An important concept that is used in the market is oligopoly. Oligopoly - what kind of structure is this? The collapse of the cocoa producers' organization

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

14. How is risk assessed? valuable papers?

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

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

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

18. What is the meaning of the Tobin coefficient?

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

Chapter VII. Degrees and concepts of partial competition

Monopolies, oligopolies and efficient market competition. Dominant firms, their monopoly influence.

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

Features and results of monopolistic competition.

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

First of all, the value of the market share of the leading firm is calculated, on the basis of which certain conclusions can be made.

If the size of the market share is very significant (more than 40%), there are no closest rivals, then the market power of such a firm is great. Free entry of other firms to this market can destroy market power of a given firm, provided, of course, that the firms entering the market have a large market power. To complete the market analysis, it is also necessary to evaluate the behavior of the dominant firm in relation to other firms in the market and the level of its profitability.

If the market shares of large firms are in the range of 25-50%, then, most likely, there is a tight oligopoly, since the concentration of four firms will exceed 60%. However, it is necessary to take into account the pricing strategy and profit margins when assessing the degree of competition.

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

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

- dominant firm;

- tight oligopoly;

- weak oligopoly (including monopolistic competition).

one . D o m i n i n i r y u s h a i f i r m a.

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

The dominant firm usually faces the challenge of capturing high market share and sustained dominance, the latter being the most difficult to achieve.

AT examples are dominant firms, oligopolies

and monopolistic competitors:

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

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

- for the market of weak oligopolists and monopolistic competition (cinema, theater, commercial publications, Retail Stores, clothing) is an indicator of concentration by 4 firms 6-30%.

Dominant firms typically exercise the following monopoly power over prices:

- raise the price level;

- create a discriminatory price structure.

The action of these factors allows you to get super profits (Fig. 15.). In the figure, dots conditionally represent some data statistical observations, which allow you to link the rate of return with the value of barriers to entry and the behavior of oligopolists; The relationship between market share and the rate of return on the market is very close and increases with the level of monopoly.

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

If a firm is close to a monopoly, the main provisions and concepts of monopoly are used to analyze it. At the same time, it is possible (and in many cases a productive approach) to the analysis of temporal dominance in accordance with the concept of J. Schumpeter, which, as you know, is different from the neoclassical approach. According to his approach, big business, even if it is associated with market dominance, is able to give a better result compared to the neoclassical competing result.

Firm's profit margin, % 3

Competitive profit share

Market share of products, %

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

1- "normal" conditions are supported;

2- entry barriers are low;

3- entry barriers are high;

4- oligopolists cooperate;

5- Oligopolists are at enmity

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

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

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

However, this concept also requires some fairly vulnerable assumptions. First, the dominant firm must have signs of vulnerability in order to be overwhelmed by competitors. Second, barriers to entry should not be high to allow competitors to enter the market.

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

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

Of particular interest is the analysis of passively dominant firms, i.e. adhering to the tactics of a passive role, which allows small competitors to take away their dominance. However, for the most part, these considerations are rather dubious, since such firms exist, rather, hypothetically. Usually dominant firms are still aggressive in their tactics of suppressing potential rivals.

Interesting considerations about what part of the economy can be considered subject to the approach of evolutionism - for example, electronics, chemistry, automotive industry; concerning Agriculture, trade, they discover the possibility of using neoclassical approaches. Depending on the level of static and dynamic nature of certain markets, one or another approach turns out to be more productive. In a diverse world of markets, dominant firms are sometimes able to maintain long-term positions, or to lose them very slowly. Apparently, the radical nature of scientific approaches cannot be based on one of the principles or conceptual approaches, but should be based on a multifactorial approach, the use of which in each specific case should be carefully specified.

2. Close o l i h o p o l y

It is usually believed that a tight oligopoly almost always implies the possibility of secret agreements, while in a weak oligopoly also agreements, then we are unlikely to have such agreements in a weak oligopoly. The issues of the formation and existence of oligopolies continue to be largely debatable, since they reflect a significant variability of situations that are sometimes poorly amenable to modeling.

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

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

- degree of concentration;

- asymmetry or equality between oligopolists;

- the difference in the amount of costs;

- difference in demand conditions;

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

- level technological development;

- the state of the management system at the firm, etc.

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

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

- incentives for competition;

- entering into a secret agreement;

- a combination of both (mixed incentives).

Competition encourages each firm to actively, intensely struggle to maximize its profits. Its aggressive behavior inevitably provokes a strong competitive backlash, which can have unexpected elements of negative synergy and even a multiplicative, coherent effect (other than a simple summation).

Entering into a conspiracy is usually attractive, since the cooperation of efforts allows you to get an effect close to a monopoly, greater than with competition.

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

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

Attitudes towards the behavior of firms concluding secret agreements are different among representatives of different schools. Representatives of the Chicago UCLA school believe that secret agreements are doomed to a quick collapse due to natural internal conflicts.

However, representatives of other schools rightly point out that many cartels sometimes exist for decades, which by no means can be considered a quick collapse. Since the real results essentially depend on chances, apparently, the reality is not very consistent with certain scientific schools and indicates the need for further scientific searches and generalizations.

There are several generalized models that characterize the behavior of oligopolists.

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

− high concentration creates objective prerequisites for the organization of mutual agreements; leaders with significant market share experience negligible pressure from small firms;

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

Secret agreements are characteristic of a tight oligopoly, while in a weak one they are quickly destroyed; a tight oligopoly always gravitates toward a "group monopoly" with profit maximization; a weak oligopoly seeks efficient competition with lower prices.

2. The similarity of the conditions of firms. If the conditions of demand and costs coincide sufficiently, then the interests of firms coincide, which encourages the development of cooperation. It is easy to see that these conditions have quite definite time limits - technological innovations, for example, can drastically reduce the costs of the firm, and the tendency to cooperate will be violated.

3. Establishing closer business relations between firms. As the establishment business contacts between firms, mutual understanding at the level of top management is enhanced, which gives rise to mutual trust.

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

Consider the types of secret agreements that take place in oligopolies - from close specific to informal.

prices and develops a system of sanctions against violators of the contract (collusion). Cartels can operate in a wide range of ways:

- set sales quotas;

- control investments;

- pool income.

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

50 Concentration, % 100

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

1- linear approximation;

2-step approximation.

Price fixing has been outlawed by US law in most sectors of the economy, but covert price fixing remains in practice through a range of communications (secret meetings, telephone, email, and

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

3 . Weak and I about ligopoly.

Weak oligopoly is an area of moderate concentration to pure competition, i.e. it is quite voluminous and conditional.

According to the concept developed by Chamberlin, monopolistic competition is characterized by low levels of concentration, at which each firm has a weak degree of monopoly; firms' demand curves are slightly downward sloping and none of the firms has a market share greater than 10%.

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

Product differentiation can be due to a number of reasons:

- the physical difference of products (for example, different food and flavor properties);

- difference in product varieties (bread, clothes, shoes, etc.);

- location of retail outlets.

2. Barriers to free entry to the market for new firms, which can become attractive in the presence of excess profits in the market.

3. Since there are no firms with a high enough market share, each firm is relatively independent and is under pressure from the rest of the market.

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

Costs			Costs





			qL MES

Rice. 17. Monopolistic competition.

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

1 - marginal cost;

2 - average costs;

3. - demand;

4 - marginal income; AB - idle power;

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

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

On fig. 17b, none of the long-run demand curves is above the marginal cost curve, so excess profits are excluded. The firm can exist at the output q L , at the point of equality of marginal revenues to marginal costs upon reaching a competitive rate of profit.

until average cost touches the demand curve. There is no excess profit, but the price is above the minimum average cost and there is unused production capacity. Both costs and prices will be somewhat higher than under pure competition, which determine the MES - both the price and the output qL are higher than the MES. These added costs bring certain benefits to consumers. For example, retail outlets in certain locations may charge higher prices that do not make other distant outlets more attractive. Preference can be both by the type of goods (quality), and by the time of service, by the level of service, etc.

The other deviation is overcapacity, since qL output< MES. В частности, в торговой сети это выражается в пустых проходах между полками магазинов или незаполненных местах ресторанов и кафе. Тем не менее, монополистическая конкуренция обычно близка к результатам чистой perfect competition.

Basic concepts: categories of degree of competition; dominant firm; tight oligopoly; weak oligopoly; market share and rate of return; price discrimination; variety of oligopolistic structures; secret agreements and cartels; opportunities for extra profits.

Conclusions to Chapter VII

The conditions of a firm's dominance in the market place it in a position of monopoly, with corresponding consequences. In the area of prices, these are the increase in the price level and the discriminatory price structure.

A close oligopoly tends to secret agreements and the possibility of using a wide range of interactions - from complete cooperation to pure struggle, so the creation of a single model of behavior for oligopolists remains problematic. Secret agreements are very diverse, dynamic, have a different spectrum of action and consequences.

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

test questions

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

2. What are the characteristics of dominant firms? Give examples of markets of dominant firms. What is their monopoly power? What is the essence of the "Schumpeterian approach"?

3. What is the essence of a tight oligopoly? What are the interaction spectra of close oligopolies and the diversity of oligopolistic structures?

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

5. What is the nature of monopolistic competition?

Chapter VIII. Structure Models

The main elements of the market structure and the equation relating them to the firm's average rate of return.

Sectoral structure of the US industry market. Census of US Industry Groups and Problems of Its Objectivity.

one . Structural elements and their interaction

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

On the early stages studies (1950s) attempts were made to reveal the structure of value-cost models of sector-wide concentration or an indicator of the level of concentration of four firms due to the availability of relevant economic data. Due to the fact that many specific conditions of individual firms were unwittingly underestimated and other elements of the structure were overlooked, such estimates were of very relative value. Studies of the period 1960-1970 were already focused on the extremely precise characteristics of individual firms and their market shares; they made it possible to clarify the role of individual elements of the firm in the market structure. Series of studies 1960-1975 and 1980-1983 on the example of 100-250 large US corporations, the goal was to repeatedly test the main elements to obtain some

1. Dominant firm

2. Close oligopoly

3. Weak oligopoly

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

dominant firm;

Close oligopoly;

Weak oligopoly (including monopolistic competition).

Dominant Firm

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

The dominant firm usually faces the challenge of capturing high market share and sustained dominance, the latter being the most difficult to achieve.

As an example, dominant oligopoly firms and monopolistic competitors can be given:

For the markets of dominant firms - computers, aircraft, business newspapers, night delivery of correspondence - the average share of the firm in the market is 50-90%, with high or medium barriers;

For the markets of close oligopolies (cars, artificial leather, glass, batteries, etc.) - the concentration indicator for 4 firms is 50-95%;

For the market of weak oligopolists and monopolistic competition (cinema, theater, commercial publications, retail stores, clothing) - the concentration indicator for 4 firms is 6-30%.

Dominant firms typically exercise the following monopoly power over prices:

Raise the price level;

Create a discriminatory price structure.

The action of these factors allows you to get super profits (Fig. 10).

Figure 10 - Relationship between market share and rate of return

In the figure, dots conditionally represent some data of statistical observations that allow us to link the rate of return with the value of barriers to entry and the behavior of oligopolists; The relationship between market share and the rate of return in the market is very close and increases with the level of monopoly:

1 - "normal" conditions are supported;

2 – entry barriers are low;

3 – entry barriers are high;

4 - oligopolists cooperate;

5 - oligopolists are at enmity.

If a firm is close to a monopoly, the main provisions and concepts of monopoly are used to analyze it.

Close oligopoly

It is generally assumed that a tight oligopoly almost always implies the possibility of secret agreements, while in a weak oligopoly such agreements are unlikely. The issues of the formation and existence of oligopolies continue to be largely debatable, since they reflect a significant variability of situations that are sometimes poorly amenable to modeling.

Oligopolies are characterized by a small number and interdependence; they emerge from a pure duopoly and develop into a loose oligopoly of 8 to 10 firms. The small number of firms allows each of them to take into account the possible reaction to their actions on the part of competitors, i.e. a certain system of actions and counteractions is formed. The demand of each firm, as well as the strategy of its actions, depend on the reaction of competitors, therefore, a multifactorial and probabilistic system of competitive relations arises, in which each of the participants can show unexpected, extraordinary reactions. Hence, it becomes necessary for each of the participants to choose an appropriate strategy with a set of possible alternatives or methods for the development of scenarios, forecasting the development of the situation, etc. The reaction of competitors encourages step-by-step behavior of the company, the use of iterative procedures, adjustment of answer options, etc.

It is also necessary to take into account the significant diversity of oligopolistic structures due to the influence of such parameters as:

The degree of concentration;

Asymmetry or equality between oligopolists;

The difference in the amount of costs;

The difference in demand conditions;

The presence or absence of firm strategies and long-term planning;

Level of technological development;

The state of the management system in the company, etc.

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

1) incentives for competition;

2) entering into a secret agreement;

3) a combination of both (mixed incentives).

1) Incentives to compete. Competition encourages every firm to actively , intense struggle, in order to maximize their income. Its aggressive behavior inevitably provokes a strong competitive backlash, which can have unexpected elements of negative synergy and even a multiplicative, coherent effect (other than a simple summation).

2) Entering into a conspiracy usually attractive, since the cooperation of efforts allows you to get an effect close to a monopoly, greater than with competition.

3) Mixed Incentives lie in the fact that it is possible to use both collusion and cutting prices, cooperation, choosing a position in the market, etc.

There are several generalized models that characterize the behavior of oligopolists.

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

High concentration creates objective prerequisites for the organization of mutual agreements; leaders with significant market share experience negligible pressure from small firms;

A small number of firms makes it possible to identify and punish a firm that reduces prices; with a large number of firms (10 - 15) there are fewer such opportunities.

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

Consider types of secret agreements taking place in oligopolies - from close specific to informal.

At purposeful agreements setting prices in tight oligopolies can lead to a purely monopoly effect. The cartel, as an organization that is created by firms for control, coordination and cooperation, usually sets prices and develops a system of sanctions against violators of the contract (collusion). Cartels can operate in a wide range of ways:

Set sales quotas;

Control investments;

Consolidate income.

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

Weak oligopoly

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

Monopolistic competition is characterized by low levels of concentration at which each firm has a weak degree of monopoly; firms' demand curves are slightly downward sloping and none of the firms has a market share greater than 10%.

The features of monopolistic competition include the following:

1. The existence of some differentiation of the product, causing the emergence of certain preferences among consumers.

2. Barriers to free entry to the market for new firms, which can become attractive in the presence of excess profits in the market.

3. Since there are no firms with a sufficiently high market share, each firm is relatively independent and does not experience pressure from other firms in the market.

The considered conditions characterize the markets for many types of products. It is possible to note such typical cases conditionally monopolistic competition like a clothing or food retailer: a strong customer center in a city block and strong but distant competition for off-site outlets.

For the short term, the situation shown in Fig. 11 a. the demand curve is above the cost curve, which allows the firm to make excess profits in a short period of time (shaded rectangle), if the firm produces output qs.

The entry of new firms into the market lowers the firm's demand curve to a position tangent to the average cost curve, and thus destroys excess profits. On fig. 11b none of the long-run demand curves is above the marginal cost curve, so excess profits are excluded. A firm can exist with output qL, at the point where marginal revenue is equal to marginal cost when a competitive rate of return is reached.

Figure 11 - Monopolistic competition

a) - short-term period; b) - long-term period; 1 - marginal costs; 2 - average costs; 3 - demand; 4 - marginal income; AB - idle power; CD - an addition to the price above the minimum cost.

Monopolistic competition destroys long-term windfall profits even when demand is not perfectly elastic. Monopolistic competition causes the following deviations from the results of pure competition, as shown in Fig. 11 b. With it, demand falls down until the average cost touches the demand curve. There is no excess profit, but the price is above the minimum average cost and there is unused production capacity. Both costs and prices will be somewhat higher than under pure competition, which determine the MES - both the price and the output qL are higher than the MES. These added costs bring certain benefits to consumers. For example, retail outlets in certain locations may charge higher prices that do not make other distant outlets more attractive.

So, the conditions of the firm's dominance in the market provide it with a monopoly position with corresponding consequences. In the area of prices, these are the increase in the price level and the discriminatory price structure.

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

Oligopolistic market - a type of market structure characterized by the strategic interaction of a few firms with market power and competing for sales volume.

An oligopolistic market can be either a standardized product (pure oligopoly) or a differentiated product (differentiated oligopoly).

Its most important features are:

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

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

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

The strategic behavior of firms, which is a fundamental characteristic of an 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 an oligopoly, the firm is limited in its decision-making not only by the sloping demand curve, but also by the actions of competitors.

Firms operating in an oligopolistic market may choose different response strategies depending on the situation. Therefore, for oligopolistic markets, there is no single equilibrium point that firms strive for, and firms in the same industry can interact both as monopolists and as competitive firms.

When firms in an industry implement a cooperative interaction strategy, coordinating their actions by mimicking each other's pricing or competitive strategies, price and supply will tend to be monopoly. If firms follow a non-cooperative strategy, pursuing an independent strategy aimed at strengthening their own position, 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 be formed:

With a cooperative strategy consciously implemented by firms, the market is organized in the form of a cartel, which is characterized by limiting market supply and setting monopolistically high prices;

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

In spite of obvious benefit for the participants, the cartel is an unsustainable entity. First, there are always factors that counteract its occurrence. The greater the number of firms in an industry and the differences in their level of production costs, the more diverse their products and the lower the industry barriers, the more unstable industry demand, the more difficult it is to achieve coordination among firms and the likelihood of a cartel decreases.

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 monitoring the implementation of the agreement, especially since the cartel itself has a mechanism for its destruction.

The success of the cartel depends on the ability of its participants 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 against violators exceed the benefits of violating the agreement.

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

When an industry has a dominant firm that provides a significant share of the industry supply, other firms in the industry prefer 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 industry 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 his products DL as the difference between industry demand and competitors' supply. Since at price P1 all industry demand will be covered by competitors, and at price P2 competitors will not be able to supply and all industry demand will be satisfied by the price leader, the demand curve for the leader's products DL will form in the form of a broken curve P1P2DL.

Having a marginal cost curve MCL, the price leader will set a price PL that provides him with 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 non-new leader will be QL, and the supply of the remaining firms in the industry will be Qn(PL = Sn), which in total will give the total volume industry offer Qd = QL + Qn. With scrap, the supply of each individual firm will be formed in accordance with its marginal cost.

Rice. 6. Price leadership model

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

The price leader's competitive strategy is to focus on long-term profits by aggressively responding to competitors' challenges in terms of both price and market share. Against, competitive strategy firms occupying a subordinate position is to avoid direct confrontation with the leader, to use 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 firms in the industry a kind of conductor of pricing policy (announces new prices), and then they talk about barometric price leadership.

When firms engage in conscious competition for sales volume, the industry will drift towards long-term to long-term competitive equilibrium;

The interaction of firms can take the form of a blocking pricing model if firms seek to maintain the current situation 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. A feature of oligopolistic interaction is that firms tend to maintain the status quo that has developed in the industry, in every possible way opposing its violation, since it is the equilibrium that has developed in the industry that provides them with the most favorable conditions for making profit. If barriers to entry into an industry are low, firms in the industry can artificially raise them by lowering the market price. For example (Fig. 7), by implementing a cooperative strategy, firms in the industry could earn economic profit by producing Q products and 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 profit and possibly pushing some firms out of the industry.

Rice. 7. Block pricing model

Therefore, knowing the level of industry demand and costs, as well as estimating the minimum possible average costs of applicants for entry into the industry, firms operating in the industry can set the market price P1 at the level of the minimum long-term average costs, which will deprive firms of economic profit, but at the same time make penetration " strangers” 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 industry price will be set at a level above the minimum cost, but below the minimum cost that the firms threatening to enter the market can provide.

In an effort to consolidate their market power, oligopolistic interacting firms can coordinate their activities in order to counteract the entry of new firms into the market.

This practice can also be used to drive competitors out of an industry, when the dominant firm in the industry sets prices at a level below the minimum short-term average cost, hoping to compensate for the resulting losses in the long run.

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

Implementing cooperative strategies in practice is difficult and sometimes impossible. Therefore, in order to increase profits, firms engage in conscious 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 industry demand Domp, firms will divide the market by producing Q products at a price of P, and will receive economic profit. 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 Dneg

Fig.8. The price war model

If the competitor also lowers the price, let's say to P2, then the entire market q2 will go to him, and the firm that has lost profits will be forced to go for a further price reduction. The competitor's response will cause the firm to lower its price until it falls to the level of average cost and further price reduction does not bring any benefits to the firm - Bertrand's equilibrium.

The Bertrand equilibrium describes a market situation in which, in a duopoly, firms compete by lowering the price of a good and increasing output. Equilibrium stability is achieved when the price is equal to marginal cost, i.e., competitive equilibrium is reached.

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, in 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 volume, equilibrium in the industry will be achieved at a price equal to average cost.

A price war is a cycle of gradually lowering the existing price level in order to force competitors out of an oligopolistic market.

Without a doubt, price wars are beneficial to consumers, as they lead to a redistribution of surplus wealth in their favor, at the same time, they are burdensome for firms due to the significant losses incurred by all participants in the rivalry, regardless of the outcome of the struggle.

In addition, the very possibilities of using the price rivalry strategy in an oligopoly are severely limited. First, such a strategy is quickly and easily imitated by competitors, and it is difficult for the firm to achieve its goals. Secondly, 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 competition that is difficult to copy.

The Cournot duopoly model demonstrates a mechanism for establishing market equilibrium under 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 on the volume of output, taking the volume of production of the other constant (Fig. 9).

Assume that market demand is represented by curve D and firm MC has constant marginal cost. If firm A believes that another firm will not produce, then its profit-maximizing output will be Q. If it assumes that firm C will supply 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 level of Q1. Any further increase in supply by firm B will be perceived by firm A as a shift in demand for its products D2 and will optimize output in accordance with this Q2. Thus, varying with firm 5's output assumptions, firm A's output decisions represent the response curve QA to changes in firm B's output. Proceeding similarly. firm B will have its own response curve QB to the proposed actions of firm A. (Fig. 10.)

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

under Cournot duopoly for Cournot duopoly

A duopoly is a market structure in which there are two firms in 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, response curves show how equilibrium output is established. If firm A produces QA1, then, according to its response curve, firm B will not produce, since in this case the market price of the product is equal to average cost and any increase in output will reduce it below average cost. When Firm A produces at QA2, Firm B will respond by issuing QB1. Reacting to the output of competitor QB1, firm A will reduce output to QA3. Ultimately, by setting output according to their response curve, firms will reach equilibrium at the point where these curves intersect, giving their equilibrium level of output Q*A and Q*B.

This is the Cournot equilibrium, which indicates the best position of the firm in terms of profit maximization for given actions of a competitor.

Cournot equilibrium is reached in the market when, in a duopoly, each firm, acting independently, chooses the optimal output that the other firm expects from it. The Cournot equilibrium occurs as the intersection point 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 the equilibrium is reached, as it assumes the competitor's output to be constant.

If firms were producing at the level of marginal cost A = QA2; B = QB3 they would reach a competitive equilibrium in which they would produce more output, but would not receive economic profit. In this sense, achieving Cournot equilibrium is more profitable for them, since it allows them to extract economic profit. However, if firms were to collude and limit total output so that marginal revenue equals marginal cost, they would increase their profits by choosing the output combination 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 in an oligopoly, where it is assumed that firms always respond to price cuts by competitors and do not respond to price increases. The broken demand curve model was proposed independently by P. Sweezy, as well as by R. Hitch and K. Hall and in 1939, and then developed and modified by a number of researchers of an uncoordinated oligopoly.

Suppose similar firms sell an identical product at a price P, realizing 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 will follow suit, the firm will only be able to realize q1. If the firm raises the price (P2), then in the absence of a reaction from other firms, it realizes q2, and if there is such, the market supply will increase to Q2. Thus, the industry demand curve takes the form of a broken curve Dotr, the inflection point of which is the point of the prevailing industry price.

Rice. 11. Broken demand curve model

At the same time, 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 inelastic below it, since Marginal revenue MR becomes sharply negative and firms' gross income will decline. This means that oligopolistic firms will refrain from unreasonable price increases for fear of losing their market share and profits, and from unjustified price cuts for fear of losing growth potential in sales, market share and profits. Given the position of the marginal revenue curve MR, we can assume 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 react to an increase in prices by an individual firm and adequately respond to its decrease.

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 at the same prices under a pure oligopoly, and at comparable prices under a differentiated oligopoly.

By persisting in lowering prices, an oligopolistic firm risks causing a chain reaction of retaliatory measures from competitors and a decrease in demand for its products. And in the end, not to increase your profit, but to reduce it.

Basically 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” on their part. They can join the price increase, and then the loss of customers by this company will be small (in the context of a general rise in prices, buyers will not find better offers and remain faithful to the company's goods). But competitors may not raise prices. With this option, the loss of popularity of goods that have risen in price compared to analogues will be significant.

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

We especially emphasize the unpredictability of the breaking point. Its position depends entirely on the subjective assessment of the actions of this company by competitors. More specifically: on whether they consider them acceptable or unacceptable, whether they will take retaliatory measures. Changes in prices and output in an uncoordinated oligopoly therefore become a risky business. It is very easy to cause a price war. The only reliable 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 another possible reason for price inflexibility, which the first researchers of the problem paid special attention to. 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 in the MC curve above or below its original position will not entail a change in the optimal combination of price and output. That is, the price ceases to respond to changes in costs. Indeed, until the point of intersection of marginal cost with the line of marginal revenue 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 due to many institutional conditions - incomplete information, uncertainty, the presence transaction costs, the plurality of goals, the actions of competitors based on the stability of preferences and the absolute rationality of market participants, the completeness of information and the existence of a single Pareto-optimal equilibrium of the model of neoclassical theory become hardly suitable for economic analysis. More preferable for the analysis of the interaction of market participants and the conditions causing such interaction is the institutional economic theory. 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, it uses satisfaction rather than optimality as the principle that determines 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 - the relationship of economic entities in situations with pre-established rules, when it is necessary to make responsible decisions.

Game theory (game theory) is a science that studies mathematical methods behavior of participants in situations (players) associated with decision-making. 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 the existence of a single equilibrium.

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. To do this, a payoff matrix is created, which represents options and evaluations of the results of the decisions of the participants in the interaction, and the game itself can be presented in a strategic or expanded form. At the same time, 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

Strategies	reduce	Do not reduce
To reduce the price	-3 ; -3	5 ; -10
Don't lower the price	-10 ; 5	0 ; 0

Both forms illustrate possible solutions and an evaluation of the results of these decisions. If firm A reduces the price of its products, then it will increase its profits by increasing 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, if firm B lowers the price and firm D maintains it, the profits of the latter will decrease, while firm B will grow (-10; 15). Only in the case of maintaining the existing price, firms do not change profits (0; 0). The essence of the game is to develop an equilibrium, that is, the most acceptable in terms of consequences, interaction strategy under the conditions of uncertainty in the behavior of a competitor.

As part of the interaction of firms, various types of equilibrium can be achieved. When the actions of firm A provide the maximum result, regardless of the nature of the response of firm B, one speaks of the 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 the Nash equilibrium, which means that neither firm can increase its payoff unilaterally. If the equilibrium is achieved under the condition that the improvement of the position of one of the firms is impossible without worsening the position of the other, then in this case there is a Pareto equilibrium. In the case when the maximization of the results of the participants in the game is achieved as a result of making a decision by one firm on the basis of the decision of another firm known to it, a Stackelberg equilibrium arises, which always takes place.

In the above game, there is no equilibrium of dominant strategies, since there are no strategies that give the maximum payoff regardless of the competitor's actions. The Nash equilibrium will be reached at the point (0: 0), since with this strategy, none of the participants is interested in changing it. Pareto equilibrium is reached at 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 the point (5; -10), and for firm B - (-10; 5).

Game theory models allow 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 (repeated games), their decisions are based on previous experience, and they themselves come to the conclusion that in the long run, cooperative behavior is more profitable than non-cooperative.

The relative inflexibility of prices for the products of oligopolistic industries relative to those of competitive industries, convincingly explained in the broken demand curve model, is a well-established empirical fact that is constantly observed in the real economy. The consequences of this phenomenon for the fate of the market system are exceptionally 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 respond flexibly to changes in supply and demand, except for the most dramatic changes in these parameters. Under the conditions of an uncoordinated oligopoly, serious distortions of prices and production volumes in comparison with the objective demands of the market become possible. There are also destructive price wars of giant corporations, when these disproportions break out and the oligopolists move on to open competitive battles. Examples of such wars were especially common in the early stages of formation big business- at the end of the 19th - the first half of the 20th century.

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

From the point of view of Marxism, the oligopolization of the market (or, in Marxist terminology, its monopolization. Marxism associates the monopolization of the market not with the presence on it sole firm, with the dominance of a few major companies. Therefore, the terms monopoly and monopolization used in Soviet economic literature have a slightly different meaning than 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 mechanism of self-regulation associated with the presence of competition. But small enterprises cannot withstand competition and cannot be the basis of technical progress. Inevitably, large enterprises arise, and with them an oligopoly.

That is, competition itself gives rise to oligopoly (monopoly). Oligopoly 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 edifice 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 for the market system in the oligopolization of the economy. However, conclusions from the analysis of the situation are more optimistic.

First, the adaptive possibilities of the market are emphasized. Oligopoly does not completely eliminate competition. In its pure form, it (like a monopoly) is rarely found on the market. As a rule, there are noticeably more main "players": 3-4 largest manufacturers and even more companies of the second rank. In addition, in addition to national firms, the market in modern conditions usually has access to foreign companies. And more complex oligopoly models than those considered in this course clearly show that with an increase in the number of oligopolists, the Cournot equilibrium approaches the 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 under perfect competition).

Secondly, the viability of small business cannot 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 total. 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 for the functioning of the market.

Thirdly, the state 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 1930s, one of the varieties of oligopoly - cartels - really brought this system almost to the brink of death.

Cartels had a sharply negative impact on market economy. Moreover, all the shortcomings of a pure monopoly in practice are known to mankind mainly from the experience of cartels. The worst examples of overpricing and underestimation of output were produced by cartels. By the way, Russia first encountered such a terrible concept as “commodity hunger” not during the war, not under socialism, but before the First World War as a result of the deliberate restraint of production by syndicates.

Practiced cartels and deliberate deterioration of product quality. The Phoebus international electrical cartel, for example, in the 1930s recommended limiting the life of light bulbs to 1,000 hours, although technology already existed to bring it up to 3,000 hours. The calculation was simple: the faster the lamps burn out, the more new ones are needed. buy for a replacement. Cartels often hindered technological progress: in order to save costs, new inventions were shelved until the machines that produced goods using the old technology wore out.

Cartels had a particularly strong negative impact on the economy during severe crises of overproduction - in the 30s. Although the goods were not sold at this time, the cartels did not reduce their prices, preferring to reduce production volumes and lay off workers. For each cartel individually, 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 maintain profits. Nevertheless, the economy as a whole paid for this by deepening the crisis: the fall in production and unemployment during the years of the Great Depression (1929-1933) reached the highest levels in the 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 disappearing from the historical stage.

The lesson was not in vain. In most countries, cartels were then or a little later banned by law. The creation of cartels is not allowed, and according to modern Russian legislation. Nowadays, cartels exist (and are prosecuted by the authorities of all countries) as conspiracies. Legally, they are 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

By virtue of a legal ban, cartels officially do not exist in modern Russia. However, the practice of one-time price collusion is very widespread. It suffices to recall how periodically consumer market there is a shortage of something creamy or sunflower oil, then gasoline. And how then these goods reappear with greatly increased prices at all sellers at the same time. What frightened of the loss desired product the buyer, contrary to sober logic, only rejoices.

Quite often, various associations, such as tea importers, juice producers, etc., try to carry out functions close to cartel on a more permanent basis. 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 gas station owners and controls 85-90% of gasoline sold in Moscow.

However, the future is even more fearful in this sense. High concentration of production, inability to win customers 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 favor the mass emergence of cartels. If the development of events really goes according to 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 the social effectiveness of an oligopoly as a special type of market. There is no doubt that in the form of a cartel, an oligopoly is extremely inefficient. 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, these forms of oligopoly have all the disadvantages. imperfect competition. Moreover, because of the significant degree of control over the market, these disadvantages are much more pronounced under oligopoly than, say, under monopolistic competition.

The inevitability of oligopoly in conditions 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 of the above weak sides Are oligopolies the reverse (and absolutely inalienable!) side of the virtues of large firms? And, perhaps, it is worth reconciling with them, since any industry where effective is large production, 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 outweighs in the end: the disadvantages of imperfect competition or the advantages of large-scale production?

At first glance, it might seem that only a negative attitude towards large firms can be gleaned from the theory of oligopoly. 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 advice on the formation of an effective market strategy for the giants, in particular, the main directions of investments that they must carry out are determined.

Oligopolization and productivity growth in the world and in Russia

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

The creation of the giant oil trust Standard Oil by J. D. Rockefeller led to a 6-fold reduction 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 the ferrous metallurgy did not cause an increase (as one might think), but a rapid reduction in costs and prices. The giant founded by E. Carnegie sold in 1889 1 ton of rails for $23, while back in 1880 it cost $68.

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

13. What are the advantages of large firms over small ones in terms of stability and risk? 14. How is the riskiness of securities assessed? 15. How are the required rate of return related to risk? 16. What is the economic content of the Bain coefficient? 17. What are the possibilities of using the Lerner coefficient in determining the degree of market competitiveness? 18. What is the meaning of the Tobin coefficient? 19. What are the possibilities of the Papandreou coefficient in assessing the level of monopoly power? Chapter VII. Degrees and concepts of partial competition Monopolies, oligopolies and efficient competition in the market. Dominant firms, their monopoly influence. Close oligopolies, the range of their interaction and influence on the market. Weak oligopoly, features of its behavior. Features and results of monopolistic competition. When analyzing the degree of competition in the market, all elements of the market structure must be combined. The methodological basis for the implementation of the procedure provides for a certain order of judgments. First of all, the value of the market share of the leading firm is calculated, on the basis of which certain conclusions can be made. If the size of the market share is very significant (more than 40%), there are no closest rivals, then the market power of such a firm is great. The free entry of other firms into a given market can destroy the bargaining power of a given firm, unless, of course, the firms entering the given market have great market power. To complete the market analysis, it is also necessary to evaluate the behavior of the dominant firm in relation to other firms in the market and the level of its profitability. If the market shares of large firms are in the range of 25-50%, then, most likely, there is a tight oligopoly, since the concentration of four firms will exceed 60%. However, it is necessary to take into account the pricing strategy and profit margins when assessing the degree of competition. If the largest market share is no more than 20%, the concentration of four firms does not exceed 40%, then it can be argued that, most likely, there is effective competition in the market, entry barriers will not be high, and secret agreements will be minimal. Usually in economic analysis it is customary to distinguish three categories of the degree of competition: - the dominant firm; - tight oligopoly; - weak oligopoly (including monopolistic competition). Each of the categories has its own specific features that need to be considered in more detail. 71 1. Dominant firm. As already noted, dominance requires more than 40% of the market and the absence of immediate rivals. With a very high market share, the firm actually takes the position of a monopolist: the demand curve is the general demand curve in the market, it is inelastic. The dominant firm operates essentially as a pure monopoly, and some competition between small firms does not particularly affect the dominant firm's profit maximizing policy and its demand curve. most difficult to implement. Dominant firms, oligopolies and monopolistic competitors can be cited as an example: - for the markets of dominant firms - computers, aircraft, business newspapers, night delivery of correspondence - the average market share is 50-90%, with high or medium barriers; - for the markets of close oligopolies (cars, artificial leather, glass, batteries, etc.) - the concentration indicator for 4 firms is 50-95%; - for the market of weak oligopolists and monopolistic competition (cinema, theater, commercial publications, retail stores, clothing) - the concentration indicator for 4 firms is 6-30%. Dominant firms usually show the following monopoly influence in the field of prices: - Raise the price level; - create a discriminatory price structure. The action of these factors allows you to get super profits (Fig. 15.). In the figure, dots conditionally represent some data of statistical observations that allow us to link the rate of return with the value of barriers to entry and the behavior of oligopolists; The relationship between market share and the rate of return on the market is very close and increases with the level of monopoly. Price discrimination of the dominant firm lies in the fact that the firm can divide the market into segments within which differentiated price-cost ratios are established for different groups of consumers in accordance with the inelasticity of demand. For example, higher prices can be set for computers, some do not have worthy competitors, for electronic devices for signaling the parameters of production processes, etc. If a firm is close to a monopoly, the main provisions and concepts of monopoly are used to analyze it. At the same time, it is possible (and in many cases a productive approach) to the analysis of temporal dominance in accordance with the concept of J. Schumpeter, which, as you know, is different from the neoclassical approach. In accordance with his approach, big business, even if it is associated with market dominance, is able to give a better result than a neoclassical competitive result. 72 4 4 Profit rate of the company, % 3 1 5 5 2 Competitive profit share 100 Market share of products, % Pic. 15. Relationship between market share and rate of return. 1- "normal" conditions are supported; 2- entry barriers are low; 3- entry barriers are high; 4- oligopolists cooperate; 5- oligopolists quarrel According to this concept (published in 1942), competition is defined as a process of disequilibrium rather than establishment of equilibrium conditions. According to this theory, competition and progress are consistent only in a series of temporary monopolies. The "Schumpeterian" process, in essence, is the exact opposite of neoclassical approaches. According to him, the following scenario is being played out in the market. At any given time, each market can be dominated by one firm that raises prices and obtains monopoly benefits. However, these earnings attract the attention of other firms, some of them initiating efforts to create better products and lower costs in order to take the place of the dominant firm. This new firm can set monopoly prices and cause monopoly effects by being replaced by a new firm, and so on. This process is called "creating destruction" - innovation creates dominance, which allows extracting monopoly benefits that stimulate "new innovation", new dominance, etc. The average level of monopoly income may rise; the scale of processes of imbalance, destruction, market dominance can be quite significant; however, the technological process can create a profit that significantly exceeds the cost of irrational use of resources (which is considered both as a negative result of the monopoly and as a reason for its destruction in the market). In certain respects, this concept logically complements the approaches of neoclassical theory. However, this concept also requires some fairly vulnerable assumptions. First, the dominant firm must have signs of vulnerability in order to be overwhelmed by competitors. Second, barriers to entry should not be high to allow competitors to enter the market. 73 Let us note that the commonality of the Schumpeterian (evolutionary) and neoclassical approaches lies in the fact that effective competition also involves regulation processes involving significant market shares. The analysis reveals the fundamental features of the neoclassical approach - an efficient equilibrium between firms, and the evolutionary one - a rough equilibrium, and the process of creation causes a sequence of rigid actions of monopolies. A number of authors, researchers of the economics of sectoral markets, consider them justified with equal probability. Of particular interest is the analysis of passively dominant firms, i.e. adhering to the tactics of a passive role, which allows small competitors to take away their dominance. However, for the most part, these considerations are rather dubious, since such firms exist, rather, hypothetically. Usually dominant firms are still aggressive in their tactics of suppressing potential rivals. Interesting considerations about what part of the economy can be considered subject to the approach of evolutionism - for example, electronics, chemistry, automotive industry; with regard to agriculture, trade, they discover the possibility of using neoclassical approaches. Depending on the level of static and dynamic nature of certain markets, one or another approach turns out to be more productive. In a diverse world of markets, dominant firms are sometimes able to maintain long-term positions, or to lose them very slowly. Apparently, the radical nature of scientific approaches cannot be based on one of the principles or conceptual approaches, but should be based on a multifactorial approach, the use of which in each specific case should be carefully specified. 2. Close oligopoly It is generally believed that a close oligopoly almost always implies the possibility of secret agreements, while in a weak oligopoly also agreements, then we are unlikely to have such agreements in a weak oligopoly. The issues of the formation and existence of oligopolies continue to be largely debatable, since they reflect a significant variability of situations that are sometimes poorly amenable to modeling. So, oligopolies are characterized by a small number and interdependence; they emerge from a pure duopoly and develop into a loose oligopoly of 8 to 10 firms. The small number of firms allows each of them to take into account the possible reaction to their actions on the part of competitors, i.e. a certain system of actions and counteractions is formed. The demand of each firm, as well as the strategy of its actions, depend on the reaction of competitors, therefore, a multifactorial and probabilistic system of competitive relations arises, in which each of the participants can show unexpected, extraordinary reactions. Hence, it becomes necessary for each of the participants to choose an appropriate strategy with a set of possible alternatives or methods for the development of scenarios, forecasting the development of the situation, etc. The reaction of competitors encourages step-by-step behavior of the company, the use of iterative procedures, adjustment of answer options, etc. 74 Oligopolists can use any range of interaction - from full cooperation (in certain areas) to pure struggle; cooperate with the achievement of pure monopoly results and profit maximization, or act independently and hostilely using elements of fierce competition; much more often they occupy some intermediate position, gravitating towards one or another pole. Therefore, naturally, it is extremely difficult to create a unified model of behavior of oligopolists, including both polar points of behavior and intermediate states, all the more so taking into account the specifics of particular situations in which both the markets and the firms themselves are located. It is also necessary to take into account the significant diversity of oligopolistic structures due to the influence of such parameters as: - the degree of concentration; - asymmetry or equality between oligopolists; - the difference in the amount of costs; - difference in demand conditions; - the presence or absence of firm strategies and long-term planning; - level of technological development; - the state of the management system in the company, etc. Thus, the development of the theory of oligopoly is faced with the need to build multi-factor probabilistic and nonlinear models that must satisfy one requirement - to correspond to the practice of the present and forecasts of the future in a fairly large range of practical structures and time periods. So far, as in most approaches and models, options are proposed based on unusual approaches and assumptions, which in itself characterizes not only the extremely complex nature of the processes, but also the obvious shortcomings of methodological approaches. Apparently, for these purposes, it is necessary to develop a mathematical apparatus for the theory of nonlinear, multifactorial probabilistic and multiply connected systems, a task for the near future. The fundamental prerequisite for the existence of oligopolies lies in the following circumstances: - incentives for competition; - entering into a secret agreement; - a combination of both (mixed incentives). Competition encourages each firm to actively, intensely struggle to maximize its profits. Its aggressive behavior inevitably provokes a strong competitive backlash, which can have unexpected elements of negative synergy and even a multiplicative, coherent effect (other than a simple summation). Entering into a conspiracy is usually attractive, since the cooperation of efforts allows you to get an effect close to a monopoly, greater than with competition. Mixed incentives lie in the fact that it is possible to use both collusion and cutting prices, cooperation, choosing a position in the market (for example, outside the price fixing ring), etc. The behavior of oligopolists in the market can be very different - from convenient cooperation, where a "collective monopolist" operates, to a firm that wages a continuous war, using innovations of a different nature (and, above all, technological). 75 Attitudes towards the behavior of firms concluding secret agreements are different among representatives of different schools. Representatives of the Chicago UCLA school believe that secret agreements are doomed to a quick collapse due to natural internal conflicts. However, representatives of other schools rightly point out that many cartels sometimes exist for decades, which by no means can be considered a quick collapse. Since the real results essentially depend on chances, apparently, the reality is not very consistent with certain scientific schools and indicates the need for further scientific searches and generalizations. There are several generalized models that characterize the behavior of oligopolists. 1. With a high concentration, there is a high probability of the existence of secret agreements due to a number of reasons: - high concentration creates objective prerequisites for the organization of mutual agreements; leaders with significant market share experience negligible pressure from small firms; - a small number of firms makes it possible to identify and punish a firm that reduces prices; with a large number of firms (10 - 15), such opportunities for price reduction increase significantly for one of the firms that will not be discovered so quickly. Secret agreements are characteristic of a tight oligopoly, while in a weak one they are quickly destroyed; a tight oligopoly always gravitates toward a "group monopoly" with profit maximization; a weak oligopoly seeks efficient competition with lower prices. 2. The similarity of the conditions of firms. If the conditions of demand and costs coincide sufficiently, then the interests of firms coincide, which encourages the development of cooperation. It is easy to see that these conditions have quite definite time limits - technological innovations, for example, can drastically reduce the costs of the firm, and the tendency to cooperate will be violated. 3. Establishing closer business relationships between firms. As business contacts are established between firms, mutual understanding at the top management level increases, which creates mutual trust. Thus, there are differences between tight and weak oligopoly, but they are not only quantitative but also qualitative in nature. Close oligopolies are characterized by tough competition (but not always), weak oligopolies are able to conclude secret agreements (though not very often). Concentration can contribute to a significant increase in the rate of return (prices), and this is especially true for the concentration range of 40 - 60%, reflecting price fixing in a close oligopoly (Fig. 16.) Dots mark cases of statistical observation; graphs illustrate the possibility of linear or stepwise approximation; the latter is characterized by an interval of sharp growth in the rate of profit. Consider the types of secret agreements that take place in oligopolies - from close specific to informal. With purposeful agreements, price fixing in tight oligopolies can lead to a purely monopoly effect. A cartel, as an organization created by firms for control, coordination and cooperation, usually sets prices and develops a system of sanctions against violators of the contract (collusion). Cartels can operate within wide limits: - set sales quotas; - control investments; - Consolidate income. A classic example of a cartel is OPEC - the Organization of Petroleum Exporting Countries in the world's oil market. Profit rate 2, % 1 50 Concentration, % 100 Fig. 16. Dependence between the level of concentration and the level of profitability. 1- linear approximation; 2-step approximation. Price fixing has been outlawed by US law in most sectors of the economy, but covert price fixing remains in practice through a range of informational messages (secret meetings, information by telephone, e-mail, etc.). Silent collusion (agreement) can be carried out in a variety of soft forms; firms do not sign any documents, but can give conditional signals about preferred price levels, which is a form of indirect agreements. 3. Weak oligopoly. Weak oligopoly is an area from moderate concentration to pure competition, i.e. it is quite voluminous and conditional. According to the concept developed by Chamberlin, monopolistic competition is characterized by low levels of concentration, at which each firm has a weak degree of monopoly; firms' demand curves are slightly downward sloping and none of the firms has a market share greater than 10%. The features of monopolistic competition include the following: 1. The existence of some differentiation of the product, causing the emergence of certain preferences among consumers. A weak degree of market power causes the firm's demand curve to decline slowly. Differentiation of a product can be due to a number of reasons: 77 - physical difference between products (for example, different food and taste properties); - the difference in the types of products (bread, clothes, shoes, etc.); - location of retail outlets. 2. Barriers to free entry to the market for new firms, which can become attractive in the presence of excess profits in the market. 3. Since there are no firms with a high enough market share, each firm is relatively independent and is under pressure from the rest of the market. The considered conditions characterize the markets for many types of products. We can note such typical cases of conditionally monopolistic competition as clothing or food trade: a stable customer center in a city block and stable but distant competition for outlets located at a distance. Demand is high, elastic; the demand curve is almost horizontal, but has a small niche for pricing. Costs Costs a) Price b) Price 2 1 1 2 3 CD 3 AB 4 4 qs q qL MES q 17. Monopolistic competition. a) demand is highly elastic; b) - demand is inelastic; 1 - marginal costs; 2 - average costs; 3. - demand; 4 - marginal income; AB - idle power; CD - an addition to the price above the minimum cost. For the short term, the situation shown in Fig. 17 a. the demand curve is above the cost curve, which allows the firm to make excess profits in a short period of time (shaded rectangle), if the firm produces output qs. The entry of new firms into the market lowers the firm's demand curve to a position tangent to the average cost curve, and thus destroys excess profits. On fig. 17b, none of the long-run demand curves is above the marginal cost curve, so excess profits are excluded. A firm can exist at output qL, at the point where marginal revenue is equal to marginal cost while achieving a competitive rate of profit. 78 Monopolistic competition destroys long-term superprofits even when demand is not perfectly elastic. Monopolistic competition causes the following deviations from the results of pure competition, as shown in Fig. 17 b. With it, demand falls down until the average cost touches the demand curve. There is no excess profit, but the price is above the minimum average cost and there is unused production capacity. Both costs and prices will be somewhat higher than under pure competition, which determine the MES - both the price and the output qL are higher than the MES. These added costs bring certain benefits to consumers. For example, retail outlets in certain locations may charge higher prices that do not make other distant outlets more attractive. Preference can be both by the type of goods (quality), and by the time of service, by the level of service, etc. The other deviation is overcapacity, since qL output< MES. В частности, в торговой сети это выражается в пустых проходах между полками магазинов или незаполненных местах ресторанов и кафе. Тем не менее, монополистическая конкуренция обычно близка к результатам чистой совершенной конкуренции. Основные понятия: категории степени конкуренции; доминирующая фирма; тесная олигополия; слабая олигополия; рыночная доля и норма прибыли; ценовая дискриминация; разнообразие олигопольных структур; тайные соглашения и картели; возможности получения сверхприбыли. Выводы к главе VII Условия доминирования фирмы на рынке обеспечивают ей позицию монополиста с соответствующими последствиями. В области цен это повышение уровня цен и дискриминационная структура цен. Тесная олигополия имеет тенденции к тайным соглашениям и возможности применения широкого спектра взаимодействия - от полной кооперации до чистой борьбы, поэтому создание единой модели поведения олигополистов остается проблематичным. Тайные соглашения весьма разнообразны, динамичны, имеют различный спектр действия и последствий. Слабые олигополии достаточно условны и объемны, позволяют получение небольшой сверхприбыли в краткосрочном периоде. Контрольные вопросы 1. Какие условия существования монополии, олигополии и эффективной конкуренции на рынке? 2. Чем характерны доминирующие фирмы? Приведите примеры рынков доминирующих фирм. В чем заключается их монопольное влияние? В чем суть «шумпетерианского подхода»? 79 3. В чем суть тесной олигополии? Каковы спектры взаимодействий тесных олигополий и разнообразия олигопольных структур? 4. Что такое слабая олигополия и каково поведение слабых олигополистов на рынке? 5. В чем заключается особенность монополистической конкуренции? Глава VIII. Модели структуры Основные элементы структуры рынка и уравнение, связывающее их со средней нормой прибыли фирмы. Отраслевая структура рынка промышленности США. Перепись групп отраслей США и проблемы ее объективности. Стандарты категории рынков и тенденции изменения эффективной конкуренции. 1.Элементы структуры и их взаимодействие Элементы структуры рынка, такие как рыночная доля, концентрация, входные барьеры и другие, образуют собой сложную многофакторную систему. Они взаимодействуют друг с другом не всегда предсказуемым образом и формируют достаточно сложные причинно-следственные связи. В ряде случаев, в зависимости от конкретных ситуаций, на первое место могут выходить и рыночная доля, и концентрация, и входные барьеры. Каждый из элементов может быть наиболее важным в определенный момент и в определенной отрасли. Реальные модели взаимодействия элементов могут относиться только к конкретным примерам, к определенной статистике, т.е. можно признать, что единой универсальной модели, пригодной на все случае жизни, не существует. Каждая реальная модель основывается на конкретной статистике и соответствует определенным целям. Тем не менее, существует фундаментальная предпосылка, определяющая степень стабильности фирмы и ее нормального функционирования (и соответственно, принципа построения модели) – это уровень рентабельности фирмы. Это предпосылка была обоснована и впоследствии подтверждена рядом гипотез. Именно рентабельность и ее повышение выступают основным побудителем для любой фирмы, а важность любого элемента может быть оценена по его удельному вкладу в повышение рентабельности достаточно типичной фирмы. На начальных этапах исследований (1950-е гг.) делались попытки выявить структуру ценностно-стоимостных моделей всеотраслевой концентрации или показателя уровня концентрации четырех фирм в силу доступности соответствующих экономических данных. В связи с тем, что невольно недооценивались многие специфические условия отдельных фирм и упускались из вида другие элементы структуры, подобные оценки имели весьма относительную ценность. Исследования периода 1960-1970 гг. были сосредоточены уже на предельно точных особенностях отдельных фирм и их долях на рынках; они позволили уточнить роль отдельных элементов фирмы в рыночной структуре. Серия исследований 1960-1975 гг. и 1980- 1983 гг. на примере 100-250 крупных корпораций США преследовала цель неоднократно тестировать основные элементы для получения некоторых 80

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