Oligopoly is a market structure in which a small number of sellers are opposed to a lot of buyers, ie the situation when the market several vendors and each may affect the rates. The emergence of new vendors is difficult or even impossible e. If the producers are two, then a duopoly called oligopoly. Goods traded in oligopolistic firms can be differentiated and standardized. Sellers in an oligopolistic market know that when they or their opponents will change the price or sales volume produced, the consequences will affect the profits of all the companies of the market.
Oligopolists are acutely aware of their interdependence. Features of oligopoly to oligopolistic market structures include such markets in which the focus from 2 to 24 vendors. On the concentration of sales in the same market oligopolies are divided into “dense” and “discharged” oligopoly. By “dense” oligopolies conditionally include industry structures that are on the market are from 2 to 8 sellers. The structures of the market, which include more than 8 business entities are “discharged” oligopolies. This kind of gradation allows different assessments of the behaviour of enterprises.
In the first case, as the number of sellers is limited, there may be all sorts of conspiracies against the behaviour of the market, whereas in the second case, it is almost impossible. Oligopolistic structure can be formed at both the regional and local levels of management. For example, because of the specific features of consumption of ready-mixed concrete in the local markets , also formed oligopolistic structure , as well as at the regional level in the field of supply , such as bricks. All the same no matter what level we have not considered an oligopoly, we should not forget two important points.
The first point is inter-industry competition, the second import products. Power oligopoly decreases under the influence of the supply of products by enterprises in other sectors. That may have approximately equalled to the production of consumer properties of oligopolists (gas, electricity etc. ). The problem of oligopoly. Price competition on the weakening of the oligopoly affect the importation of similar goods or their substitutes from other countries. This fact may contribute to a more competitive structure than purely sectorial market structures.
At the core of the formation of oligopolies is the mechanism of market competition, which is inevitable with the power of displacing the weak market their businesses through bankruptcy or acquisition or merger. Absorption is based on financial transactions, which are aimed at the acquisition of an enterprise wholly or partly by buying a controlling stake or a substantial part of the capital. Thus, defines the relationship between the strong and weak competitors. Merging is usually voluntary, although such a choice can be economically displaced.
But at the heart of these two processes is still the desire of some competitors increase their market power. This centralization of capital can significantly increase their share of sales in the relevant market to control the price of their products, as well as significantly reduce the cost of resources. The growth of market power makes senseless price competition, which could turn into a price war that will lead to the depletion of all participants. Therefore, in the framework of oligopolistic pricing structures of individual firms cannot be made without taking into account the reaction to it competitors.
Pricing on oligopolistic market characterized by a multiplicity of forms of its manifestation, but the group can identify four main principles: price competition in price collusion, price leadership, price cape. Price competition with a limited number of suppliers of certain goods and their behaviour can be described in different ways. On the one hand, increases or decreases the price of one manufacturer will cause an adequate reaction competitor. Actions of competitors neutralize the price advantage, which would make one of the subjects.
As a result, between competitors is not a redistribution of total sales, i. e. each of the competitors will feel the loss of their consumers. If, however, an outflow or inflow of consumers, it feels the industry as a whole under the influence of increase or decrease in prices by all manufacturers. Depending on what will be the trend in prices, consumers will look for ways to meet their needs. On the other hand the change in prices of commodity producers in one side or the other can cause indifference competitors.
In this case, the price increase will lead to a reduction in sales of commodity producers, who will take advantage of this opportunity, and the lowering of prices, in contrast, allow it to expand sales of this product by the customers of their competitors. In fact, the behaviour of competitors in response to the action of one of the oligopolists will be very varied and will depend upon the particular circumstances prevailing. The most understandable reaction can be considered as one in which , after lowering the price of one commodity producers , while others will seek to align their prices , i.
e. just drop them in order to expand the sales market not letting rival firm – initiator. At the same time, the increase in prices competitors usually disregard such neglect is associated with hopes to expand its share in the total sales at the expense of that of the oligopolists who took a chance and raised the price of their goods. Just considered an option oligopolistic market structure, allowing the possibility of price competition characterizes a framework within which to agree quite problematic behaviour of competitors because of their relatively large numbers.
As well there is the possibility of entering into an explicit collusion or manufacturers of certain products. In a situation where on the one hand, is the anti-trust laws , and the other obvious flaws and uncertainty of market behaviour of oligopolists based on price competition , there is a temptation to collude , i. e. direct or tacit consent of the competitors unidirectional market behaviour . The establishment of a secret price control allows firms to reduce the uncertainty of oligopolists, receive economic benefits and prevent the penetration of new competitors.