they depend on each other in their activities - each of them owns a significant market share and can influence prices. That's why characteristic feature An oligopolistic market is the interdependence of firms. Any of the oligopolists is significantly influenced by the behavior of other firms and is forced to take this dependence into account. On the one hand, the market behavior of each individual seller influences the sales of his competitors, causing the latter to react accordingly. On the other hand, the behavior of other firms influences the behavior of this competitor.

There are four options for the existence of an oligopoly and the interaction of its members in pricing: an oligopoly not based on collusion; interaction due to a secret agreement; price leadership; Pricing is carried out on the principle of "cost plus..."

IN modern conditions The most common type of oligopoly is one that is not based on collusion. This is due to the fact that antimonopoly laws apply almost everywhere, and they are quite severe.

Oligopoly is the predominant market structure of modern economies because it accounts for the majority of output.

Features of the behavior of an oligopoly firm in the market. In particular, understand that in short term it is able to maintain the price of its products. This is explained by the company’s preliminary preparedness for a possible drop or increase in demand. An oligopoly firm is ready (and has the opportunity) to change (mothball or introduce) in accordance with changed demand a certain amount of individual fixed resources - machines, machinery, equipment, inventories, etc. At the same time, it can change the quantity variable factor(labor), while leaving the value of its change per unit of output constant. We can say that in the short run there are constant returns to scale of production as output changes.

During this period, the oligopolist, based on market research, determines its normal demand curve, taking into account which it clarifies what volume of goods can be sold at the appropriate price. Knowing potential demand, the firm prepares factors of production taking into account possible changes in demand. An oligopolist, like other imperfectly competitive firms, maximizes its profits when equality is maintained MR=MC, while the curves AVC and MC match.

In the long run, the actions of an oligopoly firm are determined by the reaction and response of competing firms. The dependence of the behavior of each oligopolistic firm on the reaction of competitors is called an oligopolistic relationship. A company must carefully consider the possible actions of its competitors in an oligopolistic market when changing the price and volume of output for its products.

The presence of oligopolistic relationships determines the complex nature of the behavior of firms. One firm assumes that competitors will always support a general decrease in the price of the industry's products, but will not support an increase in price. Another firm may assume that each firm will respond to changes in its competitors' price and output, but not to changes in its own output and price. The third firm expects the worst that can happen from its competitors, acting in accordance with these expectations.

Considering that in the long term the actions of oligopolistic firms can be multivariate, there is no single theory of oligopoly. However, economists have developed models that take into account a number of coordinated actions of competing firms when there are changes in prices and output volumes in an oligopoly market.

One such model is the Cournot model. The essence of this model is that of two competing firms (duopoly), each accepts the production volume of its competitor as constant and, based on this, determines its own actions to produce products. By comparing the reactions of oligopolistic firms to each other’s behavior, they determine the amount of supply that is the same for each firm. This is the so-called Cournot equilibrium. In such an equilibrium, the firm can determine how much output a competitor will produce and, depending on this, maximize its profit.

Thus, in Cournot equilibrium, one of the firms sets the output volume and “takes away” part of consumer demand, assuming that the second one “gives up”, reducing the price and production volume, i.e. the second firm accepts the terms of the first firm. However, the behavior of the second firm may be different when it does not accept any conditions and declares a price war in order to prevent a competitor from entering the market. At the same time, the second company does not reduce output and significantly reduces the price of its products.

Given the great dependence of the oligopolist on the actions of other firms, when analyzing an oligopolistic situation, game theory is used - a science that studies the possible behavior of a participant in probabilistic situations related to decision-making. Such situations are probable lines of behavior of oligopolistic firms, assessing which one can foresee one’s own possible solution. For example, firms are the only sellers in an oligopolistic market. In this case, each company can increase or decrease the price.

If firms leave prices unchanged, then neither of them makes a profit. At the same time, if both reduce the price, then each may receive a loss. If one firm leaves the price unchanged, and the other reduces the price of its products, then the first firm will incur a loss, and the second firm will make a profit of the same amount. And vice versa.

What should competing firms do in this situation? Even if firms try to agree to keep prices unchanged, each firm tends to break the agreement, because this promises it a solid profit. At the same time, under these circumstances, the company executing the agreement may incur a loss. It would be reasonable for each company to reduce the price, losing in this case significantly less than with a possible price reduction by its competitor. This situation is called the prisoner's dilemma.

A characteristic feature of the described situation is the adoption of a decision that is contrary to selfish interests, but more realistically assesses the possible moves of the competitor, i.e. firms reduce prices, although there is an option not to do so. This strategy is called the strategy of least losses, when the company does not completely trust its competitor.

Since the actions of oligopolistic firms affect financial result each firm in the industry, then there is a real opportunity between them to agree on the price of the product, on the volume of output, on the division of the market, on limiting the admission of other firms to it, etc. Collusion is an agreement between firms to develop a common market policy. When oligopolists formally agree on prices and output volumes, the result of the collusion is the union of firms into a cartel.

One form of implicit collusion is price leadership. This phenomenon is most often observed in an industry where there is a predominant influence of one, usually the largest, leading firm. Such a firm initiates possible changes in prices and output. The price leader is confident that other firms will follow his example. Oligopolistic firms in an industry know that if they follow the leader, others will do the same. Such coordination is tantamount to a cartel, although there is no formal agreement. It should be noted that the price leader company acts not only in terms of raising prices. To prevent competitors from entering the industry, the price leader may lower prices, thereby declaring a price war.

The considered models allow us to assert that the behavior of oligopolistic firms can be multivariate in nature. Firms that coordinate their behavior can act as monopolies by charging higher prices marginal cost, receiving high profits. Some firms may act as competitors by charging prices at or close to marginal cost.

⚡ Oligopoly ⚡- a form of market when several enterprises producing similar products operate. Another definition of an oligopolistic market could be a Herfindahl index value greater than 2000. An oligopoly of two participants is called a duopoly.

Examples of oligopolies include manufacturers of passenger aircraft, such as Boeing or Airbus, and car manufacturers, such as Mercedes and BMW. In the Republic of Belarus there are 4 sugar factories and 3 factories producing chemical fiber.

Types of oligopolies

• Homogeneous(non-differentiated) – when several enterprises producing homogeneous (non-differentiated) products operate on the market.

Homogeneous products are products that do not differ in the variety of types, grades, sizes, brands (alcohol - 3 grades, sugar - about 8 grades, aluminum - about 9 grades).

• Heterogeneous(differentiated) - several enterprises produce non-homogeneous (differentiated) products.

Heterogeneous products are products characterized by a wide variety of types, grades, sizes, brands.
Example - cars, cigarettes, soft drinks, steel (about 140 brands).

• Oligopoly of dominance– a large company operates on the market, the share of which in the total production volumes is 60% or more and therefore dominates the market. Next to it there are several small companies that share the remaining market among themselves.

Example: in the Republic of Belarus the ceramic tile market is dominated by JSC “Kiramine”, producing more than 75% of these products.

• Duopoly– when there are only 2 manufacturers or sellers of a given product on the market.

Example: in the Republic of Belarus there are two factories producing televisions - Vityaz and Horizont, they act in everything by imitating each other.

Characteristic features of the functioning of oligopolies

1. Both differentiated and undifferentiated products are produced.
2. The decisions of oligopolists regarding production volumes and prices are interdependent, i.e. oligopolies imitate each other in everything. So if one oligopolist reduces prices, then others will certainly follow his example. But if one oligopolist raises prices, then others may not follow his example, because risk losing their market share.
3. In an oligopoly, there are very strict barriers to entry of other competitors into this industry, but these barriers can be overcome.

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

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

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

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

Product homogeneity or differentiation

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

• If consumers have no particular preference for any particular brand, 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, and viscose.
• If the goods have trademark and are not perfect substitutes (and the difference between goods can be real (according to technical specifications, design, workmanship, services provided) and imaginary (brand name, packaging, advertising), then the products are considered differentiated, and the industry is called a differentiated oligopoly. Examples include markets for cars, computers, televisions, cigarettes, toothpaste, soft drinks, and beer.

Degree of influence on market prices

The extent to which a firm influences market prices, or its monopoly power high, although not to the same extent as with a pure monopoly.

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

L=(P-MC)/P.

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

Barriers

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

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

• For slow growing oligopolistic markets characteristic very high barriers. As a rule, these are industries with complex technology, large equipment, high levels of minimally efficient production, and significant costs for sales promotion. These industries are characterized by a positive , due to which the minimum (min ATS) is achieved only with a very large volume of output. In addition, entry into a market dominated by well-known brands inevitably leads to high initial investment costs. Only large competitive firms with the necessary financial and organizational resources can afford to enter such markets.
• For young emerging oligopolistic markets the emergence of new firms is possible, since demand is expanding quite quickly, and an increase in supply does not have a downward effect on prices.