Properties of an oligopoly

• Market dominance by a small number of sellers oligopolists
• Very high barriers to entry into the industry
• To survive in long term, an oligopolistic firm does not have to produce differentiated products
• The decision of each firm affects the situation on the market, and at the same time depends on the decisions of other firms: when making a decision, the oligopolistic firm takes into account the possible reaction of other market participants. For this reason, in an oligopolistic market, the possibility of collusion is very high.
• A small number of goods-substitutes for the products of oligopolists
• An oligopolist can be both a price maker and a price taker in the market
• As a quantitative description of this form, the following ratio can be used - the share of the four leading firms in the industry should be more than 40%.

Universal Interdependence

Since there are few firms in the market, sellers need to develop growth strategies for their firm so that they are not forced out of the market by competitors. Since there are few firms in the market, companies closely monitor the actions of competitors, including their pricing policy who they work with, etc.

Broken demand curve model: point P(none) - if the firm sets the price of the product above this level, then competitors will not follow it

Price policy

The pricing policy of an oligopolistic company plays a huge role in her life. As a rule, it is not profitable for a firm to increase the prices of its goods and services, since it is likely that other firms will not follow the first one, and consumers will "pass" to a rival company. If the company lowers the prices of its products, then in order not to lose customers, competitors usually follow the company that lowered prices, also reducing the prices of the goods they offer: there is a “race for the leader”. Thus, so-called price wars often occur between oligopolists, in which firms set a price for their products that is no higher than that of a leading competitor. Price wars are often detrimental to companies, especially those that compete with more powerful and larger firms.

Cooperation with other companies

Some oligopolists act according to the principle "don't have a hundred rubles, but have a hundred friends." Thus, firms enter into partnerships with competitors such as alliances, mergers, conspiracies, cartels. For example, the air transportation oligopolist, Aeroflot, in 2006 entered into the Sky Team alliance with other global airlines, the oil-producing countries united in OPEC, often recognized as a cartel. An example of a merger between two companies is the merger of Air France and KLM. By uniting, firms become more powerful in the market, which allows them to increase output, change the price of their goods more freely and maximize their profits.

Game theory

Theories of oligopolistic pricing

To model the behavior of firms participating in the market in the theory of oligopoly, methods of game theory are used. The most famous oligopoly models are:

• Gutenberg model
• Edgeworth model

Organizational and economic forms of concentration

• Cartel - a form of association, a public or tacit agreement between a group of enterprises with similar profiles on sales volumes, prices and markets;
• Syndicate - a form of association of enterprises producing homogeneous products, organizes collective sales through a single trading network;
• A trust is a form of association in which the participants lose their production and financial independence.
• Consortium - a temporary association of enterprises on the basis of a common agreement for the implementation of a project;
• A conglomerate is an association of diversified firms. A high degree of autonomy and decentralization of management is usually maintained;
• Holding - a parent company that controls the activities of other companies, may not be engaged in production activities;
• A concern is an association of enterprises bound by common interests.

In the vast majority of countries in the world, the processes of business combinations are controlled by antitrust laws.

see also

Notes

Links

• BRANCHES OF IMPERFECT COMPETITION - 2.6 Oligopoly and its characteristics

Literature

• Nureev R. M., "Course of Microeconomics", ed. "Norma", 2005
• F. Musgrave, E. Kacapyr; Barron's AP Micro/Macroeconomics

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See what "Oligopoly" is in other dictionaries:

A situation in the market in which a small number of fairly large sellers opposes a mass of relatively small buyers, and each seller accounts for a significant part of the total supply in the market. Dictionary of financial terms. ... ... Financial vocabulary

- (oligopoly) A market in which a relatively small number of sellers serve many buyers. Every seller realizes that he can control his prices up to certain level and that his earnings will be affected by the behavior of his competitors... Glossary of business terms

- (oligopoly) A situation in the market where there are several sellers, each of which evaluates the behavior of others. Each firm controls a fairly significant portion of the market, given the individual reaction of other market participants to reduce their ... ... Economic dictionary

- [Dictionary of foreign words of the Russian language

oligopoly- The state of the commodity market, in which a very limited number of operators, as a rule, large corporations, operate on it. Almost oligopolistic in all countries automotive markets, since the number of car manufacturers is quite ... ... Technical Translator's Handbook

- (from oligo... and Greek poleo sell, trade), type market structure economy, in which several large firms, companies provide the vast majority of industry production and sales of products ... Modern Encyclopedia

- (from oligo ... and Greek poleo I sell I trade), a term denoting a market situation when several large competing firms monopolize the production and marketing of the bulk of products in the industry ... Big Encyclopedic Dictionary

- (from Greek oligos small and poleo I sell) eng. oligopoly; German Oligopol. A type of market structure in which a few large competing firms monopolize the sale of the bulk of products in a given industry. see MONOPOLY. Antinazi. Encyclopedia ... Encyclopedia of Sociology

Line UMK G. E. Koroleva. Economy (10-11)

Economy

What is an oligopoly? Signs, characteristics, examples of oligopoly in conditions modern market

Oligopoly is a market model in which only a few manufacturers offer similar products.
That is, an oligopoly is a situation where, in the market for certain goods or services, the main part of the market is divided among themselves by a small number of large producers. Examples of oligopoly can often be found in financially costly and technological areas such as oil industry, aircraft industry, shipbuilding, high-tech industries.

Oligopoly - fromother Greekὀλίγος “small” and πωλέω “I sell”, “trade”).

Signs of an oligopoly

1. There are several competing companies in the industry (therefore, it cannot be classified as an absolute monopoly). There is no exact number of companies representing an industry under an oligopoly. Often it ranges from 2 to 12.
2. Each oligopolistic firm has to a large extent control over the market, as it has a large share in the industry-wide output. Moreover, if several oligopolists begin to implement a single market strategy, then their degree of influence will approach a pure monopoly.
3. For each particular firm, the demand curve has a falling character, which is why the industry cannot be fully competitive.
4. Every industry has at least one dominant oligopolistic firm that sets the playing field in the market. So, if it changes the price of a product or offers a new service, competitors must follow suit to avoid losing customers.
5. The higher the degree of concentration of production in the conduct of several firms, the lower the degree of competition in the industry.

Reasons for the emergence and existence of oligopolies

Often, oligopolies arise naturally when companies grow and begin to control a large part of the market, crowding out or absorbing competitors. In an oligopoly, firms often merge to increase market power. At the same time, consumers tend to trust larger and more famous manufacturers. Thus, gradually the number of companies offering specific products or services is reduced to a few large corporations.

The theoretical material included in the system of educational and methodological kits "Algorithm of Success" covers the economic concepts of the course of economics (basic level), systematizes their composition and relationships. The text is illustrated with diagrams, graphs, and statistical data on the Russian economy.

Types of oligopoly

• Homogeneous (undifferentiated) oligopoly
  The market is divided by several enterprises producing homogeneous products. That is, those products that do not have a variety of types and varieties (cement, oil, gas).
• Heterogeneous (differentiated) oligopoly
  A market situation in which firms present similar products characterized by an abundance of types, varieties, sizes, etc. (cars, metals, drinks).
• Oligopoly of dominance
  One company produces more than 60% of the industry's products, due to which it dominates the market. The remaining few firms share the remaining market share among themselves.
• Duopoly
  There are only two manufacturers of specific products on the market.

Pricing and sizing

Availability on the market different types oligopoly makes it impossible to develop a simple market model. This is hindered by the general interconnection of companies under an oligopoly. The company cannot predict the actions of competitors when its own strategy changes, and therefore cannot determine the price and volume of production to maximize profits.

There are several ways to control prices in an oligopoly.

1. Broken demand curve

Occurs when an oligopolist lowers prices below those set in the market, motivating competitors to do the same. However, as a result of such actions, there are no changes in either the price or the quantity of the product, which indicates the inflexibility of prices that characterize oligopolistic markets.

2. Conspiracy

This is the name of an informal (often tacit) agreement between firms to fix prices or limit competition. Collusive oligopolists seek to maximize total profits. However, this form of price control faces obstacles in the form of fraud through price discounts, differences in demand and costs, antitrust laws, and so on.

3. Leadership in prices

Price leadership is an informal price fixing method in which a dominant company announces a price change and follows suit. Keeping the price at the same level set by the leading firm is called the “price umbrella”.

4. Cost plus

The principle of "cost plus" or "cost plus" is the traditional way of setting prices under an oligopoly. In this case, the price is determined on the basis of the full cost of the product by adding some margin to it. This method is quite compatible with collusion or price leadership.

The methodological manual, which is part of the Algorithm of Success system of educational and methodological kits, is designed to help the teacher in organizing the teaching of the economics course according to the textbook by G.E. Koroleva, T.V. Burmistrova (Moscow: Ventana-Graf, 2013). The manual contains the course program, thematic planning, questions of students' knowledge control, answers to the tasks of the workshop and the textbook on economics. In addition, the book reveals the features of the educational and methodological kit on economics and organization educational process. The topics covered are grouped according to the structure of the standard of secondary general education in economics at the basic level. For each topic of the course, the objectives of the study, the composition of the studied economic concepts, the procedure for using the materials of the educational and methodological kit.

Oligopoly Efficiency

Oligopoly is a fairly common phenomenon in modern market economy. There are two points of view about its effectiveness. According to the traditional point of view, an oligopoly is close to a monopoly with the external appearance of competition. Accordingly, an oligopoly can lead the market to the same consequences as a monopoly. However, I. Schumpeter and D.K. Galbraith argue that oligopoly promotes scientific and technological progress, as a result of which the consumer receives the best products at lower prices than other types of market organization.

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". Another definition of an oligopolistic market would be a Herfindahl index greater than 2000. An oligopoly with two participants is called a duopoly.

Main features

When there are a small number of firms in the market, they are called oligopolies. In some cases, the largest firms in an industry can be called oligopolies. The products supplied by the oligopoly to the market are identical to the products of competitors (for example, mobile connection), or has differentiation (for example, washing powders). At the same time, price competition is very rare in oligopolistic markets. Firms see profit opportunities in the development of non-price competition. As a rule, it is very difficult for new firms to enter the oligopolistic market. Barriers are either legal restrictions or the need for large initial capital. Therefore, big business is an example of an oligopoly.

Of particular importance to the functioning of oligopolies is their awareness of the market. Given the ability of competitors to expand production, each firm is afraid of rash actions that reduce its market share. Therefore, awareness is one of the mandatory conditions existence. The behavior of each firm in the market has a clearly justified logic of actions and therefore is called strategic. Over time, strategies can be adjusted, but such changes are of a medium or long-term nature.

Typology of oligopoly models

The behavioral strategies of oligopolies are divided into 2 groups. The first group provides for the coordination of actions by firms with competitors (cooperative strategy), the second - the lack of coordination (non-cooperative strategy).

cartel model

The best strategy for an oligopoly is to collude with competitors over production prices and output volumes. Collusion makes it possible to increase the power of each of the firms and to use opportunities for obtaining economic profits in the amount that a monopoly would receive if the market were monopoly. Such collusion in economics is called a cartel.

In the antitrust laws of most countries, collusion is prohibited, therefore, in practice, cartels are either international (OPEC cartel) or secret.

A feature of the existence of cartels is their fragility: cartel members are always tempted to get more high income in the short term, violating the agreement, and when this happens, the cartel breaks up.

Price (Volume) Leadership Model

As a rule, among the set of firms, one stands out, which becomes the leader in the market. This is due, for example, to the duration of existence (authority), the presence of more professional staff, the presence of scientific departments and the latest technologies, a higher share of them in the market. The leader is the first to make changes in price or output. At the same time, the rest of the firms repeat the actions of the leader. As a result, there is a coherence of common actions. The leader should be the most informed about the dynamics of demand for products in the industry, as well as about the capabilities of competitors.

Cournot model

The behavior of firms is based on comparing independent forecasts of market changes. Each firm calculates the actions of competitors and chooses a volume of production and a price that stabilizes its position in the market. If the initial calculations are wrong, the firm corrects the selected parameters. After a certain period of time, the shares of each firm in the market stabilize and do not change in the future.

Bertrand model (price war model)

It is assumed that each firm wants to become even larger and ideally capture the entire market. To force competitors to leave, one of the firms begins to reduce the price. Other firms, in order not to lose their shares, are forced to do the same. The price war continues until only one firm remains in the market. The rest are closed.

Universal Interdependence

Since there are few firms in the market, sellers need to develop growth strategies for their firm so that they are not forced out of the market by competitors. Since there are few firms in the market, companies closely monitor the actions of competitors, including their pricing policy, with whom they cooperate, etc.

Price policy

The pricing policy of an oligopolistic company plays a huge role in her life. As a rule, it is not profitable for a firm to increase the prices of its goods and services, since it is likely that other firms will not follow the first one, and consumers will "pass" to a rival company. If the company lowers the prices of its products, then in order not to lose customers, competitors usually follow the company that lowered prices, also reducing the prices of the goods they offer: there is a “race for the leader”. Thus, so-called price wars often occur between oligopolists, in which firms set a price for their products that is no higher than that of a leading competitor. Price wars are often detrimental to companies, especially those that compete with more powerful and larger firms.

The problem of price stability in an oligopoly

A feature of the oligopoly is their high excess capacity, which allows, if necessary, to significantly increase the volume of production. Therefore, before changing prices and tariffs, each firm should analyze the possible actions of competitors. In oligopolistic markets, most often, there is price stability. It can be explained using the broken demand curve model. Suppose the original price is P1, the quantity is Q1. If the firm decides to lower the price and increase demand for the product, then the competing firm will do the same in order not to lose its market share. Therefore, the increase in demand will be small, and the demand itself will be characterized by low elasticity. If the firm begins to increase the price, then competitors will not change their price, thereby hoping to get additional buyers. As a result, when the price increases, the firm will face a large reduction in demand. This suggests that it will be elastic. Combining 2 demand graphs, we get its single dynamics (broken graph curve demand).

In order to determine the behavior of the firm with such demand, it is necessary to compare the MR and MC of the firm. A single MR chart will consist of 2 parts with a vertical gap between them. The presence of this gap allows us to conclude that an increase in costs from MC1 to MC2 will not lead to a change in production volume and price. Thus, an oligopoly is a structure that very rarely changes the price of its products and the volume of its production. The change occurs only in the case of significant shocks: a sharp increase in resource prices, a significant increase in taxes.

Cooperation with other companies

Some oligopolists act according to the principle "don't have a hundred rubles, but have a hundred friends." Thus, firms enter into partnerships with competitors such as alliances, mergers, conspiracies, cartels. For example, the air transportation oligopolist, Aeroflot, entered into the Sky Team alliance with other world airlines in 2006, the oil-producing countries united in OPEC, often recognized as a cartel. An example of a merger between two companies is the merger of Air France and KLM. By uniting, firms become more powerful in the market, which allows them to increase output, change the price of their goods more freely and maximize their profits.

Using Game Theory

Game theory is a theory of the behavior of subjects under conditions when the decisions of one of them affect the decisions of all the others. It is used to analyze the action as individual people, as well as firms.

The models of oligopoly developed in the economic literature do not always take into account the circumstances of the formation of oligopolistic markets and the impact of various changes on them. A universal tool for describing the behavior of an oligopoly is game theory. Its essence is to identify options for action, possible consequences sequence of actions, and then conducting an analysis to find the best option for each of the parties. The process of such analysis is called a game.

The main drawback of game theory is the great dependence of the result obtained on the model of subjects' awareness, whose real awareness may remain unknown.

Oligopoly and efficiency

Oligopoly has positive aspects and disadvantages that affect performance. The positive features include:

• Active funding for R&D.
• Intense non-price competition leads to increased differentiation in the market.
• Unlike monopolistic competitors, an oligopoly pursues many more directions.

The negative features include:

• Using the possibility of collusion, the oligopoly can behave like a pure monopolist.
• Oligopolies may not achieve economies of scale because they are smaller than monopolies.
• Oligopolies are forced to engage in non-price competition, which increases costs.
• Oligopolies are less subject to regulation due to constant interaction with other firms.
• Sometimes firms do not strive to reach their full potential, compensating for higher costs with higher prices (x-inefficiency).

Market power: its sources and indicators

market power- the possibility of establishing and regulating prices in the market. Sources of market power:

• Demand-side sources: market demand elasticity; the availability of substitute goods and the magnitude of the cross elasticity of demand for them; growth rates and temporary fluctuations in demand, etc.
• Supply-side sources: technology features; legal barriers to competitors entering the industry; ownership of resources, barriers created by the firms themselves, etc.

Several indicators are used to determine market power:

• Concentration Ratio: The percentage of sales of the top four or eight firms to total industry sales.
• The Herfindahl-Hirschman coefficient is calculated as the sum of the squares of the market shares of all firms in an industry and shows the degree of its concentration.
• The Lerner coefficient is calculated as the ratio of the difference between the product price and marginal cost its production to the price of products and shows the level of monopoly power of the firm.
• Bain's coefficient.

The use of one or more coefficients allows us to conclude that the market is monopolized, but this does not give an exact answer to an oligopoly or a monopoly. Therefore, as a rule, they use additional information.

⚡ Oligopoly ⚡- a form of the market when there are several enterprises producing similar products. Another definition of an oligopolistic market would be a Herfindahl index value greater than 2000. An oligopoly of two participants is called a duopoly.

Examples of oligopolies include manufacturers of passenger aircraft, such as Boeing or Airbus, car manufacturers, such as Mercedes, BMW. In the Republic of Belarus there are 4 sugar factories, 3 factories producing chemical fiber.

Types of oligopolies

• Homogeneous(non-differentiated) - when several enterprises producing homogeneous (non-differentiated) products operate on the market.

Homogeneous products - products that do not differ in a variety of types, grades, sizes, grades (alcohol - 3 grades, sugar - about 8 grades, aluminum - about 9 grades).

• Heterogeneous(differentiated) - several enterprises produce non-homogeneous (differentiated) products.

Heterogeneous products - products that are characterized by a wide variety of types, varieties, sizes, brands.
Example - cars, cigarettes, soft drinks, steel (about 140 marks).

• Oligopoly of dominance- a large firm operates in the market, specific gravity which in total volumes production is 60% or more and therefore it dominates the market. Several small firms work alongside it and divide the remaining market among themselves.

Example: in the Republic of Belarus, the ceramic tile market is dominated by OJSC "Kiramin", producing more than 75% of these products.

• Duopoly- when only 2 manufacturers or sellers of this product work on the market.

Example: in the Republic of Belarus there are two factories producing televisions - Vityaz and Horizon, they act in everything imitating each other.

Characteristic features of the functioning of oligopolies

1. Both differentiated and non-differentiated products are produced.
2. Decisions of oligopolists regarding production volumes and prices are interdependent, i.e. oligopolies imitate each other in everything. So if one oligopolist lowers prices, then others will definitely follow his example. But if one oligopolist raises prices, then others may not follow his example, because. risk losing their market share.
3. In the conditions of an oligopoly, there are very rigid barriers to entry into this industry of other competitors, but these barriers are surmountable.

Oligopoly- a market in which there are several firms, each of which controls a significant share of the market (from the Greek "oligos" - few, few). This is the predominant form of the modern market structure.

Signs of an oligopoly:

1. The presence on the market of several large firms (from 3 to 15 - 20).

2. The products of these firms can be both homogeneous (the market for raw materials and semi-finished products) and differentiated (the market consumer goods). Accordingly, pure and differentiated oligopolies are divided.

3. Carrying out an independent price policy, however, price control is limited by the mutual dependence of firms and is to some extent implemented through agreements between them.

4. Significant restrictions on entering the market associated with the need for significant capital investments to create an enterprise in connection with the large-scale production of oligopolistic firms. In addition, there are barriers that are characteristic of a monopoly - patents, licenses, etc.

An important feature of such a market is also that firms can take a number of actions (regarding sales volumes and prices of goods) aimed at preventing potential competitors from entering the market.

5. The inexpediency of price competition and the advantage of non-price competition, in which successful solutions can provide market advantages for some time.

6. The dependence of the strategic behavior of each firm (determining the price and output volumes, the beginning advertising campaign, investment in the expansion of production) from the reaction and behavior of competitors, which affects the market equilibrium.

In general, oligopoly occupies an intermediate position between monopoly and perfect competition ( equilibrium price oligopoly market is lower than monopoly but higher than competitive).

There are many variants of oligopoly: there can be either 2-4 leading firms (hard oligopoly) or 10-20 (soft oligopoly) in the industry. The mechanisms of interaction between firms in these conditions will differ. General interdependence makes it difficult to predict the corresponding reaction of a competitor and makes it impossible to calculate demand and marginal revenue for an oligopolist.

Oligopolistic behavior implies incentives for concerted action in setting prices. The large size of firms does not contribute to their market mobility, so collusion between firms in order to maintain prices, limit output and jointly maximize profits comes from the greatest benefits.

Collusion is an explicit or implicit agreement between firms in an industry to fix prices and outputs or to limit competition between them. Collusion is most likely given its legitimacy and a small number of firms. Differences between firms in products, in costs, in demand, the ability to reduce prices in secret from others - make it difficult to collude.

If several firms in an oligopolistic market are approximately the same in size and level of average costs, then they will have the same price level and profit-maximizing output. A joint pricing policy will actually turn an oligopolistic market into a pure monopoly. All this pushes the oligopolists to the conclusion cartel agreements.

If the collusion is legal, manufacturers of the same product often enter into an agreement to share the market, and a group of such firms forms cartel. In such an agreement, for all its participants, their shares in the volume of production and sales, prices for goods, conditions for hiring labor, and exchanging patents are established. Its goal is to increase prices above competitive levels, but not to limit the production and marketing activities of participants. From here the main problem of the cartel- this is the coordination of decisions of its participants regarding the establishment of a system of restrictions (quotas) for each firm.

Question 22. Determining the price and volume of production in an oligopoly. Pricing models in an oligopoly

There is no general theory of pricing in an oligopoly. There are a number of models that explain the market behavior of an oligopoly depending on what assumptions the firm has about the reaction of its competitors.

The specific market model for an oligopolist is shown in Fig. one.

Rice. 1. Broken line of demand

Broken Demand Curve Model(R. Hall, Hitch, P.-M. Sweezy, 1939) explains why an oligopolistic firm is reluctant to abandon its price-output decision, due to which prices in the oligopoly have a certain stability in the short run with some change in the value costs (which cannot be said of a perfectly competitive market).

Suppose there are three firms x, y and z in the market. The market price was fixed at R o. Consider how firms y and z will react to a price change by firm x.

If firm x raises its price above P o, then firms y and z will most likely not follow and leave prices at P o. As a result, firm x will lose customers, and firms y and z will expand their market share. Thus, the price increase is not profitable for firm x; the demand for its products in section BA is quite elastic.

If firm x cuts its price to increase sales, competitors are likely to retaliate with a price cut to protect their market share. Therefore, firm x will not receive a significant increase in demand (demand in section AD is relatively inelastic).

As a result of different reactions of competitors to price changes, the demand curve will take the form of BAD. Both of the most likely options for the consequences of a price change do not bring a significant positive result to the company (price reduction - an insignificant increase in sales, price increase - a decrease in sales). Therefore, it can be assumed that prices in such a market will be stable (firms pursue a policy of “price rigidity”).

This assumption can be confirmed as follows. The bend in the demand curve at point A corresponds to a break in the MR line, which in Fig. 1 is represented by the broken line BCEF. If the MC curve intersects it on the CE segment (all points of which correspond to the Cournot point by definition), the firm has no reason to refuse the price P o (i.e., a change in MC, expressed in the intersection of several MC curves of the CE segment, will not cause a price change) . Some increase in costs does not lead to a change in price until the MC curve rises above point C.

If there is an increase in demand for this product, then the demand line BAD will shift to the right upwards, and along with it the line MR will shift to the right, including its vertical section. Given the intersection of the MC line with the MR line on its vertical section, the optimal price for the oligopolist will remain the same price, although the optimal output volume increases. Thus, even with a change in demand for products, the oligopolist is not inclined to change the price, but changes the volume of production.

As a result, according to this model, we can formulate Cournot equilibrium: no firm is interested in changing the price of its product until its competitor changes the price of its product. This is due to the fact that after the firm changes the original price, in an oligopoly, it will no longer be able to return to it. As a result, equilibrium in an oligopoly can be established at a price corresponding to the monopoly one. However, this outcome is less likely as the number of competitors in the industry increases: it increases the likelihood that someone can lower the price of their product, upsetting the market equilibrium.

The broken demand curve model has two disadvantages:

1) it is not explained why the current price was exactly P o; it is also impossible to explain how this price was established initially (i.e., the model does not explain the principles of oligopolistic pricing);

2) as economic practice shows, prices are not as inflexible as this demand curve implies: in an oligopoly, they have a clear upward trend.

All oligopoly models have common features that can be seen in duopoly models(Antoine Cournot, 1838). Duopoly- a special case of an oligopoly, where two producers of homogeneous products participate, each of which is able to satisfy all effective demand in a given market. Such a structure is often found in regional markets and reflects all the characteristic features of an oligopoly. The essence of this model- each of the competitors determines the optimal supply volume for itself with a given supply volume of the other, and the combination of these volumes reveals market price. Thus, this model describes the process of pricing in an oligopoly. Cournot's basic premise was an assumption about the response of each firm to the behavior of competitors. It's obvious that duopoly equilibrium is that each duopolist sets the output that maximizes his profit given his competitor's output, and so neither has an incentive to change that output. At prices above the point of intersection of the reaction lines, each firm has an incentive to reduce the price set by a competitor, at prices below the point of intersection - on the contrary.

Thus, under this assumption, there is only one price that the market can set. It can also be shown that the equilibrium price moves gradually from the monopoly price to the price equal to marginal cost. Consequently, Cournot equilibrium in an industry where there is only one firm, is achieved at a monopoly price; in an industry with a significant number of firms - at a competitive price; and in an oligopoly, it fluctuates within these limits.

The development of this model is leader pricing model, in which the leader sets not the volume of his production, but the price of his products.

In an oligopoly market, a monopoly price can be set without explicit agreement between competitors. But the more competitors, the more likely it is that one of them will reduce the price of their products for the sake of a temporary benefit. For example, the struggle of two oligopolists for a buyer by setting ever lower prices will eventually come down to an equilibrium between them in the form (i.e., the price will fall to the level of perfect competition).

R = MS = AC

This case, so-called price wars, described Bertrand model, according to which firms consistently reduce prices to the level of average costs, trying to force competitors out of the market.

Typically, oligopolistic firms set prices and divide markets in such a way as to avoid the prospect of price wars and their adverse effects on profits. Therefore, in modern conditions their price competition most often results in agreements.

Most the easy way implementing a constant price ratio strategy is cost-plus pricing. It is used because of the inherent market uncertainty about the demand for a product and the difficulty of determining marginal cost. The principle, "cost plus," is a pragmatic way of solving the problem of actually estimating marginal revenue and marginal cost, in which certain standard costs are taken to determine the price, to which economic profit is added in the form of a premium. This method does not require deep study of demand curves, marginal income and costs that vary by product. For a coordinated pricing policy, it is enough for firms to agree on the amount of this premium.

Pricing using such a premium on costs guarantees the firm sufficient revenue to cover variable costs, fixed costs and the opportunity cost of using factors of production.

In addition to all of the above, in the analysis of oligopolistic pricing, it is increasingly used game theory. It is often noted that oligopoly is a game of characters in which each player must anticipate the opponent's actions. After weighing the possible consequences of different decisions, each firm will realize that it is most rational to assume the worst.