Nassikovskaya T.L., Phinogeeva O.V., Burlakova O.M.

Oles Honchar Dnipropetrovsk National University, Ukraine

OLIGOPOLY AND OLIGOPOLISTIC MARKET FEATURES

Oligopoly is a market structure that is characterized by the presence of several sellers in the market. Formally, usually those branches are referred to the oligopolistic ones in which some of the largest companies (in different countries from 3 to 8 companies are taken as the reference point) produce more than half of all products. If the concentration of production is lower, then the industry is considered acting under the conditions of monopolistic competition.

In part of the concentration of sellers at the same market, oligopolies are divided into dense and sparse. Industry structures that are represented at the market by 2–8 sellers are conditionally referred to as arbitrarily tight oligopolies. Market structures which include more than 8 business objects belong to diluted oligopolies. Such grading allows for evaluation of the different behavior of enterprises in conditions of dense and rarefied oligopolies. In the first case, due to the limited number of sellers, different kinds of conspiracies against the agreed behavior at the market may be possible, whereas in the latter case, it is practically impossible.

Oligopolistic structures can be formed at both the regional and local economy level. A formal agreement on the harmonization of prices and market sharing can either exist or be absent among them. At the present time oligopolistic structures of commodity markets in Ukraine are: the market of mobile communication services market of motor petrol, beer market, the market of tobacco products. At the regional level oligopoly structure have the markets of services in processing of agricultural products.

Due to the nature of the proposed products, oligopoly can be divided into ordinary and differentiated. An ordinary oligopoly is related to the production and supply of standard products. Many standard products are produced in the conditions of oligopoly: steel, nonferrous metals, building materials. Differentiated oligopolies are formed on the basis of production of goods of varied assortment. They are characteristic for those industries where there is an opportunity to diversify the production of goods and services.

There are oligopolistic industries in which product differentiation is significant (eg, automobiles).

Assessing the significance of oligopolistic structures, the inevitability of their formation should be noted as an objective process, arising from the open competition and the desire of enterprises to achieve the optimum scale of production.

The positive evaluation of oligopolistic structures is associated primarily with the achievements of scientific and technological progress. Indeed, in recent decades in many industries with oligopolistic structures significant progress is made in the development of science and engineering (aerospace, electronic, chemical).

Oligopolies possess huge financial resources, as well as a noticeable influence in the political and economic circles of the society, and that allows them to participate in profitable projects and programs with different degree of availability. Competitive small enterprises, as a rule, do not have sufficient funds available to implement projects.

The negative assessment of oligopolies is specified by the following: oligopoly is very similar in its structure to a monopoly, and therefore, we can expect the same negative effects as from the monopoly market power. Oligopoly by entering into secret agreements go out of control of the state and create the illusion of competition, whereas in fact, seek to benefit at the expense of consumers.

Oligopoly is significantly different from the monopoly. Its essence is the fusion of coordination and competition. At the same time, the general rule applies: the fewer companies are in the industry and the larger is each of them, the easier they coordinate their actions and achieve the highest possible profits by adjusting prices for their products. In this sense we can talk about the potential danger of monopolization of various industries.

Ultimately, this affects the reduction of effective use of available resources and the deterioration of satisfaction of the needs of society

The most important characteristics of oligopoly:

First, it is economy achieved due to the production scale;

Second, the interdependence of companies;

Third, non-price competition and inflexibility (stiffness) of prices;

Fourth, sustained commitment of companies to merging and acquisitions;

Fifthly, sustained commitment of firms to collude;

Sixth, high barriers to entry of new companies to the market.

Economy due to the production scale. Technical and economic characteristics of the industry may be such that the minimum expense level per production unit can be achieved by the company at a very large scope of production and marketing. This scope can be so large that it can satisfy a significant portion of the existing market demand for these products. Thus, at a price that covers only the minimum possible expenses, only a few companies are enough to satisfy all the existing demand.

Price rigidity and non-price competition. This uncertainty in demand leads to a fundamentally new type of competition in the oligopoly conditions. Large companies that are not recognized as leaders in the market, try to avoid price competition and its extreme form – price war. Nnon-price competition takes the place of the price one and it is aimed at increase in the market share.

In oligopolistic conditions the struggle for market share is the core of competition. Participants of oligopoly are trying to outdo each other with new developments, better products, sophisticated advertising, best service, etc. The purpose of these methods of fair non-price competition is to win a greater share of the market.

The power of oligopoly decreases when companies from other industries offer products which have approximately the same consumer characteristics as production of oligopolists (such as gas and electricity as the source of heat, copper and aluminum as raw materials for the manufacture of electrical wires). Import of similar goods or their substitutes also contributes to weakening of oligopolies.

One of the most important ways to increase the market share is merging and absorbing. They are able to significantly increase market concentration in the industry.

Absorbing is based on financial transactions aimed at the acquisition of an enterprise, either fully or partially buying a controlling stake or a significant portion of the capital. This relationship is between strong and weak competitors. The merging, as a rule, is of the voluntary character. The processes of absorption and merging allow for a significant increase in the share of sales in the corresponding market. The growth of the market power of several corporations makes meaningless the price competition which could turn into a "war" of prices and lead to depletion of all its members.

Collusion with other companies regarding the level of prices and scope of production is a factor to increase control over the market. This strategy is generally beneficial to all parties of the agreement. However, reaching an agreement is a very difficult task.

One type of implicit collusion, allowing companies to coordinate actions, is implementation of price leadership, in which the major company changes its price first, and all the others follow.

The most notable feature of oligopoly is the scarcity of existing companies at the market.

Oligopolist companies, knowing that emerging of new competitors will reduce their share of the market, try to avoid this by using their own advantages. They will set the price lower, but because of the economy due to the scale of production they will make profit in this case, too. The new company will also incur substantial losses and will be forced to withdraw from the market because it will not be able to cover the costs.

Oligopolist companies also react to any fluctuations in prices of the economic resources. However, it judges the change in demand for finished products by changes in sales at a temporary fixed price. This means that the oligopolist companies, having set prices, do not change them every time there is a change in demand. Changes in demand are shown through the variation in sales of these companies. Of course, oligopolist companies change the price from time to time, but this occurs at longer intervals, and for a sufficiently large value.

Though oligopolies do not satisfy the abstract conditions of efficient use and allocation of resources, in reality they are effective, because they are important contributors to the economic growth, actively participating in research and development of new products and technologies, as well as introducing these innovations into production.

The main justification of the oligopolistic industry structure is that it may be best suited for those activities where the minimum efficient size of production is large enough. The giant economy due to the production scale which is achieved by large companies makes them practicaly invulnerable to competition from small companies.