Monopolization of markets is what? The concept, the main forms, the consequences of monopolization

Modern man can hardly be surprised by the presence of several hundred varieties of cheese and lemonade, a huge number of brands of clothing and equipment. On the contrary, he is often confused by the existence of only one manufacturer in the industry. Monopolization of markets is the situation when only one enterprise or person acts as a supplier of a certain type of goods or services. In this case, the consumer has no choice, he is forced to agree to a fixed price. Monopolization of markets is also a process in 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.

The concept of

Economists distinguish four types of ideal market structures:

• Perfect competition. In this situation, there is a huge number of substitute goods, and entry to the market is practically unlimited. Everything is decided by the "invisible hand".
• Monopolistic competition. In the industry, many manufacturers operate, which produce substitute products. However, companies retain some control over pricing. This determines the levels of monopolization of the market.
• 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 market structure provides for the presence of only one supplier of products, which has full control over the industry.

Characteristics of the monopoly

The common opinion says that perfect competition is practically a panacea, a compromise between the desires of the seller and the consumer. Most economic models accept this structure as a basis. But why in such a case does the monopolization of markets take place? This is due to the fact that this state of things is extremely beneficial to the manufacturer. First, the monopoly allows you to maximize profits. Secondly, the producer sets the price for his products through the determination of the volume of output. Thirdly, in the conditions of monopoly there are big barriers to entry into the industry. The only manufacturer can not be afraid of a rapid increase in competition.

Forms

When there is a monopolization of the market, competition in the resulting structure is a fundamental feature for determining its type. There are three forms of monopoly :

• Natural. It arises from reasons of an objective nature. This means that the demand for this product is best satisfied by one firm. The reason may be the features of the production process or customer service. For example, such branches include energy supply, water supply, rail transportation.
• Administrative. This form of monopoly is created with the participation of the state. It, in the person of its bodies, grants to a certain firm the exclusive right to carry out activities in the industry. The economy of the USSR was extremely monopolized. Most enterprises were under the control of departments and ministries.
• Economic monopoly is the most common form. Its appearance is connected with the enterprises' own initiative. Monopoly position in the market can lead to both progressive development and rapid centralization of capital through acquisitions and voluntary associations.

Terms of monopolization of the market

The structures under consideration can either be created through a series of acquisitions by some companies of others, and can be formed naturally in certain industries. Can create them and the state. Monopolization of markets is a process in the center of which there are three main reasons:

• The production of goods by one firm is cheaper than several. In this case, we can talk about a natural monopoly.
• 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 was protected by patents. This is an economic monopoly.
• The granting by the state to a particular enterprise of 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

In conditions of perfect competition, the price is equal to the average value of the marginal costs of firms operating in the industry. It has a higher monopoly. Therefore, this market structure seems to be undesirable for consumers. The main assistant to the monopolies are barriers to entry into the industry. They prevent the emergence of competition. Among them:

• Economic barriers.
• Legislative restrictions.
• Deliberate actions.

The first group includes the largest number of restrictive measures. This includes economies of scale. The size of monopolies allows them to significantly reduce costs, ordinary firms simply can not compete with them in the price of products. Therefore, their activities can not be effective, since the cost of their goods is much greater.

Another economic constraint is the requirements for capital investment. If expensive equipment is needed to start production, this will also prevent the emergence of competitors. Monopoly may have a technological advantage or act as the owner of natural resources necessary for the release of goods.

Regarding legislative restrictions, this group includes intellectual property rights, including patents. They give the monopoly the exclusive right to produce goods or the technology of its release.

The third group of restrictions includes a variety of deliberate actions taken by a monopoly in order to discourage the development of competition in the industry. For example, it can lobby its interests in the government through various corruption 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 himself, but also for consumers. It occurs when there is a large value of economies of scale effect. A natural monopoly is a situation where a single firm provides the market with products with lower costs than would be done by several enterprises. A vivid example is water and electricity. However, this does not mean that natural monopolies are completely harmless. Therefore, they need to be monitored by the state.

In international business

The global economy is increasingly influenced by globalization and internationalization. These two processes are responsible for the fact that the market for services and services is being monopolized at the international level. There are two types of such structures:

• Transnational monopolies. To them, for example, you can include the food concern "Nestle" or the oil "Standard Oil of New Jersey". Both these companies are national in terms of capital, which was invested in them, and international in scope of their activities. Most of their production capacity is not located in the home country.
• International monopolies. This kind can be attributed to the trust "Agfa-Gefert", which is engaged in the production of photochemical products. This type of monopoly is international both in the sphere of its activity and in the invested share capital.

Domestic realities

Monopolization of the Russian market has historical roots. In the USSR, the state almost completely controlled the economy. With the reduction in production in Russia, the demand for the products of the natural monopoly industries, 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 monopolization of the market as the main factor of crises in Russia.