The concept of oligopoly comes from Greek words, which mean "several" and "sell" in translation. Such a market economy characterizes imperfect competition. It is dominated by several firms. Oligopolists are also competitors and unofficial partners.
Oligopoly - what is it?
A certain number of producers of a particular industry have their own strategy and take into account the actions of the remaining market participants. Oligopoly is a kind of market economy in which several large companies produce and sell a certain product. This type of production activity has the definition of "market of a few." The structure of the oligopoly often includes 3-10 producers, which satisfy the bulk of the demand in the market. The emergence of new companies is difficult or absolutely impossible.
The difference between monopoly and oligopoly
In certain industries, the activity of one firm is much more effective. The economic issue reflects the scale that determines the growth of production. Such a company is a monopoly and becomes the only seller in the sales market. Oligopoly is characterized by the supply of goods from several producers. They can produce different products.
Monopoly and oligopoly have their own market. Monopolists produce unique products. Being the only manufacturer, they can allow to set extremely high prices. Oligopolists are in direct dependence on competitors, this issue is cautious and rarely revises prices. The question of cheaper products limits the introduction of advanced technology.
The reasons for the existence of oligopoly
The economy of many countries is characterized by the production and marketing of the bulk of products on the market, which is carried out by several firms. Each of them influences market prices by its actions, which determines the essence of oligopoly. A dominant position in many industries belongs to several large producers. Oligopoly in a market economy in such cases is called the "Big Six". They own the leadership of production and marketing of cars, steel, electrical appliances. Among the main reasons for the existence of oligopoly are:
- scale of products - the need of customers exceeds the technological capabilities of production of one company;
- financial issues - expenses for product promotion;
- barriers to the merger of existing companies - control over strategic raw materials, the right to register a patent.
Signs of oligopoly
Large firms compete among themselves in the consumer market. Features oligopoly limit the entry of new firms. The main obstacle is the large capital investment that is required for large-scale production. The small number of companies on the market does not allow to raise the competition by lowering prices, which drastically affects profits. Therefore, more effective ways of fighting for competition are applied - this is quality, technical superiority, warranty periods for the product, payment terms.
Based on these findings, we can distinguish the main features of the oligopoly:
- a small number of companies provide all customers;
- a significant barrier for the entry of new firms into the sales market;
- the interdependence of firms in one industry, the limitation in price and volume of production.
Oligopoly - the pros and cons
Each market structure has its positive and negative features. Disadvantages of oligopoly determines:
- collusion of company representatives, affecting prices and consumption level;
- costs of antimonopoly regulation;
- possible stagnation of products.
The advantages of oligopoly are expressed in the following:
- not too high prices;
- good quality of the goods - for fear of competition, manufacturers give it due attention;
- availability of information about the product due to wide advertising.
Types of oligopoly
The oligopoly includes several large enterprises. They represent the whole industry in the sales market. There are different types of oligopoly, among which there are the following:
- homogeneous - standardized products are produced by several enterprises; it is not distinguished by grade, brand, type (alcohol, cement, sugar);
- differentiated - enterprises produce products of one industry, but with a variety of varieties, types, brands (beverages, cars, tobacco products);
- secret - an agreement between the heads of enterprises on the division of sources for the supply of raw materials in order to obtain super profits;
- dominance - the main producer has up to 70% market share, the rest is occupied by other companies;
- duopoly - two manufacturers supply products to the market.
Secret collusion in the oligopoly market
Competition in the market can lead to a secret collusion. This agreement, which is concluded between firms of one industry on the establishment of fixed prices for products and production volume. Under such conditions, the firm aligns prices when they are lowered or increased. Enterprises that produce homogeneous products will have the same costs. In such cases, the concept of oligopoly becomes inappropriate, the company behaves like a monopolist. This agreement is considered unlawful in many industries.
Examples of oligopoly in the world
The oligopolistic industry includes many producers. Its examples can serve as streamlined production of beer, computers, steel. In Russia all loans are controlled by the six largest state-owned banks. Other examples of oligopoly include the production of cars, among which are well-known brands "BMW" and "Mercedes", passenger aircraft "Boeing", "Airbus".
Oligopoly in the US divided the primary lead market into four major firms, as well as aircraft construction and primary aluminum production. 5 companies share 90% of the production of washing machines, refrigerators, cigarettes and beer. In Germany and the United Kingdom, 94% of the tobacco industry produces 3 manufacturers. In France, 100% of all cigarettes and refrigerators in the hands of the three largest companies.
Consequences of oligopoly
The negative attitude to the consequences of oligopoly in the economy remains unjustified. In the modern world, many people want to cash in on ordinary people, which causes distrust of all who have income. But the concentration of large-scale production in one industry is necessary for the development of the economy. This is due to a large-scale activity, which affects the costs. For small firms, they are not permanent.
Large-scale production, which produces large volumes, saves on new technologies. If you calculate the development of a new medicine, you get an impressive figure - 610 million dollars. But the costs go to the years when it will be introduced into production. The costs can be included in the cost, which will not greatly affect its price. Oligopoly in the economy is a powerful tool in the development of scientific and technological progress, which must be given the right direction. The consequences of oligopoly have a positive impact on the increase in scale and expansion of production.
Oligopoly books
New offers are constantly appearing on the market. High profit attracts competitors. They overcome barriers and enter the industry. Controlling the oligopoly market becomes harder with time. Applying new technologies, saving increases, there are substitutes for certain products. Manufacturers always face the problem of a short or long period of increasing profits. Prices close to the level of monopoly enterprises, increase revenues, but over time, the reaction in the market is intensifying. These problems are reflected in the books:
- "Mathematical principles of the theory of wealth" Cournot Augustin (1838). In this book, the French economist reflected his research on the problems associated with the issue of pricing in a competitive market in the market.
- "Economic thought in retrospect" Mark Blaug. The fourth edition of the book is recognized as the only one of its kind in the history of economic thought.
- "Ten great economists from Marx to Keynes" Joseph Schumpeter. The book serves not only as a tool for specialists, but is also perceived by a wide range of readers.