33. Oligopoly. Oligopolistic relationship

Economists refer to the conditions under which market competition takes place by the term market structure. The structure of the market is determined by the number and size of firms, the nature of the product, the ease of entry and exit from the market, and the availability of information.

There are four main types of market structures:

1) perfect competition;

2) monopolistic competition;

3) oligopoly;

4) monopoly.

Perfect competition and monopoly are abstract types of market structures. Markets that fully correspond to the parameters of these structures do not exist in reality. Monopolistic competition and oligopoly as market structures are characteristic of a large number of markets. In many sectors of the national economy, there are oligopolies that are leaders in pricing.

Oligopoly is a market structure consisting of a small number of firms, at least some of which are large in relation to the size of the market.

Features of the behavior of firms in an oligopoly:

1) close interaction;

2) rivalry;

3) the need to consciously maintain a uniform price level in the industry.

In the industry as a whole, rigid uniform prices may appear, independent of the costs of individual firms, output volumes are limited, and barriers are created that prevent new firms from entering the industry. There is an oligopolistic relationship.

Oligopolistic relationship, the need to pay great attention to the actions of competing firms in an oligopolistic market in determining the price and volume of output. An oligopolistic relationship can lead not only to a fierce confrontation, but also to an agreement. An agreement is made when oligopolistic firms see opportunities to jointly increase their income by raising prices and dividing the market. If the agreement is open and formal and involves all or most of the producers in the market, it results in the formation of a cartel.

Cartel is a group of producers who jointly maximize profits by fixing prices and limiting output.

Although cartels are good for their members, they are not so good for consumers. Fortunately for consumers, cartels have internal problems that make them difficult to form and unstable. The main problems of cartels are control over market entry, as well as the establishment and observance of output quotas.

There are also agreements between oligopolistic firms without formalization. "Formal cartels" are not unknown, but are rare due to their inherent instability. The distrust of firms, as well as unplanned market changes, lead to the fact that the price and volume of output are at a level that does not correspond to optimal operating conditions. Profit maximization for all firms in an industry is in conflict with profit maximization for an individual firm, so complete and long-term collusion is impossible. Violation of the contract, self-cutting prices, conducting aggressive advertising campaigns can only give a short-term increase in profits at the expense of other participants in the collusion, but in the long term they will lead to a decrease in profits and even depletion of financial resources.

Economists assess the economic consequences of an oligopoly ambiguously. Some scientists believe that the oligopoly ensures the development of scientific and technical progress, contributes to an increase in employment, an increase in product quality and an increase in production volume. Others, on the contrary, believe that oligopoly hinders the development of scientific and technological progress.

Authors: Zilbertova T.N., Takhtomysova D.A.

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