Companys strategic behavior in terms of oligopoly

Equilibrium exists when no firm can no longer benefit from lower prices. Price drop below that level will lead to losses. Since each firm assumes that the other will not change its price, it does not have an incentive to increase price.

Overall, the balance of Oligopolistic market depends on the assumptions that firms make about the reaction of their rivals. Sometimes Oligopolistic markets actually observed price wars. Occasionally this tactic used car filling in any area. Banks that serve smaller markets are also sometimes engaged in price war by offering nyzkoprotsentni loans or current accounts for a small fee, lower than normal. Everyone is trying to make their products more attractive to consumers, assigning a much lower price than competitors and rivals meet an even greater decline in prices. [7, p.67]

Price wars usually transient. Oligopolistic firms come together in cooperation for the pricing and allocation of markets so as to avoid the prospect of price wars and their adverse effects on profits.

Stackelberg model (in terms of leadership) is modified Cournot model for the case when one firm is a leader, has more economic power and an independent voice, so first determine its output. Another company is an outsider, which makes adaptation strategy and adjust their behavior depending on the choice made by the leader. In the Stackelberg model company - the leader ignores the fact that function of the reaction. She chooses the output, which maximizes its own profits. Stackelberg equilibrium is a special case of Nash equilibrium for the dominant strategy. [7, p.68]

The model of differentiated products duopoly apply to situations where firms produce differentiated Oligopolistic products, and they more logically in the competition not choose quantities and prices. Demand for products of each of the two firms depends on its own prices and prices of competitors. Both firms choose prices simultaneously, considering this as a price competitor. In response curves at the intersection of Nash equilibrium is established.

Model the dominant firm (kvazimonopoliyi) describes the situation when operating in one large firm and many small, are able to compete with it. This model is similar Stackelberg model, but in the case of price leadership. Demand dominant firm is defined as the difference between the aggregate market demand and volume offering competitive environment that satisfies this demand. The dominant firm sets output and price according to the rule , outsiders take this price and determine their own volume curve according to its offerings.

 

Model "broken the demand curve" illustrates the inflexibility Oligopolistic prices. The model describes the probable behavior of firms competing in a situation where one of them will then adjust the price. Other firms may follow or price change, or ignore it.

 When firms follow price changes, then when its price fall from one firm to increase its sales volume slightly, so that other firms will also reduce prices. If one of the firms increase the price, it will not be driven out of the industry, its sales did not decline significantly. This type of reaction is typical for inelastic demand, which corresponds to curve [Fig.3].

When companies ignore the change in price, the price fall in one of them, her sales will increase substantially, and if one firm will increase the price, the buyers will lose herself, her sales will fall significantly. In this case demand is more elastic and meets the demand curve on [Fig.4]. [6, p.231]

Reaction reflects the logic of firms broken at the point of equilibrium price the demand curve. The situation reflects the lower price segment demand curve , situation and raise prices - a segment . Left from the point of prevailing prices depressed demand curve and the demand more elastic, right - the rapid demand curve and corresponds to inelastic demand. On Figure also shown curves earnings limit and , that corresponding to the demand curve and . Since the demand curve at point broken, the marginal revenue curve has a gap on the volume.

Broken demand curve explains why the price changes in Oligopolistic industries where there is no conspiracy, are very rare. Each company may provide that any price change will worsen the situation. If it raises price, it loses much of its buyers, as demand is elastic, and if it will lower the price, the inelastic demand for sales increase slightly. Besides lowering prices might trigger a price war. When a firm produces the optimal amount determined by rule , changing the marginal cost curve within the gap does not affect output or price, which is additional evidence of inflexibility Oligopolistic pricing.[3, p.321]

"Prisoners Dilemma" - a Oligopolistic pricing model in which each firm by solving the problem of price level, operates under conditions that preclude cooperation, self realizes its potential, but pay attention to their competitors (Fig.5). On only two market seller (firm 1 and firm 2), each of which can be set or low or high price. If both firms set a high price, each will receive a profit of 20 thousand. And if both set low price, the profits of each amount to only 15 thousand. Thus, there is an incentive both to conspiracy and fraud to the opponent.

 

Figure 1.4.  "Prisoners Dilemma" [8, p.119]

 

If one firm will set a high price and the other low, the firm has low costs, will receive 30 thousand profit, but one that has a high - only 10 thousand. If firms could work together, they would assign a high price, but if they act independently, then they had better keep prices low. For example, if the first firm assigns a high price, the second firm maximizes profit by lowering its price. If the firm assigns a lower price, the company will receive two more if you also reduce the price by avoiding diminishing return. Thus, firm 2 maximizes its profits by setting low prices for any decision rival. The calculations are similar to the first firm, so firm 1 also appoints the always low price. The state of both firms however are worse than a conspiracy and setting both high prices. [6, p.123]

For members of secret conspiracies and explicit trend for maximizing the total profits of all participants. Their behaviour is similar to the behaviour of a monopolist. The most common form of explicit collusion is a cartel.

Model cartel meets the situation where the company formally entered into an agreement, agree on price, industry output and quota for each participant. To calculate the price and volume of cartel pricing model used by operators. Equilibrium volume for the cartel is a rule .

For this price agreed quota for each participant so that the sum of all quotas equal to the total volume was a cartel.

Compliance cartel agreement contrary to efficiency and reduces welfare, like a monopoly. Therefore using cartel prohibited antitrust laws of many countries.

Secret agreements are not formally documented and are difficult to detect. However, they allow reaching an agreement regarding product pricing or market share of each participant. As a result of oligopoly collusion is similar to a monopoly on production levels and prices.

Model "price leadership" is a common means of coordinating behavior of oligopolists the absence of collusion. Since acquiescence largest market participants or the most efficient firm has the role of industry price leader, others set prices after him and do not change them until the leader announce a new change in its price. Gradually increasing prices, the industry can achieve such a high level of prices as a cartel. Price leader not to change prices infrequently. He does not respond to small changes in costs or demand for its products. Price revision is only when the changes concern the industry and are highly significant.

Pricing Model "cost plus" - a practical method by which the company estimates its costs at a certain target level and sets the interest costs on the cushion so as to ensure the average income in the long run - about 15% of all invested capital. It specifies the default value, which serves as the basis for further adjust its level.

Since the oligopoly structure is close to a monopoly, it has similar economic consequences for society: in most cases, high barriers to entry in the branch leading to limit production and installation of higher prices, there are irreversible welfare losses not provided or production efficiency or effectiveness of distribution resources. [10, p.142]

 

 

Part II. Company’s strategic behavior in terms of oligopoly in Ukraine

2.1 Peculiarity of company’s strategic behavior on Ukrainian mobile-communication market

 

Last year CPI growth in Ukraine by the State Statistics Committee has exceeded 12%, while tariffs in the mobile market continued to decline. If there are still tariff reduction occurred in parallel with the rapid expansion of subscriber base and lower prices were offset by increasing the number of clients in the past three years the situation has changed. Rates continued to decline, and the total subscriber base at the same time remained constant. Market penetration in the mobile market Ukraine has stabilized at 120%, indicating that a few sim-cards for many mobile users become the norm. Achieved the level of market penetration slightly less than, say, Germany or Russia, but at the same time, higher than the markets of countries like France, Poland, Belgium and Norway. [9, p.201]

Speaking of prices, it is useful to recall that existing at present prices for mobile services in Ukraine are the lowest in Europe. The average minute of a cellular phone costs Ukrainian 1,5 cent, almost three times less than in Russia, more than 8 times less than in Poland, and 16 times less than in France.

 

 

As seen from (Fig.6) the leader of Ukrainian mobile operators is the "Kyivstar". The situation in Kyivstar in the market is best characterized by two numbers. The first - a market share of the company. Measure it conditionally virtual "Subscriber" - it is futile. The purpose of business is the additional cost money, but not SIM-card in itself, is not it? So, for company earnings is not the first year to over 50% market

share. Moreover, Kyivstar from year to year and demonstrates the phenomenal profitability: 50% for EBITDA. For the ratio of net income to revenue - almost 30%. Strange - although allegedly exacerbated competition, but your bottom is not affected. How can this be? The reason for this "miracle" is anti-competitive barriers that are unable to deal with competitors. Kyivstar is in a very comfortable position when he is not spending enough to compete, and scale. And since the company also abonbaza greatest, no Astelit or URS could not make it a real competition.

In conditions of significant inflation in the economy and devalued the national currency can talk about a specific depletion of resources for further reduction of tariffs on basic mobile services. Large-scale "collapses" prices, similar to those observed in the market in recent years, in my opinion, unlikely. Rather we can talk about the tariff increase flexibility offers operators and to provide customers greater freedom in determining the optimal set of services for them.

In fact, the main strategies of firms in the mobile market aimed at the diversification of our service package. Antimonopoly Committee regularly monitors the market of mobile services in conjunction with the National Commission for Communications Regulation. The main reason for monitoring is Article 12 of the Law of Ukraine On Protection of Economic Competition, which states that may be considered a monopoly market share of one firm which has more than 35%.[14, p.243]

 

 

 

2.2 Evaluation the company’s behavior in the air transportation

 

Regular flights in 44 countries, conducted in 2009, 11 Ukrainian airlines. They made 33 thousand regular flights and transported nearly 2, 4 million passengers. For comparison, in 2008 the airline carried 32 thousand flights and carried 2.5 million passengers. At the same time to Ukraine scheduled flights carried 45 foreign companies from 32 countries who traveled for a year about 3 million passengers. Currently, 73 companies have licensed to operate, less than half of them for business purposes as an airline. Air Traffic Market of Ukraine, is a prime example of oligopoly market structure. It is characterized by the presence of several large companies ("May", "Airlines"), a sufficient number of small firms, homogeneous products, better services (flights), severe restrictions on entry to the industry as necessary to obtain a license to fly, pass technical reviews have sufficient fleet. The presence of price competition. At the same time, this market is a peculiar phenomenon of price discrimination. Especially 3 degree price discrimination and discrimination over time. So really, the Ukrainian air transportation market is oligopoly. However, this market is very segmented. Oligopoly clear structure defined two segments - domestic and foreign passenger traffic. Charter flights, as a specific unique product should not be construed as product oligopoly. Therefore, more detail about the features of internal and external transportation in Ukraine.

The main features of the external traffic associated with the following:

1. The distribution between the companies on the one hand free, but on the other side of the international transport require specific, high requirements for the aircraft to service, to load drivers, the level of service.
2. The international transport market is not a perfect market competition on a global scale. The number of flights undertaken by this or another country depending on the relations between the countries. In fact, there are bilateral quotas. That is, the Ministry of Foreign Affairs shall agree between themselves on the number of flights, and then transmit specialized agencies sharing among law firms.
3. Market, as already noted, is bilateral, that is, if the contract to increase the flights, they are divided in half between the countries is actually limited to demand that creates additional limitations in predicting and managing daily operations of airlines.

For domestic traffic, the main features is the availability of local carriers that do not go to the international level, and flights that serve 2.1 (Ternopilavia ") and which do not compete with larger companies. Also, in order to lower fleet requirements. There is usually a lower level of service. And, if objectively there oligopoly structure is shown in a somewhat different context: this competition railways, road transport and aviation. And here, primarily by price range wins UZ. And the basis for this advantage is economies of scale. [7, p.205]

 

 

 

2.3 Problems, that appears in national companies on the oligopoly market

 

For nearly 20 years in Ukraine took place the transition from planned economy to market administration, in which more than half of all goods and services produced by business entities that operate under conditions of significant competition. However, the ratio of competitive and monopolistic sectors experiencing now in Ukraine's economy was characterized by industrial countries in the middle of the twentieth century. Excessive weight is a total production area of natural monopolies, imperfect - the mechanisms of state regulation in this area, is unreasonably high level of concentration in a number of potentially competitive markets, particularly regional and local, in most markets is not a level playing field for all economic entities. [4, p.198]

Examples of national commodity markets olihopolnoyu structure in Ukraine at this time are: coke market (the market there are 13 producers, the share of three largest in recent years was 42 - 51 percent), motor gasoline market (by market operators are seven large enterprises in total for three the biggest exceed 67 per cent), the beer market (about 94 percent of the market to the four competing entities), tobacco (from 22 economic entities operating in the market share of the three largest of more than 75 percent, five largest - over 97 percent), peat (the market in 2004 there were 32 participants, the three largest share - over 55 percent), cement (the largest share of the three entities is more than 40 percent, top five - over 60 percent) . At the regional level oligopoly structure are mostly markets for processing of agricultural products.

In some cases, there is increased concentration oligopoly markets: for example, the combined share of the four largest producers of beer increased from 88 percent in 2007 to 94 - in 2009 total for the two largest mobile operators - from 85 percent in 2005 to 98 percent - in 2009. [10, p.32]

It should be noted that in most markets with oligopoly structure observed growth. For example, the mobile services for 2004 - 2009 years has increased

7 times, cement production has increased 2.1 times, production of beer in 2004 - 2008 increased by 80 percent. This is largely due to a combination of oligopoly market is intense competition between the participants with the benefits of scale.

The main problems in oligopoly markets can be divided into several main groups:

1. Wide. These include problems associated with corruption and shadow economy activities, the crisis in the economy (at present time).
2. Special:
• Almost all oligopoly markets are held in a particular process of development cycle, which occurs in the middle of consolidation and monopolization (duopolisation), followed by recovery oligopoly structure that makes viewing strategy.
• Ukrainian oligopoly markets characterized by the presence of a leader on the market that having more than 35% market share regularly checked by the AMC.
• Inconsistency of policy the agency's regulation oligopoly markets.
• Price war.
• Unfair competition, advertising war, Black PR.
• Raiding, this became one of the main ways to fight competition in Ukraine.

In Ukraine there is considerable possibility of imposing fines for participating in the cartel collusion. In particular the Law of Ukraine "On protection of economic competition:" Penalties could reach ten percent of income (earnings) of the entity from the sale of products (goods and services) for the last reporting year preceding the year in which fine. And the income (proceeds) of an entity from the sale of products (goods and services) is defined as the aggregate value of income (proceeds) of products (goods and services) all legal and natural persons in the group that is recognized entity ".[13, p.98]

However, it appears that the Antimonopoly Committee of Ukraine - the main government body that monitors compliance with the law on protection of economic competition - until it fully utilizes the potential imposition of fines. As the largest fines to date know that sometimes they reached approximately 100 million, but the use of such a high fee is actually an exception to general practice.

On the one hand, this practice does not necessarily indicate a problem. Maybe we just are not there are violations that would require more frequent use of high fines. The problem, according to many economists, it appears in another. Currently unclear is the calculation of the Antimonopoly Committee of Ukraine the amount of fines imposed in each case. It is unclear, particularly whether the Antimonopoly Committee of Ukraine carries out mathematical comparison of the damage caused to consumers and violators received benefits. Without such analysis, the fine can be lower on profit and completely lose their punitive function. Calculations of penalties assessed, unfortunately, are not disclosed. As a result, this practice does not add transparency in the work of the Antimonopoly Committee of Ukraine. [8, p.251]

So at this stage there are a number of issues of general as well as special character. However, is not the greatest threat to stability problems of institutional regulation of cartels, which leads to even greater economic imbalances in the business environment. [5, p.172]

 

 

 

2.4 The ways of improvement the national company’s strategic behavior on oligopoly market

 

Ukrainian oligopoly, including diversified and multi-complexes, are among the most profitable enterprises. Often they are the city and forming, and they provide competitive advantages of Ukraine in the international market (steel plants). Therefore, their economic efficiency (profitability) is undisputed. On the main ways to improve, it is clear that in economic terms need some enterprises fixed assets (air, metallurgy), and an internal demand for goods (JSC KhTW, other metallurgical plants) because their orientation solely on foreign markets together with their role for local and state budget creates additional risks to public finances. Pay particular attention to institutional aspects of development. Primarily, it refers to criminal liability for cartel collusion. Either way, the society of Ukraine can not quite ready to apply criminal sanctions for anticompetitive concerted actions are not fully aware that the law on economic competition is enshrined in the Constitution of Ukraine, and society, each individual consumer can pay twice or even three times more for certain goods or services without even knowing the reason for inflated prices could be a cartel conspiracy. [10, p.93]

Requires practical implementation of the mechanism of partial exemption from liability for disclosure or conspiracy to anti-competitive actions. Ukrainian antimonopoly legislation provides for the possibility of use of full or partial exemption from administrative liability for participation in the cartel conspiracy voluntary disclosure because of collusion cartel participant (but only for full immunity, reduction of fines is not expected within that program), but in practice the relevant provisions of Ukrainian law still not working at the proper level. For effective use of such programs in Ukraine should consider and balance several important issues raised in the experience of practical application of such programs in other states. It also should include the application fee and the subjects which are still not in Ukraine. [13, p.232]

 

Requires precise control of the ecological compatibility, since large companies often are the main polluters of the environment that adversely influence the ecological environment as a whole.

And fourth, and perhaps the most important and most urgent. Necessary to Ukrainian companies, large companies and usually operate on oligopoly markets were measures of social responsibility. This will enable businesses to develop and effectively relieve social tension in society. [3, p.154]

Also, the stage must be clearly provided crisis management, allowing companies to operate effectively. On the other hand, in many areas of the crisis had already done that "could not" make the market - restructuring. For example, airlines, trying to maintain market position, engrain new services (such as online check-in) and rates (promotions and discounts) agreed on joint flights under code sharing. Much attention is paid to optimize the cost: reduced state, the frequency of flights and even abandoned some areas. The total number of flights per year decreased by 16.14% to 84.2 thousand fleet optimization was found some old aircraft changed to more efficient new or completely rejected the part of the fleet. If Dnipravia such measures helped to increase passenger traffic at 45.1%, the resulting Airlines lowered the volume of traffic on 44,8% (in 2008 carried 2.51 million people), lost market leadership. The largest company last year was May, it carried 1.56 million (-7.6% to 2008). [12, p.144]