Monopoly is a type of market relationship in which only one seller controls the entire industry of one type of product. There are no other suppliers of similar products in this market.
That is, the monopolist in the market has exclusive right production, trade and other activities. At its core, monopoly impedes the emergence and functioning of spontaneous markets, and also undermines free competition.
The causes of the monopoly
It is impossible to understand what a monopoly is without studying the reasons for its occurrence in the market. The ways of forming monopolies are very diverse. In one case, a larger company buys a weaker one; in others, the merger is voluntary. At the same time, manufacturing organizations can join not only the same product, but also enterprises that do not have a common assortment and production technology.
The next way to establish a monopoly in the market is the so-called "predatory" pricing. This term refers to the setting by a company of such low prices that competing enterprises incur large costs, as a result of which they leave the market.
What is a monopoly? This is the main desire of every manufacturer and seller. The essence of monopolies is not only the elimination of a huge number of problems related to competition, but also the concentration in one hands of a certain branch of economic power.
The monopolist is able to influence not only other participants in market relations, imposing their conditions on them, but also on society as a whole!
What is a monopoly?
Monopolies are business associations owned by individuals and exercising sole control over certain sectors of the market with the aim of setting monopoly prices on it.
Competition and monopoly are integral elements of market relations, but the latter impedes their economic development.
Characteristic features of a monopoly:
- The entire industry is represented by one manufacturer of this product.
- The buyer is forced to purchase goods from a monopolist or to do without him at all. The manufacturer, as a rule, does without advertising.
- The monopolist has the ability to regulate the quantity of his goods on the market, thus changing its value.
- Producers of similar goods, when trying to sell them on a monopolized market, are faced with artificially created barriers: legal, technical or economic.
The monopoly of an individual enterprise is the so-called “honest” monopoly, the path to which passes through a continuous increase in production efficiency and the achievement of significant advantages over competitive enterprises.
Monopoly as an agreement is a voluntary merger of several large firms in order to stop competition and independently regulate pricing.
Types of Monopolies
Natural monopoly arises for a number of objective reasons. The natural monopolist in the market is the manufacturer that most satisfies the demand for a particular product. The basis of such superiority is the improvement of production technologies and customer service, in which competition is undesirable.
State monopoly arises in response to certain actions of the government. On the one hand, this is the conclusion of state contracts that provide the enterprise with the exclusive right to produce certain types of goods.State monopoly, on the other hand, is an association state enterprises in separate structures acting on the market as one business entity.
Today, the economic monopoly is more widespread than the rest, which is explained by the laws of economic development. There are two ways to achieve the position of an economic monopolist:
- the development of the enterprise by increasing its scale by constantly increasing capital;
- centralization of capital, i.e., voluntary or forced takeover of competitive organizations and, as a result, a dominant market position.
Classification of markets by degree of monopolization
According to the degree of restriction of competition, markets are classified into 2 types:
1. Perfect competition - characterized by the absolute impossibility of its participants to influence the conditions for the sale of products, and mainly - on prices.
2. Imperfect competition. It, in turn, is divided into 3 groups.
- pure monopoly market - operates in conditions of absolute monopoly;
- oligopolistic - characterized by a small number of large producers of homogeneous goods;
- market of monopolistic competition - implies the presence of a large number of independent sellers of similar, but not identical goods.
The advantages and disadvantages of monopolies
What is a monopoly? This is a leading position in the company’s market, allowing it to dictate its terms. However, this is not its only drawback, there are others:
- The ability of the manufacturer to assign compensation to the cost of production of goods to their consumers by increasing the selling price.
- The lack of scientific and technological progress in production due to the lack of competitors in the market.
- Monopolist receiving additional profit by reducing the quality of products.
- Replacing the free economic market with administrative dictatorship.
Advantages of the monopoly:
- An increase in production volumes and a subsequent reduction in costs and resource costs.
- The greatest resilience in relation to economic crises.
- Large monopolists have enough funds to improve production, as a result of which its efficiency increases and the quality of manufactured goods increases.
State regulation of monopolies
Each economically developed state was faced with the need to conduct antitrust policies, the purpose of which is to protect competition.
The state’s plans do not include the general organization of free markets, its task is to eliminate the most serious violations in the market system. To fulfill it, conditions are created under which competition and a monopoly cannot simultaneously exist, and the former is more beneficial for producers.
Antitrust Policy implemented through some tools. Monopoly regulation is carried out by encouraging free competition, control of the largest producers on the market, promoting small and medium-sized businesses and constant monitoring of prices.
