Oligopoly

An oligopoly is a market structure in which very few sellers dominate the sale of a product, and it is difficult or impossible for new sellers to enter.

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

Oligopolistic markets are dominated, as a rule, by two to ten firms, which account for half or more of the total sales of the product.

The word "oligopoly" was introduced by the English humanist and statesman Thomas More (1478-1535) in the world-famous novel Utopia (1516).

Oligopolistic markets have the following characteristics:

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

Only firms with large shares in total sales can influence the price of a product. The measure of dominance in the market by one or more large firms is determined by the concentration ratio (the percentage of sales of the four largest firms to the total industry output) and the Herfindahl index, which is calculated by summing the results obtained by squaring the percentage market shares of firms selling products in this market :

H = S12 + S22 + S32 + .. + SN2

where S1 is the market share of the firm providing the largest volume of supplies; S2 is the market share of the next largest supplier, and so on.

The behavior of firms in oligopolistic markets is likened to the behavior of armies in war. Firms are rivals, and the trophy is profit. Their weapons are price controls, advertising, and output.

oligopoly market

The absence of a market and competition, the policy of megalomania, bureaucratic distortions in the management of the economy, the development of departmentalism lead to the formation of an over-monopolized system. Thus, in 1990 in the USSR, out of 600 integrated commodity groups of industrial products in 219 groups, the share of one largest manufacturer exceeded 50% of the total production of this product, and in 215 commodity groups, the only largest manufacturers monopolized 100% of the total production volume.

The negative consequences of the monopolization of the economy were manifested in the inhibition of the use of the results of scientific and technological progress, the narrowing of the range and low quality of products, unjustified price increases, production cuts, undermining labor activity, and causing damage to the environment.

Competition is the most effective means of achieving the goals of a market economy. Monopoly, preventing competition, suppressing it, acts in the opposite direction. To avoid the negative consequences of monopoly, the state intervenes in market processes using antimonopoly regulation.

It includes:

1) administrative control over monopolized markets;
2) organizational mechanism;
3) antimonopoly legislation.

Antimonopoly control of monopolized markets combines methods of influencing monopolized production. This includes financial sanctions in case of violation of antitrust laws. There are cases when a firm, caught in the systematic use of unfair competition methods and losing a lawsuit, is subject to direct dissolution.

The organizational mechanism of antimonopoly regulation aims to resist monopoly by preventive methods. Without affecting the monopoly as a form of production, the methods and methods of such state policy are aimed at making monopolistic behavior unprofitable for big business. Among such methods, one can single out the regulation of customs duties, the abolition of quantitative quotas, support for small businesses, simplification of the licensing procedure, optimization of production, the products of which can compete with monopoly goods, etc.

The most effective and developed form of state regulation of monopoly power is antimonopoly legislation.

Antimonopoly legislation is the normative acts that determine the organizational and legal basis for the development of competition, measures to prevent, restrict and suppress monopolistic activities and unfair competition. Such legislation in the United States is called antitrust legislation. In this regard, the most famous are the laws of Sherman (1890), Clayton (1914), the Celler-Kefauver law (1950).

Antitrust law outlaws price discrimination against buyers when such discrimination is not justified by cost differences. Antitrust laws prohibit the acquisition of shares in competing corporations if doing so would weaken competition. The laws prohibit collusion aimed at restricting production or trade, and criminalize attempts to monopolize any part of production or trade.

To protect the rights of consumers from monopolistic activity and develop competition, the legislation prohibits: limiting or stopping the production of goods, as well as the production and supply of raw materials, materials, components without prior agreement with the main consumers; reduce the supply or delay the sale of goods in order to create, maintain or increase shortages and raise prices. It is prohibited to compel the consumer to include in the subject of the contract goods that he does not need, to set other preliminary discriminatory conditions, it is prohibited to stop or delay the supply of goods or the performance of services in response to the buyer's claims to the quality of goods.

The antimonopoly legislation establishes forms of warning, responsibility and compensation in case of commission of prohibited actions.

In order to limit monopolistic activity and encourage competition in countries with market economies, state antimonopoly bodies are being created. In the United States, antitrust regulation is carried out by the antitrust department of the Department of Justice and the Federal Trade Company, in Japan - by the Commission for Fair Deals, in France - by the Competition Council. In the Republic of Belarus in 1992, a law was adopted on combating monopolistic activity and developing competition.

Antimonopoly activity is a direct support for entrepreneurship and the development of market competition in the economy.

Monopolistic competition occurs when many sellers compete to sell a differentiated product in a market where new sellers can enter.

A market with monopolistic competition is characterized by the following:

1. The product of each firm trading in the market is an imperfect substitute for the product sold by other firms.
2. There are a relatively large number of sellers in the market, each of which satisfies a small but not microscopic share of the market demand for a common type of product sold by the firm and its rivals.
3. Sellers in the market place no regard for the reactions of their rivals when choosing how to price their wares or when choosing annual sales targets.
4. The market has conditions for free entry and exit

The existence of an industry under monopolistic competition

Although, in a market with monopolistic competition, each seller's product is unique, enough similarities can be found between different types of products to group sellers into broad, industry-like categories.

A product group is a group of closely related but not identical products that satisfy the same customer need. In each product group, sellers can be viewed as competing firms within the industry. Although there are problems with defining the boundaries of industries, i.e. When defining an industry, a number of assumptions must be made, and a number of relevant decisions must be made. However, when describing an industry, it may be useful to estimate the cross elasticity of demand for the goods of competing firms, since in an industry with monopolistic competition, the cross elasticity of demand for competing firms' products should be positive and relatively large, meaning that competing firms' products are very good substitutes for each other, meaning that if the firm raises the price above the competitive price, it can expect to lose a significant amount of sales in favor of competitors.

Typically in markets with the most monopolistic competition, the top four firms account for 25% of total domestic supply, while the top eight firms account for less than 50%.

Oligopoly

An oligopoly is a market structure in which very few sellers dominate the sale of a product, and the emergence of new sellers is difficult or impossible. The goods sold by oligopolistic firms can be both differentiated and standardized.

Typically, oligopolistic markets are dominated by two to ten firms that account for half or more of total product sales.

In oligopolistic markets, at least some firms can influence the price due to their large shares in the total quantity produced. Sellers in an oligopolistic market know that when they or their rivals change prices or output, there will be repercussions for all firms in the market. Sellers are aware of their interdependence. Each firm in an industry is expected to recognize that a change in its price or output will elicit a reaction from other firms. The response that any seller expects from rival firms in response to changes in the price set by him, the volume of output, or changes in marketing activities, is the main factor determining his decisions. The response that individual sellers expect from their rivals affects the equilibrium in oligopolistic markets.

In many cases, oligopolies are protected by entry barriers similar to those for monopoly firms. A natural oligopoly exists when a few firms can supply an entire market at a lower long-run cost than many firms would.

The following features of oligopolistic markets can be distinguished:

1. Only a few firms supply the entire market. The product can be either differentiated or standardized.
2. At least some firms in an oligopolistic industry have large market shares. Consequently, some firms in the market are able to influence the price of a product by varying its availability in the market.
3. Firms in the industry are aware of their interdependence.

There is no single oligopoly model, although a number of models have been developed.

In oligopolistic markets, individual firms take into account the possible reaction of their competitors before they start advertising and undertake other promotional expenses. An oligopolistic firm can significantly increase its market share through advertising only if rival firms do not strike back with their own advertising campaigns.

In order to better understand the problems that an oligopolistic firm faces when choosing a marketing strategy, it is useful to approach it from a game theory perspective. Those. firms must develop a maximin strategy for themselves, and decide whether it is profitable for them to start advertising campaigns or not. If firms do not start advertising campaigns, then their profits do not change. However, if both firms seek to avoid the worst outcome by pursuing a maximin strategy, then they both prefer to advertise their product. Both chase profits and both end up with losses. This is because each chooses the strategy with the least loss. If they agreed not to advertise, they would make big profits.

There is also evidence that advertising in oligopolistic markets is carried out on a larger scale than is necessary to maximize profits. Often, advertising by competing firms only leads to increased costs, without increasing sales of products, because. rival firms cancel each other's advertising campaigns.

Other studies have shown that advertising improves profits. They point out that the higher the share of advertising spending relative to industry sales, the higher the industry's rate of return. And since higher profit margins indicate monopoly power, this implies that advertising leads to greater price control. It is not clear, however, whether higher advertising costs lead to higher profits, or whether higher profits cause higher advertising spending.

Other oligopoly models

Other oligopoly models have been developed to try to explain certain types of business behavior. The first attempts to explain price fixity, the second why firms often follow the pricing policy of a firm that is the leader in announcing price changes, and the third shows how firms can set prices so as not to maximize current profits but maximize profits in the long run. by preventing new sellers from entering the market.

Conditions for an oligopoly

Another market model is an oligopoly, which differs significantly from those discussed above. Its first and main feature is the presence on the market of a limited number of manufacturers. Typically, these companies produce a similar but not the same product, have a large volume of production, and each of them controls a significant market share. Examples of an oligopoly are producers of non-ferrous metals (especially aluminum), steel, automobiles, tobacco products, certain types of alcoholic beverages, etc.

Let's take the automotive industry as an example. This branch of industrial production is very convenient for demonstrating the oligopoly model. There are three main manufacturers in the US auto industry (for simplicity, we can ignore imports, since their role is only to expand the market model, and not to change its conditions). We are talking about the companies "General Motors", "Ford" and "Chrysler".

They produce vehicles of various types and purposes, i.e. similar products that, from an economic point of view, have the same utility for the consumer. In an oligopoly - with a limited number of producers - the marketing strategy of one of them has a significant impact on the rest.

Due to the size of the above automobile companies and the similarity of the product produced, the actions that any of them can take in the market will have completely different consequences than in other market models. As a result, the entire market can be deformed.

Suppose that Ford Motors decides to cut prices in order to gain additional market share. Of course, the standard demand curve shows that if the price of a product is lowered, market share can be expected to increase.

On fig. shows that the top of the broken demand line declines to the right to the point where Ford decides to cut the price (the curve breaks and continues to decline from a lower level to a certain market-driven point).

The two parts of the broken line are connected by a dotted line. This is due to the response of two other companies, which also reduce prices. But if they do, then other companies should do the same. As a result, all companies lose profits because they must lower prices, and none of them will succeed in capturing additional market share. What should oligopolists do in this case?

It seems logical that three car manufacturers would meet for a business meeting and agree on price levels, output volumes and other marketing aspects of their activities. However, in the United States, holding such meetings is prohibited by law, which qualifies them as collusion. There are three types of collusion. The first is explicit (open), as in the example above. Producers openly meet to discuss price levels, which is known to all.

In some countries this is considered illegal, but in others and in some industries it is even encouraged. In each country, the position of the law on this issue is different. Another type of collusion is clandestine: producers hold a secret meeting, hidden from the public eye, and the decisions made are usually not disclosed to either the public or the authorities. Collusions are illegal in the United States and several other countries.

There is a third type of collusion - this is implied collusion: each company understands what is good for it and for the entire industry as a whole and tries to follow some kind of unspoken set of rules without discussing its actions with competitors. Consequently, under these conditions, Ford Motor Company will never decide to cut prices, knowing that this will lead to a loss of profit throughout the automotive industry. This type of collusion is not illegal, mainly because its existence cannot be proven. In fact, if someone proceeding from their own interests, acts on the market according to all known rules, then this will not be contrary to the laws.

Understanding by the marketing manager of the fact that it is necessary to compete with other companies not on price, but on a different basis, is the marketing imperative in an oligopoly market. As a consequence of this understanding, in the automotive industry, fierce competition is unfolding between manufacturers in the areas of safety, fuel efficiency of automobile engines, style and luxury of car interior decoration, and the use of advanced technologies that are more productive and beneficial to society as a whole.

So, since the oligopolists know well what is profitable for them, they act in concert, and usually the result of this is the same as in a monopoly. However, in each country there are special bodies that monitor the activities of oligopolists, which can actually set their own monopoly conditions in the market. The main claims against the oligopoly boil down to the fact that they are so strong that they influence the international market.

Indeed, large oligopolistic companies are often found in the world market and cooperate with other companies and countries in production. This is typical for the automotive industry. For example, the automotive giants of Japan, Germany and the United States have been cooperating for some time in the production of cars.

Oligopoly and monopoly: essence, characteristics, advantages and disadvantages. Types of monopolies: natural, artificial, open, closed

Oligopoly is a market dominated by a few large firms, i.e. a few sellers confront many buyers by offering both standardized (similar) and differentiated products.

An oligopoly characterizes an economic situation in which a small number of producers-sellers (from three to seven firms) remain on the market. The largest of the remaining ones get the opportunity to influence the market price.

The main characteristics of an oligopoly are:

1) there are several participating sellers on the market (from three to seven);

2) the share of each of the participants is significant, and they have mutual influence;

3) products are both differentiated and identical (the same, similar);

4) the occurrence of a secret collusion is possible;

5) the conditions for entry into the market of new participants and exit from it are limited;

6) the data market is subject to greater control and influence by public authorities.

A characteristic feature of the oligopolistic market is the relationship of firms - any of the oligopolists is significantly influenced by the behavior of other firms and is forced to take into account this dependence.

In an oligopoly, both price and non-price competition is possible. But competitive pricing methods tend to be less effective. There is a strong interdependence between enterprises. If one of the competitors cut prices, the others will have to respond adequately, otherwise there will be too much loss of customers and profits. By making a retaliatory move, they will simultaneously nullify the efforts of the price leader. Therefore, price methods here can bring a short-term effect.

Since large enterprises produce products, production costs are reduced due to economies of scale. Price changes by one of the competitors dominating in production or sales determine the pricing policy in the industry. Others "obey" her. At the same time, price competition is weakening. This situation is called leadership in prices characteristic of an oligopoly.

In an oligopoly, non-price methods of competition - from advertising to economic espionage - are more effective, so they are used more often.

Entry into the oligopolistic market is limited. Significant capital investments are needed to create an enterprise that can withstand firms that already control this market.

Under oligopolistic competition, a firm is able to control two main parameters of its activity - the price and volume of output of products or services, it is beneficial for it to produce less and to a greater extent overestimate the price.

The highest level of imperfect competition is pure monopoly when an entire industry is represented by a single firm. Those. the concepts of "firm" and "industry" quantitatively coincide. On a national scale, such a situation is extremely rare, but on the scale of a small city or region, district, such a situation is quite real and even typical: a city can have one railway, a single airport, one bank, one power plant, etc.

Pure monopoly(from the Greek monos - one, polio - sell) - this is a market in which one seller confronts many buyers. Monopoly assumes that one firm is the only manufacturer of any product that has no analogues. Therefore, buyers have no choice and are forced to purchase these products from a monopoly firm.

The concept of "monopoly" has two meanings: firstly, a monopoly is understood as a large enterprise that occupies a leading position in a particular industry; Secondly Monopoly refers to the position of a firm in a market that allows it to dominate it.

Purpose of Monopoly- obtaining excess profits by controlling the price and volume of production in a monopolized market by creating the most favorable conditions.

Main Features of Pure Monopoly:

a) the sole seller of the manufacturer;

b) there is no product differentiation, therefore, the absence of substitute products;

c) the seller exercises almost complete control over prices;

d) very difficult conditions for new enterprises to enter the industry - entry is blocked by finance, technological, resource, legal conditions;

e) the process of leaving the industry is also difficult;

f) existence of economic and legal barriers to entry and exit from the industry.

Distinguish two types of monopolies according to the method of formation (emergence) - natural and artificial.

1. Natural monopoly – presented in the form of private owners and organizations that include rare and freely non-reproducible economic resources (rare metals, special land plots, etc.).

The reasons for the emergence of natural monopolies are:

Limited, irreproducible and different quality of natural resources (differentiation of their quality);

The absence of close substitutes (substitutes) with the uniqueness of the manufactured product.

A natural monopoly is formed on the basis of the technological needs of the development of productive forces at a high level of concentration of production.

2. Artificial monopolies - These are associations created for the sake of obtaining monopolistic benefits. Artificial monopolies act as various monopolistic associations. An artificial monopoly arises on the basis of collusion or suppression of competitors.

Allocate also types of monopoly in terms of the possibility of penetration into the industry (the possibility of the emergence of new rivals) due to the presence of protection from the state (government bodies) :

1. Open monopoly - a monopoly in which one of the firms (at least for a while) becomes the sole supplier of the product, but has no special protection from competition. Firms that first enter the market with new products often find themselves in a situation of open monopoly. Options for the optimal behavior of a monopoly firm in this case can vary from a policy of maximizing short-term profits to limiting pricing.

2. Closed monopoly - a monopoly protected by legal norms that restrict competition: patents, licenses, copyright, etc. In practice, only a few monopolies are truly completely closed. In the real economy, there is always the possibility of the emergence of substitute goods, as well as the possibility of removing legal barriers that ensure the appropriation of net economic profit. As a result, a closed monopoly may find itself in a situation of break-even production in the long run. The firm earns enough income to recover all costs, including the opportunity cost of capital, but does not appropriate economic profit.

Horizontal and vertical integration, diversification - as ways to form monopolies. Forms and characteristics of monopoly associations. Monopoly power: the essence and forms of manifestation. The essence of the monopoly price

Monopoly means power over the market, primarily over price. If a pure monopoly operates in a society, then we can talk about its absolute power in a given industry. The indicators of the specific weight of the turnover of firms in the market are widely used: the share of 4 firms, the share of 8 firms, the share of 10 firms, etc. More accurate are indicators that take into account both the number of firms in the industry and the market share of each firm. The general direction of increasing market power in different markets is shown in Figure 7.2.

monopoly power- the degree of control exercised by monopolists in their markets.

To measure the "strength" of monopoly power, one also uses index English economist Abby P. Lerner (1905 – 1982):

where M is the index of monopoly power;

P m - monopoly price;

MC - marginal cost (optimal)

The economic meaning of the Lerner index is as follows: the greater the gap between monopoly price and marginal cost, the greater the strength of monopoly power.

Under perfect competition, prices (P) are equal to marginal cost (MC). Therefore, under conditions of perfect competition, the strength of monopoly power is zero, because P - MC = 0. In conditions of imperfect competition, the monopoly price (P m) is higher than marginal cost (MC). Therefore, the interval between 0 and 1 just characterizes the strength of monopoly power. The higher this indicator, the higher the monopoly power of the firm.

=

Marginal cost (MC) in Russia is generally not taken into account in the accounting system.

If the numerator and denominator of this formula are multiplied by the quantity of goods sold (Q), then the mass of gross profit will be obtained in the numerator, and the volume of sales, gross (total) income will be obtained in the denominator. The ratio between them will answer the question: what is the share of profit in the total volume of sales. And then the formula of A.P. Lerner will take the form:

Conclusion: high profits are a sign of the strength of monopoly power.

A monopoly price is set on the market, which exceeds the marginal cost, i.e. P m > MS (abroad), P m > ATS (in Russia). The power of an absolute monopoly leads to an increase in the profits of the monopoly itself and, at the same time, to a loss in consumer income. Monopoly prices are always higher than the competitive price.

Monopoly price is a special type of market price, which is established under the influence of not only supply and demand, but also the dominance of monopolists in the market for a given product. Such a price is usually the result of an agreement between the monopolists that dominate the market for a given product, and is set based on the calculation of obtaining the largest possible profit from the sale of goods available to sellers. The monopoly price is often much higher than that established in a competitive market. ( Raizberg B.A., Lozovsky L.Sh., Starodubtseva E.B.Modern economic dictionary. - 2nd ed., corrected. Moscow: INFRA-M. 479 p..1999.)

Production concentration- the main reason for the emergence of monopolies. The increase in the scale of production in the process of concentration and centralization is carried out in the following areas (Fig. 7.3):

The process of emergence of monopolistic unions is due to the following factors presented in Figure 7.4.

Figure 7.4 - The process of creating monopolies

As a result of the concentration of production, different organizational forms of monopoly - monopoly associations (oligopolistic associations) :

1. Cartel – the simplest form of association; this is an agreement on quotas for manufactured products and the division of sales markets. The objects of the agreement can be: pricing, spheres of influence, terms of sale, use of patents. Cartels operate, as a rule, within the same industry, subject to antitrust laws. Cartel participants retain legal and economic independence and carry out their activities in accordance with the cartel agreement (agreement). Agreement on prices, sales market, production volumes, patent exchange, etc.

2. Syndicates - the organizational form of the association, in which the participants in it lose their commercial marketing independence, retain legal and industrial freedom of action. In the syndicate marketing of products, the distribution of the order is carried out centrally. These are associations with the aim of organizing joint sales of products. They were widespread in pre-revolutionary Russia. International syndicates arose, for example, the De Beers diamond syndicate concentrated in its hands the sale of almost all rough diamonds mined in the world. Russia, like many countries of the world, is forced to cooperate with this syndicate.

3. Trust - this is a form of association in which the enterprises included in it lose both production and commercial independence. This is an association based on joint ownership and common management of production and marketing of goods. The management of the trust is carried out from a "single center". The profit of the trust is distributed in accordance with the business participation of individual enterprises.

4. Concern - an organizational form of association of enterprises of various industries under common management and financial control. Usually, in addition to manufacturing, transport and trade enterprises, the concern includes banks or some other financial organizations - insurance, pension funds, credit institutions, etc. The members of the concern remain formally independent, but their activities are controlled and managed from a single center of the company. Such a structure makes it possible to increase the competitiveness of the company through internal financing, sales of the products of the concern's divisions at internal tariff prices, transfer of know-how, etc.

Initially, concerns were distributed in the USA and Japan; at present, this organizational form has become predominant among large firms in various countries.

5. Pool - an association that has become widespread in the field of project use. Pool members seek mutually beneficial agreements on the form of transfer of patents and licenses. Profit is distributed in accordance with the quota determined when joining the pool.

6. Holding - a joint-stock company that owns a controlling stake in legally independent enterprises to exercise control over their operations. Holding is a parent company, a company created by large monopolies to manage subsidiaries through a participation system. Having “absorbed” a controlling stake in tens and hundreds of enterprises, the holding directs their development, and growing incomes allow large holdings to turn to their own entrepreneurial activities. Legally, there are joint-stock companies, LLC, sole proprietorships. A holding company (or "holding company") is an organization whose main function is to manage the activities of several joint-stock companies through the ownership of their controlling stake.

7. Conglomerates - associations based on the penetration of large corporations into industries that do not have industrial and technological links with the traditional areas of activity of the parent company.

8. Legal forms of pure monopoly are also patents, copyrights, trademarks. Patent - This is a document issued by the government to a person granting the exclusive right to manufacture, use or sell goods. It gives the inventor of a new product or technology the exclusive right to control its production for a specified period of time. The state ensures the protection of the ideas of the inventor. Copyright give authors of works exclusive rights to sell or reproduce their works. Trademarks - this is a symbol used by enterprises, by registering which the state makes it illegal for others to use it.

Antimonopoly regulation of the economy: essence, goals and methods. Antimonopoly legislation and its role in the economic system. Antimonopoly policy in the Russian Federation. Functions of the Federal Antimonopoly Service of the Russian Federation.

The state in the fight against monopolies uses economic and administrative measures.

Administrative measures provide for the introduction of direct restrictions.

Economic measures to maintain competition and fight monopoly include:

Encouraging the creation of substitute products;

ü support for new firms, medium and small businesses;

ü attraction of foreign investments, establishment of joint ventures, free trade zones;

ü financing of measures to expand the production of scarce goods in order to eliminate the dominant position of individual economic entities.

Antitrust regulation is a system of regulations aimed at overcoming the negative sides of the monopoly associated with power, allowing them to suppress consolidated competition and control prices.

Methods of antimonopoly regulation:

The monopolization of the market is limited;

Constant state monitoring;

The establishment of monopolistic prices is prohibited;

Preservation and maintenance of competition.

Antitrust Law- legally fixed fundamental rules for the activity in the market of participants in economic turnover, public authorities and administration.

Objectives of antitrust law:

Providing favorable conditions and incentives for the development of perfect competition in the national economy,

Removal of all barriers to its activation on a legal basis, which makes it possible to exclude monopolistic actions of central authorities and administration, the dictates of economic turnover participants, as well as to determine the legal regime for regulating liability for monopolistic actions and for violation of the rules of fair competition.

Since the activities of monopolies are anti-social in nature, the protection of free competition and the restriction of the activities of monopolies is one of the most important functions of the state.

At the end of 1991, Russia adopted the “Law on Competition and Restriction of Monopoly Activities in Commodity (Markets)”, which defines the organizational and legal foundations for preventing, restricting and crossing monopolistic activities and unfair competition and is aimed at providing conditions for the creation and effective functioning of commodity markets.

On October 26, 2006, the Federal Law “On Protection of Competition” came into force. This law combined two earlier laws - the Federal Law "On the Protection of Competition in the Financial Services Market" and the Law of the RSFSR "On Competition and Restriction of Monopoly Activities in Commodity Markets". At the same time, the Federal Law “On Protection of Competition” not only formally includes the provisions of two laws, but also introduces many institutions that are fundamentally new for the Russian antimonopoly legislation, conceptually changed the approaches to certain key concepts, procedural and procedural instruments that were in force earlier.

In order to implement the state policy to limit monopolistic activity, the State Committee for Antimonopoly Policy (Antimonopoly Committee) was created, later transformed into the Federal Antimonopoly Service (FAS).

FAS pursues the state policy on the development of commodity markets and competition, restriction of monopolistic activity and suppression of unfair competition.

Antitrust policy- this is a set of state measures (relevant legislation, taxation system, denationalization, denationalization and privatization of property, encouraging the creation of small businesses, etc.) aimed at preventing the mobilization of production and at developing competition among commodity producers.

By decision of the Federal Antimonopoly Service, the share of an economic entity may be limited to 35% of sales in the relevant market.

The main directions of antimonopoly policy in Russia:

ü control over compliance with antimonopoly requirements during the creation, reorganization and liquidation of business entities;

ü control over large sales and purchases of shares that can lead to a dominant position of economic entities (an economic entity whose share in the market of a certain product does not exceed 35% cannot be recognized as dominant);

ü provision of preferential loans, as well as reduction of taxes or exemption from them for economic entities entering this commodity market for the first time;

ü financing of measures to expand the production of scarce goods in order to eliminate the dominant position of individual economic entities;

ü attraction of foreign investments, establishment of joint ventures, creation and development of free economic zones.

Public regulation of the activities of natural monopolies can be carried out through the use of various forms.

In countries with a mixed economy, there are four main forms of state regulation of the economy, which also carry out antimonopoly policy (Fig. 7.5).

Figure 7.5 - Forms of state regulation of the economy

In modern conditions, the main function of the state is the organization of economic, legal and socio-political space for a market economy, the creation of equal conditions for all forms of entrepreneurship. The main attention is paid to the qualitative parameters of economic development: improving the quality of life, protecting the environment, etc.

State regulation of the market economy has three goals:

o creation of legal, financial and social prerequisites for the effective functioning of a market economy;

o ensuring social protection of the population group whose position in the market economy becomes the most vulnerable;

o minimizing the negative consequences of market relations.

To fulfill these goals, the modern state has powerful regulatory means of influencing the market economy.

Additional questions for the seminar session on topic 7:

1. What are the advantages and disadvantages of each type of competition: intra-industry, inter-industry, price, non-price, perfect, monopolistic, oligopoly, monopoly.

2. What is the essence of the concepts of "oligopsony" and "monopsony", as well as how these phenomena are characterized.

3. What are the functions of the Federal Antimonopoly Service (FAS).

The concept and characteristics of an oligopoly

The term "oligopoly" is of Greek origin, it is formed from two words oligos, which means several, and poleo, which means "sell".

Definition 1

Oligopoly is a type of market structure in which a significant part of the supply is provided by a small number of relatively large economic entities.

To designate an oligopolistic market, phrases such as “market of a few” or “competition of a few” are used.

The characteristic features of an oligopoly are:

• First, the small number of business entities. As a rule, the oligopolistic market is dominated by several large business entities, the size of which is a direct consequence of their small number in the market. As a result of the small number of business entities, a close relationship and fierce rivalry is formed between them. At the same time, the action of any business entity inevitably leads to a reaction to them from other market participants. The presence of this interdependence of actions is the main characteristic feature of an oligopoly that extends to prices, sales volumes, market shares, innovative and investment components of activity, and so on;
• secondly, a homogeneous or differentiated product. The object of an oligopoly can be either a homogeneous or a differentiated product. If consumers do not have a particular preference for a competitive brand name, the products of oligopolists act as perfect substitutes, which makes it possible to designate the market as a homogeneous oligopoly (markets for cement, copper, lead, viscose, newsprint, etc.). In the presence and significance of various brand names and the absence of perfect substitutability of goods (real - technical characteristics, quality, design, or imaginary - advertising, packaging, etc.), the product is differentiated, which allows us to designate the market as a differentiated oligopoly (automobile, computer and other markets) ;
• thirdly, the level of influence on the price. An oligopoly is characterized by a certain degree of influence on the price level, certainly lower than in a monopolistic market. This degree of influence is determined by the indicator of the relative excess of the price of the goods of an economic entity over its marginal costs;
• fourthly, the presence of barriers. Oligopoly is characterized by the fact that entering the market is difficult, but the presence of obstacles does not make it impossible. In this sense, oligopolistic markets should be distinguished into two types: slowly growing and dynamically developing.

The first type of markets is characterized by the presence of high barriers. This situation is typical for industries in which production requires the use of complex technologies, high-tech and bulky equipment, low production efficiency and high costs for marketing promotion of goods. Such markets are characterized by positive economies of scale, in which a large output provides the lowest average cost. Entering such a market requires high initial investments available only to large competitive economic entities.

The second type of market is characterized by lower barriers, which create conditions for the entry of new market participants as a result of a rapidly expanding demand.

Features of competition in the oligopoly market

As already noted, a limited number of economic entities operate in the oligopoly market, the number of which can vary from two to fifteen.

Competition in an oligopolistic market is characterized by the following main features:

• a high number of buyers, which are captured by a small number of producers who provide most of the supply;
• the object of oligopolistic competition, as a rule, is a homogeneous product, in case of differentiation of which aggregation is carried out in order to increase the convenience of market research;
• entering the market is hampered by many significant barriers and obstacles;
• the presence of interdependence of oligopolistic economic entities; external price control is significantly limited;
• the possibility of collusion in matters of prices for goods (services);
• the concentration of a significant market share under the control of one or more participants in the oligopolistic market provides them with the opportunity to influence pricing.

Positive and negative aspects of oligopolistic competition

Competition in an oligopoly market can be positively characterized as follows:

• firstly, economic entities operating in the oligopolistic market are focused on increased attention in matters of financing and conducting development and research work;
• secondly, the use of non-price methods of competition contributes to the gradual differentiation of the product range.

Competition in the oligopoly market from a negative point of view can be characterized as follows:

1. the presence of the possibility of the emergence of production and price collusion; oligopolistic competition tends to shift to a monopolistic state of the market;
2. economies of scale virtually eliminate price cuts;
3. the use of predominantly non-price methods of competition leads to additional costs for participants in the oligopolistic market, which, in turn, leads to an increase in the cost of goods;
4. the presence of the possibility of close contact between participants in the oligopolistic market makes it practically impossible for external regulation of their activities;
5. oligopolists, as a rule, do not take action to identify reserves to reduce costs, but cover their growth with an increase in commodity prices.

In accordance with the number of participants, economists distinguish the following types of competition: pure, oligopolistic, monopolistic. Pure competition is characterized by a large number of participants who are actively fighting for the consumer. In the case of a monopoly, a particular industry is represented by only one subject. If we talk about oligopoly, then the number of market participants is limited.

Oligopolistic competition This is an imperfect type of competition. The key characteristics of the market of oligopolistic competition are: a small number of competitors that create a strong relationship; greater market power: the strength of a reactive position, measured by the elasticity of the firm's responses to the actions of competitors; the similarity of goods and the limited number of their standard sizes. The formation of an oligopoly market (the entire volume of supplies is provided by only a few firms) is typical for the following industries: chemical industry (production of polyethylene, rubber, industrial oils, ethyl liquid, some types of resins); machine-building and metal-working industry (production of machinery and equipment, articles, rails, pipes, etc.)

Oligopoly means that a limited number of firms operate in the market. Their number usually ranges from 1 to 10. This market model is characterized by the following features:

a large number of buyers, for whose propensity a small number of firms are fighting, providing the main volume of supply;

in most cases, oligopolistic competition is concentrated around homogeneous products, and in the case when they are differentiated, then for the convenience of research, an aggregation operation is performed; there are many significant barriers and barriers to market entry;

due to the interdependence of the enterprises that make up the oligopoly, price control from the outside is extremely limited;

when establishing the cost of a product or service, there is a possibility of collusion between entrepreneurs;

if one or more firms are characterized by a large market share, then they can influence pricing.

cartel model. Models of oligopolistic competition are distinguished by the presence or absence of coordination between the actions of firms operating within this mechanism. If we talk about cartels, then we mean an agreement (collusion), which implies the consistency of volumes and range of products, as well as pricing policy. As a result, enterprises are given the opportunity to receive the same benefits from their activities as in the case of a monopoly.

Since the cartel is illegal, entrepreneurs try to give it the status of a state or international organization (for example, OPEC). But if we take into account that over time each of the participants seeks to obtain even greater benefits, then the association quickly disintegrates.

Leadership model. Oligopolistic competition does not imply equality of market participants. Each of them strives to stand out in one way or another in order to take the highest positions. The leader has the opportunity to set the pace of production, as well as the introduction of new technologies. It is also about raising or lowering the price. As for the rest of the market participants, they can only react to the actions taken by the leader.

Cournot model. If we talk about this model, it is worth noting that the management of each organization certainly makes forecasts for the development of the market, as well as the activities of competitors, in accordance with which further activities are built. In the process of functioning, certain adjustments are made, as a result of which each enterprise occupies a certain market share. In the future, these proportions are preserved.

price war. It is quite natural that each of the enterprises operating in the oligopolistic market seeks to take a leading position, using all available methods of competition for this. One of the most effective is price reduction. Further, all other firms begin to respond symmetrically. This is the price war. The decline in value continues until the weaker firms close down and the market becomes a one-man monopoly.

Oligopoly in the market is neither positive nor negative. It, as a form of market relations, does not strictly limit the number of market participants, however, there are general trends that make it possible to identify the average number of objects of such a market and the degree of their development.

Definition 1

Modern oligopoly is an actual direction of market activity, which is based on the indirect restriction of sellers in the market through various actions and manipulations.

There are not so many reasons for the emergence of an oligopoly, it should be noted here that its occurrence is a fairly natural process that occurs if some companies suddenly have additional advantages over other market participants. In this case, a rapid “rise” of the company begins, which allows you to leave competitors behind.

Remark 1

Oligopoly provides good development opportunities for those who are already in such a market, especially large enterprises whose product has a large market share, since with the help of such a market structure, demand for the product can be regulated.

All producers in an oligopolistic market have the right and the ability to produce both standardized and differentiated goods.

The main features of an oligopoly

Oligopoly arose at the time of the development of market relations, when competition was saturated, there were many firms and market leaders began to stand out.

The main feature of an oligopoly is that with such a combination of market competition, sellers - competitors depend on each other, that is, any decision made by one large seller radically changes the business policy of another, so all actions must be interconnected, and companies must reckon with each other.

The main features that make it possible to calculate an oligopoly within the market include:

• In quantitative terms, the market with an oligopoly limits the participants, it should also be noted that all participants in such a market are interconnected. If one participant decides to change the conditions for the sale of goods, for example: price, delivery time or quality indicators, then this will instantly affect its competitors, therefore all firms in the oligopoly must work together;
• The whole point of competitive struggle in an oligopoly is to capture a larger share of the market. The larger the share, the more the company can and more effectively sell its product, that is, become a leader among competitors;
• All competitive struggle in an oligopoly comes down to a price struggle, each firm in this market seeks to expand the boundaries and volumes of sales of goods, where the main lever is the price of the goods. The lower the cost of goods, the stronger the competitive advantage of this firm within the oligopoly;
• Merger of firms as a success factor within an oligopoly. Firms producing similar goods can unite and produce cheaper goods and sell them in large volumes, this allows them to “destroy” potential competitors, make them weaker and survive from the market.

Thus, the oligopoly has its own characteristic features peculiar only to this form of market, with the help of which it can be separated from the main competitive market. Oligopoly is a common phenomenon in the modern market structure, it has a number of advantages and disadvantages.

Pros of an oligopoly

Oligopoly is a perfectly legal and not prohibited system of market competition. It should be noted that it arises in an independent way, it is not pressured, for example, by the state. Oligopoly cannot be called a negative or positive phenomenon, since it has both in its composition.

Advantages of an oligopoly:

• Advantages of an oligopoly for consumers of goods and services. In this case, not only firms - manufacturers have an advantage in the oligopoly market, but its consumers - the main participants in the market. For consumers, this type of market provides the opportunity to buy goods cheaper than usual, and the goods are likely to be of high quality. Here it should be noted that if the manufacturer gives good advertising and favorable prices, then due to consumers and demand for the product, he will be able to earn good money, and the buyer, in turn, will quickly learn about the product and get a quality product for good money;
• Oligopoly also has a positive impact on the entire industry, within which production is debugged. The industry of certain goods may well develop quite dynamically due to the oligopoly. It implements such main trends as: the market share is growing, there is a policy of reducing prices for this group of goods and services, the quality of the goods produced is infinitely improving, the constant injection of funds to introduce innovations in the production process, etc.

Cons of oligopoly

The downsides of oligopoly can also coexist with the upsides. They may consist in the fact that manufacturing firms enter into an alliance with each other, which also contributes to the conclusion of an unspoken right to pricing in a certain sector of goods. For example, if a firm was able to succeed and become a leader by entering into an association agreement with other similar firms, then they have the right to regulate prices in the market and thereby not lower prices, but, on the contrary, raise them, since they will be considered almost monopolists.

This trend will have a negative impact on both buyers and the goods and services industry as a whole. Therefore, alliances are not always a positive trend, the question is what goals are pursued by the management team.

Thus, an oligopoly is both a positive system within a competitive market and a negative one, depending on the conditions of the competitive environment, on the goals of a particular firm or an entire alliance. The positive aspects are quite simple and accessible and capable of changing the foundations of market mechanisms, but if negative trends are at the forefront, then an oligopoly can partially lead to a monopoly, which is unacceptable in a competitive environment.