In our time, it is quite difficult to find a country that fulfills all the conditions of pure competition. Almost every market is dominated by one or more monopolists, which have a decisive influence on its further development, and if it were not for the constant control by government agencies, the current businessmen would have much less opportunities to do business. One of the most common forms of imperfect competition today is oligopoly. This concept is still vague for many, so let's take a closer look at it.
Term Definition
Oligopoly is a market form of imperfect competition in which there is a very small group of sellers in a particular market. At the same time, increasing their number at the expense of newcomers is either impossible or extremely difficult. In other words, an oligopoly is when sellers can be counted on the fingers.
Signs and types
The following features of this market structure are distinguished:
- Standardized or differentiated products.
- A large number of buyers and a small number of firms.
- Availabilitystrong protective barriers to entry into the market of possible competitors.
- Interdependence of firms from each other, which somewhat limits price control.
There is another definition of this type of competition, closely related to the value of the Herfindahl index. This is the name of the indicator, which can be used to quantify the degree of monopolization of the market. It is calculated by the formula:
HHI=S12 + S22 +…+S 2 where
S is the percentage of each firm's sales.
Its maximum value is 10000 (pure monopoly), and the minimum value is limited by the ratio 10000/n, where n is the number of companies in the industry (provided that the sales shares of these companies are equal). It is generally accepted that an oligopoly is a market for which the value of this index exceeds 2000. Since 1982, this index has played a huge role in “antitrust” legislation: if the coefficient in an industry exceeds 1000, the state begins to control any mergers and acquisitions of firms. Depending on what type of product is produced on the market, it is customary to distinguish the following types of oligopoly: pure and differentiated. In the first case, a homogeneous standardized product is produced (for example, cement, aluminum, copper), and in the second, a variety of products of the same functional purpose (for example, cars, cameras, tires).
A cartel is also an oligopoly. This is a small conspiracynumber of companies in relation to output volumes and prices in order to increase profit levels. If it unites all companies in the industry, then in this case it behaves like a monopolist.
Oligopoly: real life examples
Some people wonder: “Why are loans so expensive in Russia?” Bankers are justified by the high level of risk and the high cost of raising funds. But in fact, this is just a screen behind which a higher (compared to European indicators) margin is hidden. Half of the entire banking system is controlled by six banks: Bank of Moscow, VTB 24, Russian Agricultural Bank, Gazprombank, Sberbank and VTB. There is a classic case of oligopoly, and even under the wing of the state. Other examples include the market for passenger aircraft (Airbus, Boeing), cars, large household appliances, etc.
