Unit 5 Types of market: Oligopolies

1. Theory issues revising

Exercise 75. Read the words for the texts and say, which words you have already known from the course of Economics.

Vocabulary

to derive	происходить
over	указывает на более высокое положение, старшинство, господство, власть и т. п. над
to be aware of	быть осведомленным; отдавать себе отчет
to involve	втягивать, вовлекать
to take into account	принимать во внимание, в расчет
likely	вероятный, возможный
response	ответ, отклик
quantitative	количественный
concentration ratio	показатель (коэффициент) концентрации (индикатор остроты конкуренции на рынке, рассчитываемый как сумма рыночных долей первых n крупных фирм, функционирующих на рынке)
to utilize	использовать, употреблять
to give rise	вызывать, давать повод, давать начало
wide range	широкий диапазон
outcome	выход продукции
to collude	тайно сговариваться, участвовать в заговоре
inherent	неотъемлемый, присущий, свойственный (in, to - кому-л., чему-л.)
to acknowledge	признавать
market leader	лидер рынка
fierce	жестокий
to approach	приближение, сближение (по качеству, характеру и т. п.)

Exercise 76. Read the text and answer the study questions below:

What oligopoly is?

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). The word is derived from the Greek for a few over many. Because there are few participants in this type of market, each oligopolist is aware of the actions of the others. The decisions of one firm influence, and are influenced by the decisions of other firms. Strategic planning by oligopolists always involves taking into account the likely responses of the other market participants. This causes oligopolistic markets and industries to be at the highest risk for collusion.

Oligopoly is a common market form. As a quantitative description of oligopoly, the eight-firm concentration ratio is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage. Using this measure, an oligopoly is defined as a market in which the eight-firm concentration ratio is above 50%.

Oligopolistic competition can give rise to a wide range of different outcomes. In some situations, the firms may collude to raise prices and restrict production in the same way as a monopoly. Where there is a formal agreement for such collusion, this is known as a cartel.

Firms often collude in an attempt to stabilize unstable markets, so as to reduce the risks inherent in these markets for investment and product development. There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place (although for the act to be illegal there must be a real communication between companies) - for example, in some industries, there may be an acknowledged market leader which informally sets prices to which other producers respond, known as price leadership.

In other situations, competition between sellers in an oligopoly can be fierce, with relatively low prices and high production. This could lead to an efficient outcome approaching perfect competition. The competition in an oligopoly can be greater than when there are more firms in an industry if, for example, the firms were only regionally based and didn't compete directly with each other.

Study questions:

1. What kind of market can be called oligopolistic?

2. How do firms interact in the oligopolistic market?

3. Can oligopolies stabilize the market?

4. How many firms constitute an oligopolistic market?

5. Can oligopolists organize a cartel? Why?

6. In what Russian industries do we have oligopolies?

7. What does the ‘price leading’ mean?

8. What are the positive and negative factors of oligopolising the market?

9. Why do oligopolies exist? List five oligopolies whose products you own or regularly purchase.

10.What distinguishes oligopoly from monopolistic competition?