Main features of an oligopoly. Characteristic features of an oligopoly Oligopoly and its characteristic features

Forms of competition in the market

In most countries of the world there has been a transition to a market model of economic relations. This model allows the economy to quickly respond to the needs of society, through a flexible change in its structures and institutions. The main features of a market economy are free enterprise, where prices are formed independently by market participants, based on its conjuncture and their own goals. The buyer is independent in his consumer choice. The price is characterized by the marginal utility of a particular economic good for a given individual. An important driving factor in market relations is competition.

Definition 1

Competition is a special interaction of market entities aimed at obtaining better conditions and maximizing your own income.

Currently, competition in pricing has become less effective, so entrepreneurs resort to various non-standard solutions for their business. In general, the influence of competition has a beneficial effect on the development of market relations, the introduction of new technologies and scientific and technological progress. Ultimately, competition for the consumer establishes a relatively equilibrium of firms, creating favorable conditions for both producers and buyers.

There is perfect and not perfect competition. The first one is ideal model a market where all participants act independently of each other and do not influence prices and sales volumes. IN real world There are two types of imperfect competition:

monopolies or single seller markets;
oligopoly, where there are several producers;
monopsony or single buyer markets;
oligopsony or markets of few buyers;
markets of monopolistic competition, where many producers compete for market share by creating differentiated products or services.

The main features of an oligopoly

One type of imperfect competition is oligopoly. It is a market structure, where there are from two to twenty-four large companies. This type of market is typical for industries that produce high-tech and complex products or services. Oligopolies exist in the supply of resources, in heavy industry, mechanical engineering, the chemical industry, aircraft and shipbuilding, the automotive industry, and others.

The main features of this market structure are the following:

Products in such a market can be homogeneous (for example, aluminum), or they can be differentiated (automotive). Then a distinction is made between pure and differentiated oligopolies.
The oligopoly has a large market share. For example, in America there are only eight companies that manufacture photography equipment. They account for 85% of the market.
Supply in the market is concentrated in the hands of a few large enterprises that determine sales volumes and prices.
Very high barriers to market entry. This is due to the fact that oligopolies mainly arise in high-cost areas of activity, where participants rationally use resources. In addition, government permits, licenses, patents may be required to enter the market, which also requires a certain amount of time and money.
The strong interconnection of oligopoly players leads to limited price control. Only the largest players can change prices under certain conditions.

Remark 1

Oligopoly is one of the most common forms of market structures. Usually it is formed during the natural self-regulation of the market, when weak enterprises gradually lose their customers and declare themselves bankrupt. Sometimes, market participants can agree and ruin a competitor, and then buy it completely, or buy out a controlling stake. The gradual takeover of weaker enterprises eventually leads to the formation of large corporations that divide the market among themselves.

In addition to competition, oligopolies are formed under the influence of business scaling. Since the above industries are high-cost, it is only by increasing the scale of production that enterprises manage to recoup their costs and make a profit. The large scale of enterprises allows them to maintain high barriers to entry for newcomers, since there is practically no free market share for them.

Characteristics of an oligopoly

The nature of an oligopoly is largely determined by its distinctive features. Compared to a monopoly market or a monopolistic competition market. Oligopoly is based on principles that are closest to real processes in the economy. So for monopolistic competition, science allows the production of homogeneous products, and for monopolies the creation of differentiated products. In an oligopoly, it is possible and actually produced products of both types.

Remark 2

For the convenience of analyzing a differentiated oligopoly, the entire group of produced substitutes is taken as a homogeneous product. Typically, such a market structure is characterized by the production of homogeneous goods and services.

A special position in understanding the nature of an oligopoly is occupied by price. On the one hand, the "market of a few" creates products for many small buyers who do not influence the price formation. On the other hand, the oligopolists themselves influence each other. Any price changes lead to a general shift in the industry. A decrease in sales can play into the hands of competitors, so an enterprise in an oligopoly needs to find its own balance of supply and demand that provides income.

Another feature of an oligopoly is the ability of its participants to negotiate. They can negotiate prices, or their thresholds. The beginning of a price war, considered in the Bertrand model, can lead to the fact that all market participants will reach zero profit, covering only their costs. When conspiring, it is also possible that one of the players will change their mind and act according to their own goals.

An oligopoly is characterized by high barriers to entry. However, everything here also depends on the "friendliness" of the participants in the oligopoly. When a new player enters, they can negotiate and set prices for products that can only cover the costs of the new player. So, they will force him to open a small enterprise with a high average cost, or a large enterprise that will not be able to pay off.

There are situations when participants in an oligopoly begin to raise prices for a product. For example, one of the participants is the price leader. Then there is a general decrease in sales, which frees up market share for newcomers.

An oligopoly is a market structure in which a small number of sellers dominate and the entry of new producers into the industry is limited by high barriers.

The oligopolistic market is one of the most common market structures in modern economy various countries.

Almost all technically complex industries such as metallurgy, automotive, electronics, shipbuilding and aircraft building operate in an oligopolistic market.

The first characteristic of an oligopoly is that there are few firms in the industry. This is evidenced by the etymology of the very concept of “oligopoly” (Greek “oligos” - several, “polio” - I sell, trade).

Usually their number does not exceed ten. This situation has developed, for example, in the American steel industry, in the production of primary lead, copper, glass, fur products, etc.

The highest concentration is in the US auto industry: three companies (General Motors, Ford and Chrysler) accounted for more than 95% of national car production in the 1980s. Examples can be given of other US manufacturing industries (production of home refrigerators, vacuum cleaners, washing machines, light bulbs, postcards, telephone sets), which are characterized by high concentration produced by only a few companies.

It should only be noted that these data, like all statistical indicators, have obvious shortcomings. They either exaggerate or underestimate the degree of concentration. They exaggerate, because they do not take into account foreign and inter-industry competition (in the US market, for example, every fourth car is foreign-made), as well as competition from suppliers. They underestimate, since the degree of concentration is estimated at the national level, and not at the level of regions or individual cities, where the markets for certain goods and services are often dominated by two or three local companies (production of bricks, concrete, perishable food products etc.). In addition, along with the classical (hard) oligopoly, in which 3-4 firms play the main role, there is also a soft (amorphous) oligopoly, when 6-8 firms produce the bulk of the products.

Oligopolistic situations can arise in industries that produce both standardized goods (aluminum, copper) and differentiated goods (cars, washing powders, cigarettes, household appliances).

The oligopolistic structure of the market, as noted above, is predominant for modern industrial developed countries. In Russia, too, the largest part of industrial output and some types of services is produced in oligopolistic industries. In most cases, the composition of participants in the Russian oligopolistic market sphere is still being formed, competition in some industries is not yet developed, in others it is becoming tough, sometimes merciless, and there are rapid changes in the structure of the market.

To the most characteristic oligopolistic industries Russian Federation include the oil producing and oil refining industries (taking into account the regional structure and localization of the market sphere); ferrous metallurgy (by main types of products and taking into account the specialization of production); non-ferrous metallurgy(production of aluminum, tin, lead, zinc, etc.); production of electric machines and electric motors; machine tool building; engine building; production of automobiles, buses and tractors; production of combines, excavator building; production of televisions and radio equipment; production of electronic computers; production of refrigerators, freezers, washing machines; chemical industry(most types of products); air transportation; shipping.

Oligopoly is characteristic of Russian conditions when selling grain, sugar, flax, large batches of livestock.

The second characteristic feature of an oligopoly is the high barriers to entry into the industry. They are associated primarily with economies of scale (scale effect), which acts as the most important reason for the widespread and long-term preservation of oligopolistic structures. An industry acquires an oligopolistic structure if the large size of the enterprise provides significant cost savings and, therefore, if large enterprises have significant advantages over small ones.

The fact is that there can never be many large enterprises in the industry. Their multibillion-dollar cost already serves as a reliable barrier to penetration into the industry. But even if funds were found for the construction of a large number of giants, they would not be able to work profitably in the future. After all, the market capacity is limited.

In the US automobile industry in the 1980s, for example, the minimum effective output was 300,000 cars a year. Since many enterprises produced at least two models at the same time, the cost of such a plant usually exceeded $ 3 billion. Such large investments are far from available for all firms, therefore, objective prerequisites are being created for maintaining the leading position of giant automobile plants. Note that if at the beginning of the 20th century the number of American automobile firms approached 200, then already at the end of the 20s. their number did not exceed 50, and at present they can be counted on the fingers.

Economies of scale are an important but not the only reason, as the level of concentration in many industries exceeds the optimally efficient level. Oligopolistic concentration is also generated by some other barriers to entry into the industry. This may be due to a patent monopoly, as happens in knowledge-intensive industries controlled by firms such as Xerox, Kodak, IBM, and others. competition.

Other reasons include the monopoly of control over rare sources of raw materials (for example, in the 1960s and 1970s, the world oil market was controlled by the Seven Sisters oil cartel), prohibitively high advertising costs (as in the production of cigarettes, soft drinks or in show business).

There are other barters, naturally formed or artificially created. Barters vary in strength. Although there are no insurmountable barriers, they arise again and again.

The third characteristic feature of an oligopoly is universal interdependence. An oligopoly occurs when the number of firms in an industry is so small that each of them has to take into account the reaction of competitors when formulating its economic policy. Just as a chess player must take into account the possible moves of the opponent, the oligopolist must be prepared for various (often alternative) options for the development of the market situation as a result of different behavior of competitors. With a monopolistic structure, such a situation does not arise (there are no competitors), with perfect and monopolistic competition - also (on the contrary, there are too many competitors, and it is not possible to take into account their actions).

Meanwhile, the reaction of competing firms can be different, and it is difficult to predict it. Oligopolistic interdependence - the need to take into account the reaction of competing firms to the actions of a large firm in an oligopolistic market.

Any model of an oligopoly must proceed from taking into account the actions of competitors. This is an additional significant limitation, which must be taken into account when choosing a behavior pattern for an oligopolistic firm. Therefore, there is no standard model for determining the optimal volume of production and the price of products for an oligopoly.

We can say that the definition of the pricing policy of an oligopolist is not only a science, but also an art. Here, the subjective qualities of a manager, such as intuition, the ability to make non-standard decisions, take risks, courage, determination, etc., play an important role.

There are reasons that explain the difficulty of using the formal economic analysis when explaining the price behavior of an oligopoly:

1) an oligopoly includes a variety of special market structures. There are "hard" and "vague" oligopolies. A "hard" oligopoly arises with the dominance of 3-4 enterprises in the entire market. "Fuzzy" is possible when 8 - 10 firms control 70 - 80% of the market. The many kinds and types of oligopoly make it difficult to develop any simple market model that will give a general explanation of oligopolistic pricing behavior;

2) General interdependence and the inability to predict with certainty the behavior of competitors complicate the situation in determining demand and marginal revenue, and this affects the establishment of price and output.

Despite these difficulties, two interrelated features of oligopolistic pricing emerge. On the one hand, oligopolistic prices tend to be inflexible, i.e. "hard". On the other hand, when oligopolistic prices change, it is likely that firms change their prices collectively. Oligopolistic price behavior involves the presence of incentives and concerted action, or collusion in setting prices.

In conditions of high uncertainty, oligopolists behave differently. Some try to ignore, compete, and act as if the industry is perfectly competitive. Others, on the contrary, try to anticipate the behavior of rivals and closely monitor their every move. Finally, some of them consider collusion with enemy firms to be the most profitable.

In reality, all three of these options can occur simultaneously. market behavior. Since the company's management must constantly make many decisions, it is almost impossible for it to predict the reaction of competitors to each of its actions. Therefore, on many tactical issues relating to secondary aspects, decisions are made quite independently. On the other hand, when developing strategic decisions, the company is working to optimize relationships with rivals. A task economic theory- to study the rules of rational choice, involving the apparatus of game theory. Each "player" is looking for such a move in order to maximize his own profit and at the same time limit the competitor's freedom of choice. In search of the most “simple” way, rival firms can enter into direct collusion, agreeing on a common price policy, on the division of sales markets, etc. The latter case is the most dangerous for society and is usually prohibited by antitrust laws.

Consider four different pricing models to uncover the essence of an oligopoly:

1) pricing that is not based on collusion: one of the enterprises changes the price, the consequence is a change in demand for the industry's products (broken demand curve);

2) collusive pricing - a tendency to maximize total profit enterprises;

3) adjustment of prices to the prices of the dominant enterprise (tacit secret agreement);

4) pricing on the principle of "cost plus".

Similar information.

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. For example, many manufacturing companies mobile phones 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 supplied by the oligopoly to the market are identical to the products of competitors (for example, mobile connection), or has differentiation (for example, washing powders).

At the same time, oligopolistic markets very rarely show price competition. 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 volume 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 not 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, a higher share of them in the market. 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 advantages include the fact that large companies quite strongly compete 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 normal profit, but 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: character traits and pricing policy

Oligopoly is a type of market structure in which market dominated by several firms, each of which is capable of influencing its actions market price . An oligopolistic market includes many real-life markets.

What are the characteristics of an oligopolistic market? :

Few firms in the industry . An oligopoly can arise in industries that produce both standardized goods (aluminum, copper, steel) and differentiated goods (aircraft, cars, washing powders, electrical appliances, computers, telephones, etc.).
High barriers to entry into the industry . High barriers are associated primarily with economies of scale in production ( scale effect ) is the most important reason for the widespread and long-term preservation of oligopolistic structures.
Oligopolistic concentration is also generated by some other barriers to entry into the industry. This may be related to the patent monopoly (in knowledge-intensive industries), a monopoly of control over rare sources of raw materials (OPEC oil cartel), prohibitively high advertising costs.
The interdependence of all firms in the market in setting prices . An oligopoly occurs when the number of firms in an industry is so small that each of them has to take into account the reaction of competitors in formulating its economic policy. This manifests itself both in conditions of intensified competition, and in conditions when an agreement is reached with other oligopolists and there is a tendency for the industry to become a purely monopoly one.
Prices in the oligopolistic market for a certain period of time are insensitive to changes market conditions . Firms try to keep the price within the "hard" limits, preferring to manipulate production volumes.

The pricing policy of an oligopolistic company plays a huge role . 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 leading firm lowers prices for its products, then in order not to lose customers, competitors usually follow the company that lowered prices, also reducing prices for the goods they offer: there is a “race for the leader”.

Thus, so-called price wars often occur between oligopolists, in which firms set a price for their products that is no higher than that of a leading competitor.

price war - this is a cycle of gradual reduction of the existing price level in order to oust competitors from the oligopolistic market. Consumers will benefit from a price war and producers will lose. Price wars are detrimental to those companies that compete with more powerful and larger firms.

Price wars are fleeting and are now quite rare. Competitive fight with each other more often leads to agreements that take into account the possible actions of other manufacturers.

When industries are dominated by several firms, such industries are called oligopoly or

oligopoly name the type of market in which a few firms control the bulk of it. At the same time, product differentiation can be both small (oil) and quite extensive (cars). An oligopoly is characterized by restrictions on the entry of new firms into the industry, which are associated with economies of scale, high advertising costs, existing patents and licenses, and actions taken by competitors.

Characteristic signs of an oligopoly:

1. Small number of large firms in the industry(oligopolies can be homogeneous (oil, gas) and differentiated (cars)). With the characteristic dominance of oligopolies, the rule is applied: for the 4 leading firms in total production in the industry (if more than 60%, then the industry is oligopolistic. Oligopolies usually exist in industries that produce technically complex goods or goods produced in small quantities.

2. A characteristic feature of an oligopoly is the merger and collusion of firms. The motives for merging can be different: voluntary (monopolists), forced (a large firm forces small firms to merge), general absorption (buying up small firms that are going bankrupt, etc.).

3. Unlike pure monopoly in the condition of monopolistic competition (industry), each firm is forced to calculate the response to its changes (the general interdependence of firms on a few firms).

Character traits:

1. several very large firms;

2. the product is standardized or differentiated;

3. price control limits interdependence;

4. the possibility of collusion on price, market division, etc.;

5. there are barriers to new firms entering the industry;

6. non-price competition;

7. supply and demand are not very elastic.

An oligopoly exists when the number of firms in an industry is so small that each firm must take into account the reaction of competitors when formulating its pricing policy. Another feature of an oligopoly is the interdependence of firms' decisions on prices and output.

Oligopoly types:

1. homogeneous (dense) - when firms produce the same product;

2. differentiated - when similar but not identical products are produced;

3. hard - when there are 3-4 firms in the industry;

4. vague - when there are 6-7 firms in the industry;

5. based on collusion;

6. not based on collusion firms are independent, but the leader sets the parameters of the market;

7. based on fusion association;

8. based on technical production complex goods, when there are few large firms in the industry, where there is a positive effect of scale of production.

Relationship types

According to the concentration of sellers in the same market, oligopolies are divided into dense and sparse.

To dense oligopolies include such industry structures that are represented on the market by 2-8 sellers.

To the discharged oligopolies include market structures that include more than 8 business entities.

Based on the nature of the products offered, oligopolies can be divided into ordinary and differentiated.

Ordinary oligopoly associated with the production and supply of standard products.

Differentiated oligopolies formed on the basis of the production of a diverse range of products.

General assessment of oligopolistic structures

Positive rating oligopolistic structures is associated primarily with the achievements of scientific and technological progress. Oligopolies have huge financial resources, as well as a noticeable influence of the political and economic circles of society, which allows them, with varying degrees of accessibility, to participate in the implementation profitable projects and programs financed from public funds.

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