The pure monopoly market and its characteristics. The characteristics of a pure monopoly. Barriers to entry into the industry. Demand and income of the monopoly firm. Features of the demand curve of a monopolist

Lecture plan

3. Determination of the price and volume of production in a monopoly.

4. Antimonopoly Policy.

1. The concept of monopoly. Monopoly power. Monopoly Is a market structure in which one firm is a supplier of a product that does not have close substitutes.

The main features of a pure monopoly are as follows:

1) sole seller: an industry consisting of one firm that is the only manufacturer of a given product;

2) the lack of close substitutes for the product: the consumer must buy the product from the monopolist or do without it;

3) the ability to dictate the price, and buyers can only determine how much of the product they can afford to buy;

4) blocked entry into the industry of other firms.

Distinguish the following types of monopolies :

- pure monopoly - availability of a single seller of goods;

- closed monopoly protected from competition by legal restrictions, patent protection, etc .;

- natural monopoly- a model in which long-term average total costs reach a minimum when the firm serves the entire market;

- open monopoly when the firm for a while becomes sole supplier any product without special protection;

– simple monopoly, in which the firm sells its products at the same price to all consumers.

For convenience of analysis, let us consider the last type of monopoly. Monopoly retention is facilitated by barriers to entry into the industry (exclusive rights obtained from government; legal agreements, patents and copyrights, resource ownership; low cost benefits large-scale production). The firm possesses monopoly power when she can influence the price of her product, changing the quantity that she is willing to sell. By limiting the volume of sales, the firm sets a higher price for the product and makes an economic profit. Possession of monopoly power means that the demand curve for the monopoly's products has a negative slope.

There are three consequences of the monopoly's downward demand curve:

- the price exceeds the marginal income (the fact is that the company is a simple monopolist and can sell an additional unit of production only if the price drops);

- the demand curve expresses the relationship between the price and the volume of output, the monopolist simultaneously chooses both of these parameters;

- the profit-maximizing monopolist will stop at the volume of output and the price corresponding to the elastic segment of the demand curve.

Monopoly power means the ability of a firm to influence the price of its products, that is, to set it at its own discretion. Firms with monopoly power are called price producers. Firms operating in a perfectly competitive market can be characterized as price recipients, since they accept the market price as given from the outside, by the market itself, and outside their control. A firm has monopoly power if the price at which it sells an optimal quantity of output exceeds the marginal cost of producing that quantity of output. Of course, the monopoly power of a firm operating in a monopolistic competition or in an oligopoly market is less than the market power of a pure monopolist, but it still exists.

Concentration indicators and its assessment. Herfindahl - Hirschman index used to assess the degree of monopolization of the industry, calculated as the sum of the squares of the shares of sales of each firm in the industry:

HHI = C 2 1 + C 2 2 +… + C 2 n,

where C is the percentage of firms' sales in the industry, defined as the ratio of the firm's sales to the total sales of the industry.

Under pure monopoly, when the industry consists of one firm, the Herfindahl-Hirschman index is 10,000. For two firms with equal shares H = 50 2 + 50 2 = 5000, for 100 firms with a 1% share H = 100. Herfindahl-Hirschman index responds to the market share of each firm in the industry.

The Herfindahl index is bounded above 10000 (and this value is achieved only in the case of a pure monopoly of one firm) 1000 / n and below, where n is the number of firms in the industry (and this value is achieved in the case of an equal distribution of the shares of sales between firms in the industry).

According to the values of the concentration coefficients and Herfindahl - Hirschman indices, three types of market :

- Type I - highly concentrated markets at 2000< HHI < 10000;

- Type II - moderately concentrated markets at 1000< HHI < 2000;

- III type - low concentrated markets with HHI< 1000.

Lerner coefficient – economic indicator monopoly of a particular firm. The measure of monopoly is the share in the price of the value by which the selling price exceeds the marginal cost. It is calculated L = (P - MC) / P, where P is the price, MC is the marginal cost.

Also, the coefficient can be calculated through the elasticity of demand, as inversely proportional to the value L = –1 / E D, de Ed is the elasticity of demand for the firm's products.

Lerner's coefficient has a numerical value from zero to one. The larger it is, the greater the monopoly power of a given firm in its sector of the market. In conditions perfect competition the price is equal to the marginal cost and the ratio is zero. Monopoly power alone does not guarantee high profit because profit depends on the ratio of average costs to price. A firm may have more monopoly power than another firm but earn less profit.

2. Price discrimination: conditions, forms, consequences. Price Discrimination - setting different prices for the same product, provided that the differences in prices are not associated with different costs. Differences in prices may not always be considered price discrimination, and a single price indicates its absence. The supply of the same product at different prices to different regions, at different periods of time (seasonality), of different quality, etc. is not price discrimination.

Varieties of price discrimination:

1.First class price discrimination (perfect CD)- the practice of charging each customer with a fee equal to his subjective price, that is, the maximum price that the customer is willing to pay. This is possible when such specialists as doctors, lawyers, architects are represented as a seller, who have the opportunity to more or less accurately assess how much their client is willing to pay the maximum for their services and issue an invoice based on this. With perfect price discrimination, the producer takes the entire consumer surplus.

2.Price discrimination of the second kind- price change depending on consumption volumes. It is used when the manufacturer does not have information about each specific consumer, but there is information about consumer groups. In this case, the seller sets several tariffs, and the buyer himself chooses the tariff that suits him. The seller's goal is to collect as much of the consumer surplus as possible.

3.Price discrimination of the third kind- the sale of the same product to different categories of consumers at different prices (discounts for pensioners and students) or the sale of a product that does not differ much in its consumer properties, at significantly different prices (economy and business class in air travel).

To implement price discrimination by a monopolist, it is necessary:

- so that the direct elasticity of demand for a product at a price from different buyers is significantly different;

- that these buyers are easily identifiable;

- so that the resale of goods by buyers is impossible;

- to different markets separated from each other by long distances or high tariff barriers.

As a result of price discrimination, the monopolist increases income and profits as well as output.

3. Determination of the price and volume of production in a monopoly. Like perfect competition, a monopolist in short term maximizes profits or minimizes losses by producing a quantity of products that meets the rule MR= MS. However, a feature of the monopoly is the establishment of a higher price.

V long term the profit-maximizing monopolist expands its production until it produces a quantity corresponding to the equality of marginal revenue and long-run marginal cost.

Effectiveness of monopoly for society:

- sets higher prices with a lower volume of output, that is, there is an under-allocation of resources;

- can achieve positive economies of scale and lower costs per unit of output;

- has sufficient financial resources to carry out scientific and technical progress (however, in conditions of protection from competitors, the company has no incentive to introduce scientific and technical achievements);

- promotes inequality in the distribution of income, enriching itself at the expense of the rest of society.

4. Antimonopoly Policy. Antitrust Policy - a set of measures taken by the state in order to level the negative consequences of the actions of monopolies and oligopolies.

Directions of antimonopoly policy:

- administrative control - control over the activities of firms, over the methods competitive struggle(punishment - fine, disbandment);

- Antimonopoly prevention is carried out through gradual liberalization of markets, creating conditions for monopolistic behavior to become unprofitable (lowering customs duties, abolishing quotas, supporting small and medium-sized businesses, simplifying licensing);

- antitrust legislation, which regulates the structure of economic sectors through the control and prohibition of proposed mergers of firms, if it leads to a significant weakening of competition; defines the concept of "dominant position in the market", establishes a certain market share, more than which firms can not occupy. In the Republic of Belarus, since 1993, the Law “On Counteracting Monopolistic Activities and Development of Competition” has been in effect.

In this section:

Pure monopoly and its characteristics. Barriers to entry into the industry. Types of monopolies

Determination of the price and volume of production in conditions of pure monopoly. Price Discrimination

Monopoly and economic efficiency

Pure monopoly and its characteristics. Barriers to entry into the industry. Types of monopolies

The opposite of perfect competition is pure monopoly - a market in which only one firm operates, due to this circumstance, it is able to influence market equilibrium and the market price. Monopoly- the most striking manifestation of imperfect competition. Monopoly is a market structure that meets the following conditions:

1. The output of goods by the entire industry is controlled by one seller of this goods, that is, the monopoly firm is the only producer of this good and represents the entire industry.

2. The goods produced by the monopolist are special in their kind (unique) and have no close substitutes, in this regard, the demand for the monopolist's product is characterized by a low degree of price elasticity, and the demand schedule for it has a sharply "falling" character,

3. The monopoly is completely closed for new firms to enter the industry, so there is no competition in the monopoly.

These conditions allow us to conclude that the monopoly firm has market power and is able to independently change the price of the sold product within certain limits (in contrast to perfect competition, where each individual firm is forced only to “agree” with the price).

As an example of a pure monopoly, enterprises of public use and utilities are usually considered - enterprises of gas, electricity, water supply, and some others. These companies are called natural monopolies. Natural monopoly- an industry in which an industry product can be produced by one firm at a lower cost than if not one, but several firms were engaged in its production, that is, when there would be competition in the industry. Natural monopolies are usually granted exclusive privileges by the state. At the same time, the government retains the right to regulate the actions of such enterprises, preventing abuse on their part. Also large corporations that dominate the industry can be classified as monopolies.

The emergence and existence of pure monopolies is usually attributed to the presence of barriers to entry into the industry. Factors contributing to the formation of such barriers give rise to monopoly power in the markets under consideration. All barriers can be divided into two groups - natural and artificial.

Among natural barriers can be distinguished:

1. Economic- individual firms, due to the constant improvement of technological processes, can achieve the lowest production costs in the production of a very significant volume of products (positive effect of the scale of production). This leads to the fact that only one or a few large firms can have low production costs per unit of output. The rest of the firms are ousted from the industry, and a natural monopoly arises. Natural barriers also arise when the domestic market of a country is relatively small, and only large enterprises are economically efficient in a given industry, so one firm covers almost the entire industry.

2. Technological- associated with the existence of local enterprises communal services... The current state of the art and technology makes competition here very difficult or simply impossible. For example, it makes no sense to conduct several water pipelines to each house in order to compete.

3. Financial- Monopolized industries usually have a significant volume of output, so a new firm to enter the industry needs to make large investments, train qualified personnel, etc., which is associated with significant costs and blocks entry into the industry.

4. Ownership of certain types of resources... A firm that owns or controls the raw materials required in the production of a given material wealth, can prevent the emergence of competing firms in the market for this product, in which it usually acts as a monopolist.

TO artificial barriers can be attributed:

1. Legal- guaranteeing patent rights for inventions, granting special privileges in the form of licenses for the production and sale of products, ensuring the secrecy of some individual developments on the part of the government can lead to the concentration in the hands of one firm of the bulk of patents and licenses for goods produced in the industry.

2. Unfair Competition Methods- such an organization of competition in which business entities resort to unauthorized methods of influencing competitors: spreading false information about a competitor; the use of a system of dumping prices, when in order to ruin a competitor or oust him from the market for a short time, a price is set below the average cost; criminal and other methods.

For your information. Sometimes the source of monopoly power can be the collective behavior of consumers who show stable loyalty to a given brand, prefer the products of this particular firm, which, ultimately, can give rise to the bargaining power of a given manufacturer.

The above barriers blocking entry to a monopolized market are determined by factors that ensure the market suit of the only manufacturer that operates in the industry. The multiplicity of these factors gives rise to the existence of several types of monopolies:

closed monopoly... Market power and monopoly position in the market are due to legal barriers that exclude competition in the industry. Since the emergence of a closed monopoly is associated with the activities of state institutions, the activities of such firms require close attention from the state and the presence of a number of restrictions on the level of prices and the resulting excess profits;

open monopoly... In the case of an open monopoly, the market power of the monopoly firm is the result of the innovative achievements of the firm itself (a new product, a new technology that provides a pronounced competitive advantage, allowing competitors to be driven out of the market, etc.). Market advantages associated with innovations can be copied or surpassed, which explains the short duration of the sole market power of firms - open monopolies;

natural monopoly... It has already been mentioned. The market power of such firms is due to the achievement of the lowest costs per unit of output while meeting the entire sectoral (market) demand for it;

monopsony- a special type of market structure, when market power is concentrated in the hands of the buyer, not the seller;

bilateral monopoly arises when the monopoly power of the seller collides with the monopoly power of the buyer.

The opposite of perfect competition is pure monopoly (from the Greek "mono" - one, "polio" - I sell). Under pure monopoly the industry consists of one firm, i.e. the concepts of "firm" and "industry" are the same. At first glance, such a situation is unrealistic and, indeed, on a national scale, it is very rare. However, if we take a more modest scale, for example, small city then we will see that the situation of pure monopoly is quite typical. In such a city, there is one power plant, one Railway, only airport, one bank, one large enterprise, one bookstore, etc. In the United States, 5% of GNP is created under conditions close to pure monopoly.

Pure monopoly usually arises where there are no real alternatives, no close substitutes, the manufactured product is unique to a certain extent. This can be fully attributed to natural monopolies, when the increase in the number of firms in the industry causes an increase in average costs. Municipal utilities are a typical example of natural monopoly. Under these conditions, the monopolist has real power over the product, controls the price to a certain extent, and can influence it by changing the quantity of the product.

Monopoly occurs where and when high barriers to entry into the industry... This may be due to economies of scale (as in the automotive and steel industries), to natural monopoly (when some companies - in the field of mail, communications, gas and water supply - consolidate their monopoly position, receiving privileges from the government).

The state creates formal barriers by granting patents and licenses. Under US patent law, an inventor has exclusive control over his invention for 17 years. Patents have played a huge role in the development of companies such as Xerox, Eastman Kodak, International Business Machine (IBM), Sony, etc. The monopoly position secured by the patent serves as an incentive for investment in R&D and, thereby, a factor in strengthening monopoly power. Entry into the industry can be severely restricted through the issuance of licenses. The license can be granted to both a private company and government organization(a classic example is the history of the vodka monopoly in Russia).

A monopoly can be based on the exclusive right to any resource, for example, natural factors of production.

At the turn of the past and present centuries, socialist publicists gave a lot of colorful descriptions of the aggressive activities of the monopolies. However, at present, tough (up to and including dynamite) actions of monopolies, as well as "unfair competition" in general, are strictly prohibited in countries with developed market economies, although they are found on the periphery of the civilized world.

Let's summarize. The firm can be calleda pure monopolistif it is the only producer of an economic good that does not have close substitute substitutes, if it is protected from direct competition by high barriers to entry into the industry.

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Signs of pure monopoly

A pure monopoly usually arises where there are no alternatives, there are no close substitutes, and the manufactured product is to a certain extent unique.

The monopolists are public utilities, whose services no enterprise, for example, RAO UES, can do without. The existence of natural monopolies is justified by the fact that they best serve the public interest. V countryside such monopolists can also be enterprises supplying agricultural machinery, chemical fertilizers, seed and breeding farms, enterprises providing repair services.

The main features of a pure monopoly can be identified:

one seller (only one firm operates on the market, which affects prices by regulating the supply);
uniqueness of the product (there are no identical types of products on the market);
possession of the main types of raw materials (by controlling the raw material market in its industry, the monopoly firm does not allow the emergence of new producers).

The monopolist can determine the volume of production and set the price. To maximize profits, the monopolist produces such a volume of output at which the marginal revenue is equal to the marginal cost (MR = MC), point E on the graph. It is this point that is the equilibrium of the firm. But to make a profit, the price will settle at point E1. This is due to the fact that it is the price P1 for a given volume of production (Q1) that is higher than the average costs (AC) of the monopolist. In conditions of imperfect competition, the following inequality must be observed:

(MR = MC)< AC < P

The pure monopoly market and its characteristics. The characteristics of a pure monopoly. Barriers to entry into the industry. Demand and income of the monopoly firm. Features of the demand curve of a monopolist

Pure monopoly and its characteristics. Barriers to entry into the industry. Types of monopolies

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Signs of pure monopoly