Causes and signs of market monopolization. Abstract: Market monopolization, measurement and impact on efficiency
Monopoly - (from one and Greek Poleo - I sell), an exclusive right in a certain area of the state, organization, firm.
Market monopolization is a situation in the economy when one or several large producers or sellers have an overwhelming advantage in the market in the production and sale of a certain range of goods, which leads to monopolization of prices and the establishment of dictatorship in the market.
Monopolies are large economic associations (cartels, syndicates, trusts, concerns, and so on) that are privately owned (individual, group or joint-stock) and exercise control over industries, markets and the economy based on a high degree of concentration of production and capital in order to establish monopoly prices and extracting monopoly profits. Dominance in the economy is the basis of the influence that monopolies have on all spheres of a country's life. Ultimately, this enables the monopolist to redistribute effective demand in its favor and receive monopoly high profits, which is the main reason for the monopolization of the market.
Modern theory distinguishes three types of monopolies:
- 1) the monopoly of an individual enterprise;
- 2) monopoly as an agreement;
- 3) monopoly based on product differentiation.
It is not easy to achieve a monopoly position in the first way, as evidenced by the very fact of the exclusivity of these entities. In addition, this path to monopoly can be considered "decent", since it provides for a constant increase in performance, achieving an advantage over competitors. More accessible and common is the way of agreement between several large firms, it makes it possible to quickly create a situation where sellers (manufacturers) act on the market as a “united front”, when competition, primarily price, is nullified, the buyer finds himself in uncontested conditions. A monopoly based on product differentiation creates a market of monopolistic competition. Depending on the occurrence, a monopoly is distinguished:
- * natural;
- * administrative;
- * economic.
Let's talk about them in more detail.
Natural monopoly arises due to objective reasons. It reflects a situation where the demand for a given product is best satisfied by one or more firms. It is based on the features of production technologies and customer service. Here competition is impossible or undesirable. An example is energy supply, telephone services, communications, etc. There are a limited number, if not a single, national enterprise in these industries, and therefore, naturally, they have a monopoly position in the market.
Administrative monopoly arises as a result of the actions of state bodies. On the one hand, this is the granting to individual firms of the exclusive right to perform a certain type of activity. On the other hand, these are organizational structures for state-owned enterprises, when they unite and report to different heads, ministries, associations. Here, as a rule, enterprises of the same industry are grouped. They act on the market as one economic entity and there is no competition between them. An example is the economy of the former Soviet Union. It belonged to the most monopolized in the world. It was precisely the administrative monopoly that dominated there, primarily the monopoly of ministries and departments.
Economic monopoly is the most common. Its appearance is due to economic reasons, it develops on the basis of the laws of economic development. We are talking about entrepreneurs who have managed to win a monopoly position in the market. There are two paths leading to it. The first is the successful development of the enterprise, the constant increase in its scale through the concentration of capital. The second (faster) is based on the processes of centralization of capital, that is, on the voluntary association or absorption of bankrupt winners. In one way or another, or with the help of both, the enterprise reaches such proportions when it begins to dominate the market.
A special type of monopolies is international monopolies. The economic basis for the emergence and development of international monopolies is the high degree of socialization of capitalist production and the internationalization of economic life. There are two types of international monopolies. The first is transnational monopolies. They are national in capital and control, but international in scope. For example: the American oil concern "Standardoil of New Jersey", which has enterprises in more than 40 countries, assets abroad account for 56% of their total amount, sales volume 68%, profits 52%. The vast majority of the production facilities and sales organizations of the Swiss food concern Nestlé are located in other countries. Only 2-3% of the total turnover comes from Switzerland.
The second variety is actually international monopolies. A feature of international trusts and concerns is the international dispersal of share capital and the multinational composition of the core of the trust or concern. For example: the Anglo-Dutch chemical-food concern "Unilever", the German-Belgian trust of photochemical goods "Agfa-Gevert".
There are also five main forms of monopoly associations. Based on the monopolization of the sphere of circulation, the simplest forms of monopolistic associations arose - cartels and syndicates.
A cartel is an association of several enterprises of the same sphere of production, whose participants retain ownership of the means of production and the product produced, industrial and commercial independence, and agree on the share of each in the total production volume, prices, markets.
A syndicate is an association of a number of enterprises in the same industry, the participants of which retain funds for the means of production, but lose ownership of the product produced, which means that they retain production, but lose their commercial independence. In syndicates, the sale of goods is carried out by a common sales office.
More complex forms of monopolistic associations arise when the process of monopolization extends to the sphere of direct production. On this basis, such a higher form of monopolistic associations as a trust appears.
A trust is an association of a number of enterprises in one or more industries, the participants of which lose ownership of the means of production and the product produced. That is, production, marketing, finance, management are combined, and for the amount of invested capital, the owners of individual enterprises receive trust shares, which give them the right to take part in management and appropriate a corresponding part of the trust's profit.
The next form of monopolistic associations is a diversified concern.
A diversified concern is an association of tens and even hundreds of enterprises in various industries, transport, trade, whose participants lose ownership of the means of production and the product produced, and the main company exercises financial control over other participants in the association.
But monopolistic associations cannot be formed out of the blue, reasons are needed for this, therefore economic theory identifies three reasons for the existence of monopolies:
First reason: If the production of any volume of output by one firm is cheaper than its production by two or more firms, then the industry is said to be a natural monopoly. And the reason here is economies of scale, the more products are produced, the lower their cost.
The second reason is that a single firm has control over some rare and extremely important resources, either in the form of raw materials or in the form of patented or secret knowledge. For example, De Beers' diamond monopoly relied on control of raw materials.
Third reason: government restriction. Monopolies exist because they buy or are granted the exclusive right to sell some good. In some cases, the state reserves the right to a monopoly; Gazprom has a monopoly on gas supplies to Europe. In a number of countries, only state monopolies can sell tobacco.
Monopolies, thanks to the high level of concentration of economic resources, create opportunities for accelerating technical progress. However, these opportunities are realized in cases where such acceleration contributes to the extraction of high monopoly profits. Joseph Schumpeter and other economists have argued that large firms with significant power are desirable in economics because they accelerate technological change, since firms with monopoly power can spend their monopoly profits on research to protect or strengthen their monopoly power. power. By engaging in research, they provide benefits both to themselves and to society as a whole. But there is no convincing evidence that monopolies play a particularly important role in accelerating technological progress, since monopolies can delay the development of technical progress if it threatens their profits.
On the whole, it is difficult to speak of any public benefit brought by monopolies. However, it is impossible to completely do without monopolies: natural monopolies are practically indispensable when the characteristics of the factors of production used by them do not allow the presence of more than one owner, or the limited resources lead to the unification of their owners. Either way, the lack of competition stifles the development of an industry in the long run, since a monopoly creates the greatest resource inefficiency than firms of other types of imperfect competition or almost perfect competitors.
SECTION VI. MARKET STRUCTURE AND PRICE
Given the functions of supply and demand, the specific level of the market price also depends on the totality of market characteristics that form the so-called market structure. This means that the structure (type) of the market where supply and demand meet is an important pricing factor. By combining various properties of the market, you can create a large number of market structures, but the most common of them in the market of goods are perfect competition, monopoly, monopolistic competition, oligopoly.
perfect competition market characterized by the presence of many buyers homogeneous good and many of its sellers, each of which accounts for a small part of the industry supply.
Note that the market is market for a homogeneous good , if the goods circulating on it are perceived by the consumer as absolutely (or completely) interchangeable goods. In that case, if the goods circulating on the market are perceived by the consumer as partially substitutable, then we have market for a heterogeneous good .
The market of perfect competition is also characterized by the fact that it is open and all participants in transactions have complete information about the course and results of trading. Obviously, in such conditions, the balance between supply and demand will be established at a single price for all.
The equilibrium of a perfectly competitive firm in the long run is characterized by the equality
P=AC=MC=LAC=LMC. (one)
From it it follows that:
The firm's output corresponds to the maximum possible profit, since MC = P;
For a given volume of output, the optimal combination of the factors of production used is provided, since MC = AC, AC = min;
The inflow of capital from other industries will stop in the industry, since P = AC, i.e. production does not generate economic profit.
The number of firms operating in a competitive industry in the long run depends on the nature of the change in returns to scale. Increasing returns to scale reduce the number of competitive firms, contributing to the monopolization of industry supply.
Monopoly market (monopoly)- this is a market of a homogeneous good, in which many buyers are opposed by one, and for other sellers the entrance to this market is closed. Market closure can act both as a directive ban on engaging in some type of economic activity (state monopoly on the production and sale of wine and vodka products), and in the form of the need to make large one-time investments in fixed capital, which, in the event of an exit from the industry, cannot be returned. (costs for the creation of specialized equipment).
In a special category are natural monopolies , the emergence of which contributes to the growth of returns to scale of production. A characteristic feature of a natural monopoly is a decrease in the average costs of a long period up to the complete saturation of industry demand.
Unlike a perfect competitor, a monopolist, being the only producer of a given product in the industry, sets the quantity of output itself, i.e. he determines the volume of supply of the good, as well as the price of the good, choosing a point on the industry demand curve. It means that there is no supply function in a monopoly market as the dependence of supply on price, and the price in a monopolized market is a function of quantity: P = f(Q).
A monopolist can focus economic activity both on maximizing profits and on achieving other goals. When choosing the volume of supply (volume of output), depending on the goals of the monopolist, he relies on data on the dynamics of marginal costs MC (which underlie the supply function of a perfect competitor).
In order to maximize profit, the monopolist must produce such a volume of output at which the marginal revenue (MR) is equal to the marginal cost (MC). So the equality MC=MR
is an monopoly's profit maximization condition, when marginal revenue is decreasing and marginal cost is constant or increasing.
Marginal revenue under a normal, decreasing market demand function is always less than the demand price. The deviation of MR from P depends on the price elasticity of demand. With a straight-line function of industry demand (D), the slope of the marginal revenue (MR) curve is twice as steep as the slope of direct demand.
The process of price setting by a profit-maximizing monopoly is illustrated in Figure 1.
The point of intersection of the lines MR and MC is called Cournot point, it defines the combination of P M and Q M , represented by the point M.
The area of the rectangle P M M23 represents the profit of the monopoly.
The degree of excess of the monopoly price P M over the marginal cost MC K at the monopoly output Q M corresponding to the Cournot point characterizes market power monopolist and is measured using Lerner coefficient (L):
L = (P - MC) / P.
The market or monopoly power of the producer depends on the elasticity of industry demand with the volume of sales Q M .
Monopoly, striving for maximum profit, does not bring output to the optimal volume from the standpoint of society (Q E).
Rice. 1 Profit maximization by monopoly
Society's losses from the monopolization of production increase as it spreads along the vertical of the social division of labor.
A change in the purpose of the economic activity of a monopoly is accompanied by a change in the chosen price-quantity combination. In a monopolized market, the price decreases and the volume of sales increases as one moves from profit maximization to profit maximization and from profit maximization to revenue maximization.
The variety of monopoly prices for a given market demand increases significantly due to the ability of the monopoly to conduct price discrimination (sale of a homogeneous good to different buyers at different prices), which increases both the monopoly's supply by expanding the contingent of buyers, and its profit by reducing consumer surplus. At the same time, differences in prices are not related to the costs of production and delivery of goods to the market.
A necessary condition for the implementation of price discrimination is the impossibility of reselling the good. Therefore, it is most widely used in the service sector.
Terms, providing the opportunity setting different prices for the same good, distinguish the following types of price discrimination:
1) spatial (sale in the city and the countryside);
2) temporary (tickets for daytime and evening screenings);
3) by income of consumers (services of a doctor, a lawyer for the rich and the poor);
4) by the volume of consumption of the good (the maximum required amount and beyond);
5) according to the social status of the consumer (tickets for students and employees).
Depending on the implementation method distinguish three categories (degrees) of price discrimination.
Discrimination in the first degree is the sale of each unit of a good at its demand price.
second degree discriminationis the sale by a monopoly at different prices of different batches of products.
third degree discriminationis the sale of a good by a monopoly at different prices in different market segments. This is possible when the industry demand is divided by the demand of several groups of buyers (market segments) with different demand functions. Here the task of the monopolist is to set for each group of buyers such prices that maximize the total profit.
Carrying out price discrimination allows you to keep consumers with low purchasing power in the market.
Monopolies have a rather contradictory effect on the development of the economy. It can be both positive and negative.
Note first positive the impact of monopolies on the economy.
1. Since a large association of enterprises usually acts as a monopolist, therefore it has the opportunity to:
- apply the latest technologies, take advantage of mass production (have a positive effect on scale) and, on this basis, produce products at lower costs, which obviously leads to resource savings. By creating large-scale production, the monopolies were able to fill the markets with consumer goods and at the same time receive increased profits not only due to high prices, but low production costs;
- allocate more funds to finance research and development of new products and technologies, which contributes to the acceleration of scientific and technological progress;
- resist market fluctuations: during periods of crisis, large firms, and even more so their associations, are more stable, they are less at risk of ruin (and increasing unemployment) than small and medium-sized enterprises.
2. Monopolies, possessing huge capitals, contributed to emergence of new industries, which have become a kind of "locomotives" of national economies. This is the automotive industry, aircraft industry and others related to the category of capital and science-intensive industries, "unbearable" for small and medium-sized producers.
3. The relatively stable position of monopolies in the economy also ensures greater stability for the small and medium-sized companies associated with them, and, consequently, stable employment and incomes for their employees. Having subjugated a significant part of small and medium-sized enterprises, the monopolies at the same time contribute to their greater sustainability thanks to the fact that they became customers for many of them. Quite often, hundreds and even thousands of small and medium-sized enterprises work for one monopoly, supplying it with various parts.
4. At the enterprises of the monopolies themselves, as a rule, better working conditions and pay, than in non-monopolized enterprises, employment is more stable. All this has not only economic, but also social significance.
5. Significant contribution of monopolies to development of intra-company planning, management, marketing which have become important factors in the development of the modern commodity economy. In addition, the monopolies began to develop a system of "human relations" at their enterprises, which is of great socio-economic importance, since it is aimed at fundamentally changing the relationship between enterprise managers and ordinary workers.
6. The products of large companies are often of high quality, which allowed them to gain a dominant position in the market. Monopolization affects the efficiency of production: only a large firm in a protected market has sufficient funds to successfully carry out expensive research and development. It is well known that, although a significant part of the outstanding technical discoveries of the XX century. made by small entrepreneurs, their implementation has become the lot of "big business".
Thus, the existence of monopoly associations has a certain positive impact on the economy.
However, along with positive monopolies have on the economy and society as a whole negative impact.
1. Monopolies have the ability to:
- increase their profits by raising prices without reducing production costs;
- "exploit consumers", overestimating prices against their equilibrium level, reducing the range of products compared to markets where competitive firms operate;
2. Monopolies, being a product of the relations of competition, from the very beginning became crush competitors and, consequently, competition, nullifying the advantages of a commodity economy associated with it.
3. Practice monopolistic pricing was one of the reasons that the average price level in the markets acquired an upward trend. It is not uncommon for monopolies to make cosmetic changes to the goods they produce, pass them off as new or better quality and sell them at high prices.
4. Since the monopoly appears as the only producer and seller of some product, it seeks to influence demand, making it more predictable, but not in the interests of consumers.
Monopolies began to use methods of direct manipulation of consumer behavior, encouraging them to buy goods they do not always need, widely using advertising for this purpose.
5. Monopolies proved capable restrain scientific and technological progress, because they found it more profitable for themselves to increase profits by raising prices, rather than reducing costs. Moreover, in order to maintain their monopoly position in the markets for certain products, they can buy up patents, the use of which allows the production of substitute products that can compete with monopoly products. Patented inventions are often hidden from society and not used.
6. Since any monopoly seeks to expand its sphere of influence, the monopolies began to invade the sphere of state activity: legislation, administration, foreign policy in order to strengthen their economic positions with the help of the state. Moreover, the monopolies have shown a desire subdue the state to make it an instrument of his domination. Thus, with such a striving for monopolies, the state ceases to reflect the interests of the whole society, turning into a kind of "committee in charge" of the affairs of monopolies. Such a transformation weakens the national economy and society as a whole.
Such actions of monopolies lead to a less efficient distribution of society's limited resources compared to perfect competition, generating losses for society as a whole.
Thus, monopolies, by setting a price higher than the equilibrium one, set the volume of production below the efficient one, which leads to irretrievable losses of society. The activity of monopolies increases the uneven distribution of income, which can have negative socio-political consequences.
Since the activities of monopolies lead to the restriction of competition and the violation of the objective laws of the market, it causes serious damage to consumers and society as a whole, i.e. is antisocial in nature, then the protection of free competition and the restriction of the activities of monopolies is one of the most important functions of the state.
To counteract unjustified monopoly in developed countries, antitrust laws and a corresponding system of authorities are in place.
Antimonopoly policy of the state is a set of economic and administrative measures (a set of laws) aimed at encouraging and protecting competition and limiting monopoly manifestations. It includes both measures that prevent the emergence of new monopolies and measures directed against existing monopolies.
The first question that arises when taking measures aimed at the demonopolization of markets is the question of the fact of monopolization.
The legislation of most countries assumes that the market is monopolized if:
1) one seller accounts for 33%;
2) for the share of three - 50%;
3) for the share of five - 66.6% of the market turnover (total sales in a particular market).
According to the Law of the Russian Federation “On Competition and Limitation of Monopolistic Activity in Commodity Markets” (1991), a market is considered monopolized if the share of one seller on it is more than 35%.
In general, a market is said to be competitive if it has at least 10 sellers.
The threshold market share as a characteristic of the market structure has the disadvantage that it is applied (especially in its domestic interpretation) to an individual firm and, in fact, does not characterize the structure of the market for a given product as a whole. Therefore, as the main characteristic of the market structure, the so-called Herfindahl-Hirschman index, and to determine the degree of monopoly influence of the firm is used Lerner index.
Market Concentration Index (Herfindahl-Hirschman index ) is used to determine the degree of market monopolization:
H \u003d p 1 2 + p 2 2 + ... + p p 2,
where: H– concentration indicator;
r 1 , r 2 , ... r n is the percentage of firms in the market.
For example, if there are 10 firms on the market, each of which accounts for 10% of the market turnover, then HHI = 1000 (10 x 100); merging two firms into one and increasing its share to 20% immediately increases the HHI to 1200 (8 x 100 + 400).
Example. Let us estimate the degree of market monopolization in two cases: when the share of one firm is 80% of the total sales of this product, and the remaining 20% is distributed among the other three firms, and when each of the four firms carries out 25% of sales in the market.
The market concentration index will be:
in the first case, H \u003d 80 2 + 6.67 2 + 6.67 2 + 6.67 2 \u003d 6533;
in the second case, H \u003d 25 2 x 4 \u003d 2500.
In the first case, the degree of market monopolization is higher.
Based on the IXX, the state regulates competition in the markets. So, in the US, if:
1) XXX is less than 1000, then the market is considered non-concentrated, and any mergers and acquisitions are allowed;
2) IXX is greater than 1000 but less than 1800, then the market is considered moderately concentrated, and mergers are allowed, but special rules are introduced to guarantee new enterprises the opportunity to enter an already developed market;
3) XXX is greater than 1800, then the industry is considered highly monopolized, and mergers and acquisitions are prohibited.
Lerner index. As a measure of the market ( Monopoly power is the amount by which the profit-maximizing price exceeds marginal cost. Under pure competition, price equals marginal cost and marginal revenue: P=MC=MR which allows you to maximize profits. For a monopoly, price exceeds marginal cost P>MC. This method of determining monopoly power was proposed in 1934 by the economist Abba Lerner and is called the Lerner measure of monopoly power:
L = (P - MC) / P,
where: L– Lerner index of monopoly power;
R– monopoly price;
MS- marginal cost;
The numerical value of the Lerner coefficient is always between 0 and 1. Under perfect competition MS = R. Hence, L = 0. If L is a positive value ( L > 0), the firm has monopoly power.
The higher the Lerner index, the higher the firm's monopoly power.
By itself, the number of firms does not give an idea of how monopolized the market is.
The state in the fight against monopolies uses economic and administrative (legislative) measures.
Administrative measures aimed at the demonopolization of markets and the prevention of the accumulation of monopoly power by firms, are based on the relevant antimonopoly (antitrust) legislation.
All market economy countries have antimonopoly laws aimed at preventing monopoly manifestations in the markets, as well as unfair competition.
Legislative measures usually include:
3) forced demonopolization (fragmentation of monopoly firms);
4) nationalization of monopolistic companies in order to ensure the production of goods necessary for other companies and their sale at affordable prices.
The negative impact of monopolies on the economy and society as a whole was revealed already at the end of the 19th century. Reflecting the interests of society as a whole, the state in a number of countries began to take measures directed against monopolies. In 1890, for the first time in the world, the Sherman antitrust law was passed in the United States, which prohibited monopolistic collusion and association. He recognized as illegal and criminally punishable the monopolization of trade, the seizure of control over a particular industry, and collusion on prices. However, in legal terms, the law was far from perfect, and the monopolies retained the possibility of circumventing it. Therefore, in the United States in 1914, another antitrust law appeared, the Clayton law, directed against the creation of trusts and called "antitrust".
Since then, the United States has passed many laws that limit the power of monopolies, on the basis of which dozens of cases are heard in courts each year accusing certain companies of monopolizing markets.
For example, the lawsuit against AT&T (American Telegraph and Telephon), which was accused of monopolizing the telephone service market, was widely known. Based on a court decision, the company was split into 10 independent firms. The result of the creation of competition in the market of telephone services was a halving of prices for the corresponding services.
Another well-known example is the case against IBM (1969), which was accused of capturing 75% of the computer market and setting prices so low that they prevented competitors from entering the market. This process was won by IBM, which was able to prove that consumers benefit from low prices.
It should be noted that the antitrust laws of Western European countries are more liberal than those of the United States.
However, the real antitrust laws did not come into effect until after the Second World War. This was due to both a more thorough legal study of the antimonopoly legislation, and the strengthening of the power of the state, which became capable of counteracting the power of monopolies.
In Russia, the “Law on Competition and Restriction of Monopolistic Activities in Commodity Markets” was first adopted at the end of 1991 and the Antimonopoly Ministry was established to implement state policy to limit monopolistic activities.
The spearhead of antitrust law from the outset was directed not against large firms in general, but against firms that monopolized the market through restrictive practices. We are talking about the capture of resources (raw materials, energy, etc.); mergers and acquisitions of companies, an agreement between companies on the division of markets for products.
In all countries, except for the antimonopoly legislation, there are special systems of control over antimonopoly activities, special state bodies have been created. In the USA it is the Federal Trade Commission, in Germany it is the Federal Cartel Administration, etc. The Federal Antimonopoly Service (or simply FAS) has been created in Russia. TO the main tasks of the FAS relate:
- assistance in the formation of market relations based on the development of competition and entrepreneurship;
– prevention, restriction and suppression of monopolistic activity and unfair competition;
– state control over compliance with antimonopoly legislation.
Antimonopoly policy, directed against the monopolization of markets where competition is effective and necessary, is combined with the control and regulation of the activities of natural monopolies, which, under certain conditions, are preferable to competition.
In Russia, the regulation of the activities of natural monopolies is carried out on the basis of the Federal Law “On Natural Monopolies” adopted on July 19, 1995, which determines the legal basis for federal policy in relation to natural monopolies in the Russian Federation and is aimed at achieving a balance of interests of consumers and subjects of natural monopolies.
The purpose of state regulation of the activities of natural monopolies is to ensure, on the one hand, the availability of goods sold by them to consumers, on the other hand, to create conditions for the effective functioning of subjects of natural monopolies.
For these purposes, the bodies regulating the activities of natural monopolies may carry out:
- price regulation through the establishment of prices (tariffs) or their maximum level;
- determination of consumers subject to mandatory service, based on the need to protect the rights and legitimate interests of citizens, ensure the security of the state, protect nature and cultural values.
Economic measures support of competition and the fight against monopoly is a set of tools with the help of which the possibilities of exercising the monopoly power of sellers are limited. Among the instruments of antimonopoly policy, direct and indirect ones are distinguished.
TO direct methods of regulation(restrictions) on the activities of monopolies include the establishment of:
1) "price ceiling" - the upper and lower levels of prices for products (no more than such and such, not less than such and such);
2) the marginal rate of price growth;
3) the marginal level of the rate of profit.
TO indirect methods of antimonopoly policy can be attributed to all types of state activities aimed at developing competition:
1) encouraging the creation of substitute products;
2) support for new firms, medium and small businesses (simplification of the procedure for creating new firms, tax incentives, provision of subsidies, loans);
3) provision of government orders to medium and small businesses;
4) opening of foreign trade borders (free international trade enhances competition in the domestic market);
5) attraction of foreign investments, establishment of joint ventures, free trade zones;
6) financing of measures to expand the production of scarce goods in order to eliminate the dominant position of individual economic entities;
7) state funding of R&D (research and development work).
A modern person can hardly be surprised by the presence of several hundred varieties of cheese and lemonade, a huge number of brands of clothing and technology. On the contrary, he is often confused by the existence of only one manufacturer in the industry. Monopolization of markets is a situation where only one enterprise or person acts as a supplier of a particular service or service. In this case, the consumer has no choice, he is forced to agree to the established price. Monopolizing markets is also the process by which a company is able to raise prices and eliminate its competitors. And such enterprises are not necessarily large, it all depends on the size of the industry in which they operate.
concept
Economists identify four types of ideal market structures:
- Perfect competition. In this situation, there are a huge number of substitute products, and entry into the market is practically unlimited. Everything is decided by the “invisible hand”.
- Monopolistic competition. There are many manufacturers operating in the industry that produce substitute goods. However, companies retain some control over pricing. This is determined by the levels of market monopolization.
- Oligopoly. In this situation, there are several enterprises that produce similar products. They can develop a common strategy by setting prices in the industry.
- Monopoly. This provides for the presence of only one supplier of products, which has full control over the industry.
Characteristics of a monopoly
The conventional wisdom says that perfect competition is practically a panacea, a compromise between the desires of the seller and the consumer. Most economic models take this structure as a basis. But why, in this case, is the monopolization of markets? This is due to the fact that this state of affairs is extremely beneficial to the manufacturer. First, a monopoly allows you to maximize profits. Secondly, the manufacturer sets the price of his products through the determination of the volume of output. Thirdly, in a monopoly there are large barriers to entry into the industry. A single producer may not fear a rapid increase in competition.
Forms
When a market is monopolized, competition in the resulting structure is a fundamental feature for determining its type. There are three types of monopoly:
- Natural. It arises due to objective reasons. This means that the demand for a given product is best satisfied by one firm. The reason may be the peculiarities of the production process or customer service. For example, such industries include energy supply, water supply, and rail transportation.
- Administrative. This is created with the participation of the state. It, in the person of its bodies, grants a certain firm the exclusive right to carry out activities in the industry. The economy of the USSR was extremely monopolized. Most of the enterprises were under the control of departments and ministries.
- Economic monopoly is the most common form. Its appearance is connected with the own initiative of enterprises. Both progressive development and rapid centralization of capital through takeovers and voluntary associations can lead to a monopoly position in the market.
Market monopolization conditions
The structures under consideration can either be created through a series of acquisitions by some companies of others, or be formed naturally in certain industries. The state can also create them. The monopolization of markets is a process centered on three main causes:
- The production of goods by one firm is cheaper than by several. In this case, we can talk about
- One enterprise is the owner of extremely rare resources or technologies. For example, the company Xerox at one time completely controlled the process of making copies. Knowledge of this process has been protected by patents. This is an economic monopoly.
- Granting by the state to a certain enterprise the exclusive right to sell a certain good. In this case, there is a so-called administrative monopoly. In some states, only this form is permitted by law.
Sources of monopoly power
Under perfect competition, the price is equal to the average value of firms operating in this industry. Monopoly is higher. Therefore, this market structure seems to be undesirable for consumers. The main assistant of monopolies are barriers to entry into the industry. They prevent competition. Among them:
- Economic barriers.
- Legislative restrictions.
- Intentional actions.
The first group includes the largest number of restrictive measures. This includes economies of scale. The size of the monopolies allows them to significantly reduce costs, ordinary firms simply cannot compete with them in the price of products. Therefore, their activities cannot be effective, since the cost of the goods they produce is much higher.
Another economic constraint is the investment requirement. If expensive equipment is needed to start production, this will also prevent the emergence of competitors. A monopoly may have a technological advantage or be the owner of the natural resources needed to produce goods.
As for legislative restrictions, this group includes intellectual property rights, including patents. They give the monopoly the exclusive right to produce a product or technology for its release.
The third group of restrictions includes a variety of deliberate actions taken by the monopoly in order to prevent the development of competition in the industry. For example, it can lobby its interests in the government through various corrupt practices.
natural monopoly
This form of the described market structure is often considered separately. This is due to the debate about its usefulness not only for the monopolist, but also for consumers. It occurs when there is a large value of the effect of economies of scale in production. A natural monopoly is a situation where a single firm provides the market with products at a lower cost than several firms would. A striking example is water and electricity supply. However, this does not mean that natural monopolies are completely harmless. Therefore, they need to be controlled by the state.
In international business
The world economy is increasingly influenced by globalization and internationalization. These two processes are responsible for the fact that there is a monopolization of the market for services and services at the international level. There are two types of such structures:
- transnational monopolies. These include, for example, the food concern Nestle or the oil company Standard Oil of New Jersey. Both of these companies are national in terms of the capital that has been invested in them, and international in terms of their field of activity. Most of their production facilities are not located in the home country.
- international monopolies. This type includes the Agfa-Gefert trust, which is engaged in the production of photochemical products. This type of monopoly is international both in terms of its field of activity and in terms of invested capital.
Domestic realities
The monopolization of the Russian market has historical roots. In the USSR, the state almost completely controlled the economy. With the reduction of production in Russia, the demand for the products of industries - natural monopolies, except for communications, is gradually decreasing. This led to a rapid rise in prices in them. Given that these industries are fundamental, this provoked inflation. Some economists see the negative consequences of market monopolization as the main factor behind the crises in Russia.
It is necessary to start with the definition of monopoly.
A monopoly is a market situation in which such a monopoly firm operates, producing goods (s) and / or providing services that do not have close substitutes.
The first monopolies in history were created from above by state sanctions, when one firm was given the privileged right to trade in one or another product. In a pure monopoly, there is only one seller in the market. This may be a government organization, a private regulated monopoly or a private unregulated monopoly. In each case, pricing is different.
A government monopoly can use price policy to achieve a variety of goals: for example, to set a price below cost if the product is important to buyers who are not able to purchase it at full price. The price can be set to cover costs or generate good returns. Or it may be that the price is set very high in order to reduce consumption in every possible way. In the case of a regulated monopoly, the government allows the company to set prices that provide a "fair rate of return" that will enable the organization to maintain production and, if necessary, expand it.
Conversely, under an unregulated monopoly, the firm itself is free to set any price that the market can bear. However, for a number of reasons, firms do not always ask for the highest possible price. Here, the fear of introducing state regulation, the unwillingness to attract competitors, or the desire to quickly penetrate - thanks to low prices - to the entire depth of the market can play a role. The monopoly controls the sector of the market it occupies completely or to a large extent. The antimonopoly legislation of many countries considers the occupation of 30-70% of the market by one firm as a monopoly and provides for various sanctions for such firms - price regulation, forced division of the firm, large fines, etc.
Types of monopolies:
- 1) Natural monopoly - a firm whose average long-term costs are declining over the entire range of demand due to increasing returns to scale is a natural monopoly. Thus, one firm can satisfy the entire market demand for a good at a lower average cost than would be possible if two or more competing firms supplied exactly the same quantity of the good.
- 2) State monopoly - state monopoly on the production and sale of consumer goods (tobacco, salt, etc.). It can be complete if the state monopolizes both production and sale of goods, or partial if only production or only sale is monopolized.
- 3) Pure monopoly - a situation in the market of goods and services, characterized by the presence of only one seller of this type of goods or services. Characteristic features of this situation are: uniqueness of the product, ownership of the main types of raw materials, low average costs, patent rights, special privileges (licenses). Pure monopolies usually arise where there are no alternatives to a given product or service, there are no close substitutes.
A pure monopoly is characterized by a high level of prices, the further growth of which is restrained only by the risk of a decrease in demand.
Also, there are other types of economic entities with a privileged position in the market:
4) Oligopoly - a type of market structure of imperfect competition, which is dominated by an extremely small number of firms. Examples of oligopolies include passenger aircraft manufacturers such as Boeing or Airbus, car manufacturers such as Mercedes, BMW, etc.
Also, oil-producing countries united in "OPEC", often called a cartel.
An oligopoly with two members is called a duopoly.
An oligopolistic market consists of a small number of sellers who are highly sensitive to each other's pricing and marketing strategies. Goods may be similar (steel, aluminum) or may not be similar (cars, computers). The small number of sellers is explained by the fact that it is difficult for new applicants to penetrate this market. Each seller is sensitive to the strategy and actions of competitors. For example, if a steel company cuts prices by 10%, then buyers will quickly switch to that supplier. Other steel producers will have to respond either by lowering prices or by offering more or more services. The oligopolist is never sure that he can achieve any long-term result by lowering prices. On the other hand, if the oligopolist raises prices, competitors may not follow suit. And then he will have to return to the previous prices, or risk losing clientele in favor of competitors.
- 5) Trust - one of the forms of monopolistic associations, in which participants lose their industrial, commercial, and sometimes even legal independence. The real power in the trust is concentrated in the hands of the board or the parent company.
- 6) Cartel - a form of monopolistic association or agreement. Unlike other, more stable forms of monopolistic structures (syndicates, trusts), each enterprise included in the cartel retains financial and production independence. The objects of the agreement can be: pricing, spheres of influence, terms of sale, use of patents, regulation of production volumes, agreement on the terms of sales of products, hiring workers. Operates, as a rule, within the same industry. It hinders the functioning of market mechanisms. In a number of countries (where cartels are prohibited) subject to antitrust laws; in other countries, on the contrary, the creation of cartels is encouraged in order to restructure the industry, standardize materials and components, and limit competition between small firms.
- 7) A syndicate is an organizational form of a monopolistic association, in which the companies included in it lose their commercial marketing independence, but retain legal and industrial freedom of action. In other words, in a syndicate selling products, the distribution of orders is carried out centrally.
There are other monopolies, but I decided to highlight the main and most common types.
It should also be noted that there are huge and sometimes insurmountable barriers to entry into a monopolized sector of the economy, such as:
- 1) Economies of scale - an economic pattern, according to which the total cost of producing a unit of output over a long period of time falls as the volume of output increases. Economies of scale are due to the following. First, as output increases, fixed costs are spread over more and more products. Second, as the size of the enterprise increases, it becomes possible to specialize labor, as a result of which workers work more productively. Thirdly, the savings are due to a more complete use of fixed assets.
- 2) Legal restrictions: patents, tariffs and quotas in international trade.
- 3) High entry costs are economic barriers. In some industries (for example, in the aviation industry), it can be very expensive to start production.
- 4) Control by the monopolist of the sources of receipt of the necessary raw materials or other specialized resources.
- 5) Advertising activities. It builds consumer confidence and respect for well-known brands, thereby raising barriers to entry.
Thus, the existence of monopolistic associations has a beneficial effect on the development of the economy. At the same time, monopolies have the ability to:
- increase their profits by raising prices without reducing production costs;
- · "exploit" consumers, overestimating prices against their equilibrium level;
- · weaken or even eliminate competition, along with its beneficial effect on production efficiency, product quality, and the level of production costs.