Algirdas Krivka

Application of game theory for duopoly market analysis

The paper provides the analysis of game theory models application to identify duopoly market equilibrium (quantities sold and market prices), to evaluate and compare the results of enterprises in a market. The purpose of the analysis is to determine to what extent theoretical models correspond to real life, that is how reliable they are in supporting and estimating decisions of duopoly companies, fortifying market prices and quantities sold, evaluating companys competing positions and possibilities for decision co‐ordination. To describe discrete strategies equilibrium the “Prisoners Dilemma” model is applied to a hypothetic market entrance game with possible side payments. Further analysis of the market entrance game incorporates mixed strategies based “Matching Pennies” model in case discrete strategies equilibrium does not exist. Continuous strategies are described analyzing hypothetic duopoly by applying Cournot, Stackelberg and Bertrand models. The first and the second mover advantage issues are raised comparing outcomes of dynamic Stackelberg and Bertrand games for a leader and a follower. Stability and utility of cartel agreement for its participants is mathematically supported with the help of a multi‐step repeated Cournot game. Having described, compared and applied the main game theory models to artificial duopoly market situations, the author passes over to the comparative analysis of the models’ weaknesses and problems related to their practical application.

Optimal Market Structure: Free Competition and Consumer Sovereignty

The article comprises the scientific literature based on analysis of the classical market structures: pure competition, monopoly, oligopoly and monopoly competition – in order to identify the consumer-optimal market structure. The optimal market structure is considered to be the one maximizing consumer surplus from the price-quality combination of the product. Nevertheless, the pure competition is traditionally considered to be the most effective market structure, the possibility of its existence in the real world is limited by its numerous assumptions, and thus the optimal market structure is Verslas: teorija ir praktika, 2008, 9(4): 306–312 307 searched for among the imperfect competition models. The analysis of the monopoly takes into account the circumstances of its establishment, distinguishing natural, administrative (closed) and economic (open) monopolies and their impact on consumer wealth. As for oligopoly and monopoly competition market structures, the product differentiation is indicated to be of primary importance to satisfy the individual needs of consumers. Also the relationship between the market structure and research and development intensity is touched upon to compare market structures’ effectiveness. The main criterion for defining the optimal market structure, developed throughout the paper, is the consumer sovereignty concept, that is the ability of sovereign consumers to indirectly affect the formation and further development of the market structure in a free from the government intervention or other artificial impact environment.Straipsnyje, remiantis teorine moksline literatūra, atliekama klasikinių rinkos struktūros modelių: grynosios konkurencijos, monopolijos, oligopolijos ir monopolinės konkurencijos – analizė, siekiant nustatyti vartotojų atžvilgiu optimalią rinkos struktūrą. Optimali rinkos struktūra straipsnyje suprantama kaip geriausiai atitinkanti vartotojų poreikius – užtikrinanti galimybe įsigyti vartotojų pervirsį maksimizuojancio kainos ir kokybės derinio produkciją. Teorinis grynosios konkurencijos modelis, nepaisant tradicinės nuomonės dėl jo efektyvumo, realiame pasaulyje neegzistuoja dėl neispildomų modelio prielaidų, todėl optimalios rinkos struktūros ieskoma tarp netobulos konkurencijos modelių. Monopolinės rinkos analizuojamos priklausomai nuo jų atsiradimo priežascių, isskiriant natūralios, administracinės (uždaros) ir ekonominės (atviros) monopolijų poveikį vartotojų gerovei. Oligopolinėse ir monopolinės konkurencijos rinkose pabrėžiama produkcijos diferencijavimo svarba vartotojų individualiems poreikiams tenkinti. Kaip galimas argumentas pranasesnei rinkos struktūrai nustatyti nagrinėjama tyrimo ir plėtros intensyvumo priklausomybė nuo įmonės dydžio ir rinkos struktūros. Pagrindiniu kriterijumi optimaliai rinkos struktūrai nustatyti laikoma vartotojų suverenumo koncepcija, kuria remdamiesi vartotojai laisvoje, valstybės nevaržomoje rinkoje patys netiesiogiai skatina rinkos struktūros formavimąsi ir tolesne jos raidą.

The Research on Business Concentration in Lithuanian Economy

The trend of growing business concentration has become common for the process of developing of Lithuanian economy nowadays; besides, high concentration in certain industries could be related to the former state monopoly privatization. A market or an industry, dominated by several producers or sellers, is considered to be oligopoly. The economists of the neo-classical school, accompanied by the scholars of modern microeconomics and industrial organization, associate oligopoly with a threat of cartels or other agreements on coordination of behaviour, improper use of the dominating position, consumer ineffective equilibrium even in case of fair competition. The article presents the complex research on business concentration in the main sectors of Lithuanian industry, trade and services in an attempt to identify oligopolistic industries and evaluate their weight in the economy of the state. The evaluation of concentration is quantitative: the calculations are made by applying the concentration and the Herfindahl-Hirschman ratios – the ones that are most commonly used in similar researches. The 4-digit (detailed) classification of economic activities, approved by the Department of Statistics to the Government of the Republic of Lithuania, is used to distinguish between industries. Published economic activity level statistics for the calendar year 2006 together with the data on the sales of the largest enterprises in potentially concentrated industries are involved in the research.

Optimali rinkos struktūra: laisva konkurencija ir vartotojų suverenumas

The article comprises the scientific literature based on analysis of the classical market structures: pure competition, monopoly, oligopoly and monopoly competition – in order to identify the consumer-optimal market structure. The optimal market structure is considered to be the one maximizing consumer surplus from the price-quality combination of the product. Nevertheless, the pure competition is traditionally considered to be the most effective market structure, the possibility of its existence in the real world is limited by its numerous assumptions, and thus the optimal market structure is Verslas: teorija ir praktika, 2008, 9(4): 306–312 307 searched for among the imperfect competition models. The analysis of the monopoly takes into account the circumstances of its establishment, distinguishing natural, administrative (closed) and economic (open) monopolies and their impact on consumer wealth. As for oligopoly and monopoly competition market structures, the product differentiation is indicated to be of primary importance to satisfy the individual needs of consumers. Also the relationship between the market structure and research and development intensity is touched upon to compare market structures’ effectiveness. The main criterion for defining the optimal market structure, developed throughout the paper, is the consumer sovereignty concept, that is the ability of sovereign consumers to indirectly affect the formation and further development of the market structure in a free from the government intervention or other artificial impact environment.Straipsnyje, remiantis teorine moksline literatūra, atliekama klasikinių rinkos struktūros modelių: grynosios konkurencijos, monopolijos, oligopolijos ir monopolinės konkurencijos – analizė, siekiant nustatyti vartotojų atžvilgiu optimalią rinkos struktūrą. Optimali rinkos struktūra straipsnyje suprantama kaip geriausiai atitinkanti vartotojų poreikius – užtikrinanti galimybe įsigyti vartotojų pervirsį maksimizuojancio kainos ir kokybės derinio produkciją. Teorinis grynosios konkurencijos modelis, nepaisant tradicinės nuomonės dėl jo efektyvumo, realiame pasaulyje neegzistuoja dėl neispildomų modelio prielaidų, todėl optimalios rinkos struktūros ieskoma tarp netobulos konkurencijos modelių. Monopolinės rinkos analizuojamos priklausomai nuo jų atsiradimo priežascių, isskiriant natūralios, administracinės (uždaros) ir ekonominės (atviros) monopolijų poveikį vartotojų gerovei. Oligopolinėse ir monopolinės konkurencijos rinkose pabrėžiama produkcijos diferencijavimo svarba vartotojų individualiems poreikiams tenkinti. Kaip galimas argumentas pranasesnei rinkos struktūrai nustatyti nagrinėjama tyrimo ir plėtros intensyvumo priklausomybė nuo įmonės dydžio ir rinkos struktūros. Pagrindiniu kriterijumi optimaliai rinkos struktūrai nustatyti laikoma vartotojų suverenumo koncepcija, kuria remdamiesi vartotojai laisvoje, valstybės nevaržomoje rinkoje patys netiesiogiai skatina rinkos struktūros formavimąsi ir tolesne jos raidą.

Market Structure in the Context of Developing Competitive Strategy

The abstract deals with the application of positioning strategies under the conditions of classical market structures. It is discovered that the assumptions of pure competition leave no space for M. Porter’s generic cost leadership and differentiation strategies to be applied. The enterprise’s actions, influencing five competitive forces and implementing generic strategies, are reasonable under the conditions of imperfect competition market structures. The game theory models, applied to oligopoly, indicate the close interaction of enterprises and interdependence of their strategic decisions: cost reduction and differentiation strategies not only increase the profit of the enterprise, implementing the strategy, but by affecting market price and residual demand decrease the competitor’s profit. Article in Lithuanian

Complex evaluation of the economic crisis impact on Lithuanian industries

The paper analyses the impact of the economic crisis of 2008 on Lithuanian industries. The research involves 68 industries identified according to the 2nd-digit level classification of economic activities by Statistics Lithuania. Considering industry to be a complex phenomenon, the crisis effect is evaluated complexly on the basis of the system of 10 financial state and performance indicators belonging to four main groups of enterprise financial ratios: profitability, liquidity, solvency and asset turnover. SAW, TOPSIS and VIKOR multi-criteria decision making methods, widely applied in construction, economics and management, are selected as mathematical tools for quantitative assessment of the economic crisis effect on Lithuanian industries. By applying multi-criteria decision making methods relative positions (ranks) of industries are determined for every year of the period of 2006-2011. The ranks and their changes are further analysed distinguishing pre-crisis, crisis, and post-crisis periods, determining the industries most and least affected by the economic crisis; also, the industries characterised by the fastest and the slowest after-crisis recovery.