Market monopolization- a situation when one of the sellers or buyers accounts for such a large share of the total volume of sales or purchases on a particular product market that he can influence the formation of prices and terms of transactions to a greater extent than other participants in this market.
The market mechanism itself cannot prevent one or another firm from monopolizing the market for a particular product. Moreover, such market monopolization may arise due to:
1) economic advantage;
2) various collusions or ousting competitors.
The economic advantage of a particular company in the market may arise due to the fact that it was able to offer the buyer the most favorable price-quality ratio for its goods. The basis for such an advantage is usually the introduction of the most advanced production technologies or methods of organizing the production and marketing of goods.
Even if the result of such a company’s activities is the capture of an overwhelming market share, then there is nothing dangerous in this. After all, here the market mechanism successfully solves its main task - ensuring the best distribution of limited resources. Indeed, in such a situation, the largest share of resources goes to the company that wins the competition due to the best use of limited resources and achieving minimum costs on this basis.
There are no grounds for government intervention here. If such a firm tries to use its market dominance to inflate prices, it will create conditions for other firms, even those with higher costs, to survive by offering lower prices.
A completely different matter is the monopolization of the market, when situations of pure monopoly or oligopoly arise on it not due to the best technology or organization of production, but due to the collusion of several largest firms among themselves, displacing or absorbing other competitors. In this case, the masters of the market do not necessarily become the firms that ensure the best use of limited resources, and then these resources are distributed worse than they could in a non-monopolized market.
The development of monopolies undermines the competitive nature of the market economy, negatively affects the solution of macroeconomic problems, and leads to a decrease in the efficiency of social production.
It is in such a situation that the state has to intervene to stop the monopolization of the market and restore normal competition when market mechanisms can again work successfully.
Monopolization can only be limited by the state with its capabilities for legislative and other anti-monopoly activities, and the use of law enforcement agencies if necessary.
The first experience of organized antitrust activities of the state was initiated by the adoption of antitrust legislation in the United States in 1890 (Sherman Act). Later, similar laws appeared in other countries. Antimonopoly legislation is aimed at maintaining a production structure that would allow it to remain competitive. Calculations have shown that one company should not produce more than 40 percent of a particular type of product. The legislation prohibits any conspiracy to artificially maintain prices that do not correspond to the real relationship between supply and demand.
INTRODUCTION........................................................ ........................................................ ...... 3
I. THEORETICAL PART.................................................... .............................. 4
1.1. The concept of monopoly................................................... ................................. 4
1.2. Types of monopoly................................................... ...................................... 4
1.3. Reasons for the existence of monopolies.................................................... ....... 7
1.4. Pricing of a monopoly and output of a monopolist.................................... 8
1.5. Costs and efficiency of monopolies.................................................... ... 9
1.6. Natural monopoly................................................... ........................ 13
II. ANALYTICAL PART................................................... ....................... 18
2.1. International monopolies................................................... ................. 18
2.2. State control over monopolistic activities in countries with developed economies.................................................... ............................................ 18
2.3. Natural monopolies in the Russian market and their reform...... 20
2.4. Tariff regulation of natural monopolies and impact on efficiency.................................................... ........................................................ ............................... 25
2.5. Prospects for the restructuring of natural monopolies and the impact on economic efficiency.................................................. .................................... 31
2.6. The presence of natural monopolies in the Russian market. Their share, impact on the national economy.................................................... .................................. 33
2.6.1. Regulation of the activities of natural monopolies................... 33
2.6.2. Maximizing production levels.................................................... 34
2.7. Ensuring self-sufficiency................................................................ .............. 35
2.8. Reforming the structure of Russian natural monopolies.... 36
2.9. National or private?........................................................ ................... 38
CONCLUSION................................................. ................................................... 40
LIST OF REFERENCES .............................................................. 42
INTRODUCTION
If we pay attention to monopolistic entities, these are individual large enterprises, associations of enterprises, business partnerships that produce a significant amount of a certain type of product, due to which they occupy a dominant position in the market; get the opportunity to influence the pricing process, achieving the most favorable prices for themselves; receive higher (monopoly) profits.
Consequently, the main feature of a monopoly formation (monopoly) is the occupation of a monopoly position. The latter is defined as the dominant position of an entrepreneur, which gives him the opportunity, independently or together with other entrepreneurs, to limit competition in the market for a certain product.
A monopoly position is desirable for every entrepreneur or enterprise, because it allows you to avoid a number of problems and risks associated with competition: take a privileged position in the market, concentrating certain economic power in your hands; influence other market participants, impose their conditions on them. It can be considered that monopolists impose their personal interests on their counterparties, and sometimes on society.
Therefore, in this work I would like to consider market monopolization and the impact on the Russian economy. Natural monopolies occupy a special place in this work. A natural monopoly occurs when output above the required level is accompanied by economies of scale. In this case, for any volume of output, costs are minimal when the products are produced by a single firm. In other words, for any volume of output, an increase in the number of manufacturing firms leads to a decrease in the output of each and to an increase in average total costs. Thus, in the work we will be convinced of the inefficient output and disequilibrium price of the monopolist. Therefore, a monopoly is ineffective from the point of view of society. Within the framework of the problem under discussion, I would like to note in the work such aspects of the study as the concept of monopoly and its significance on the economy (social costs), the concept of natural monopoly and the impact on the Russian economy, as well as the possible reform of monopolistic structures to achieve efficiency.
I. THEORETICAL PART
1.1. Monopoly concept
Before considering this topic, we should consider the concept of monopoly and the essence of monopoly power in the market.
A monopoly is a firm that is the only supplier of a product that has no close substitute products. A firm has a monopoly if it is the only supplier of a product that has no close substitutes. The main reason for the emergence of monopoly is barriers to entry into the market, which prevent other firms from competing with the monopolist. Barriers to entry into the market, in turn, arise in the following cases:
A single firm owns the key production resource.
The government granted exclusive rights to produce certain products to one firm.
Production costs are such that maximum production efficiency is possible if there is a single producer on the market.
The objective basis of monopolism is the dominant position of an economic entity in the market, which allows it to have a decisive influence on competition, inflate prices and reduce production volume compared to a theoretically possible level, and impede access to the market for other economic entities. Ultimately, this makes it possible for the monopolist to redistribute effective demand in its favor and receive monopolistically high profits. Competitive markets generally work well, but the same cannot be said for markets in which either buyers or sellers can manipulate prices. In a market where one seller controls supply, output will be small and prices will be high. Monopoly is an extreme form of imperfect competition. A seller has monopoly power if he can increase the price of his product by limiting his own output. In monopoly markets, there is a barrier to entry that makes it impossible for any new seller to enter the market. A company with monopoly power pursues a policy of price discrimination, that is, it sells the same product to different groups of consumers at different prices. But for this, a monopolist company must be able to reliably divide its market, focusing on the different elasticity of demand among different consumers, and skillfully separate the “cheap” market from the “expensive”.
1.2. Types of monopoly
The type of monopolies depends on the market structure and the form of competition.
There are different types of monopolies, which can be classified into three main ones: natural, administrative and economic .
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 consumer service. Here competition is impossible or undesirable. An example would be energy supply, telephone services, communications, etc. In these industries there are a limited number, if not a single national enterprise, and therefore naturally have a monopoly position in the market.
Administrative a monopoly arises as a result of the actions of government agencies. On the one hand, this is the granting of individual firms the exclusive right to perform a certain type of activity. On the other hand, these are organizational structures for state-owned enterprises, when they are united and subordinate to different departments, ministries, and 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. The economy of the former Soviet Union was one of the most monopolized in the world. It was the administrative monopoly that was dominant there, primarily the monopoly of all-powerful ministries and departments. Moreover, there was an absolute monopoly of the state on the organization and management of the economy, which was based on the dominant state ownership of the means of production.
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 managed to gain a monopoly position in the market. There are two paths leading to it. The first is the successful development of the enterprise, constantly increasing its scale through the concentration of capital. The second (faster) is based on the processes of centralization of capital, that is, on the voluntary merger or absorption of bankrupt winners. In one way or another, or with the help of both, the enterprise reaches such a scale when it begins to dominate the market.
What causes the emergence and development of monopolistic tendencies? There are two points of view on this issue in the economic literature. According to the first, monopoly is interpreted as accidental, not characteristic of a market economy. As for another point of view, monopolistic entities are defined as natural. One of the supporters of such views is the English economist A. Pigou. He insists that “monopoly power does not arise by accident.” It is the logical conclusion of enterprise strategy. To paraphrase a well-known expression, we can say that all roads lead to monopoly. The principle of economic benefit, formulated by A. Smith, forces enterprises to constantly look for opportunities to increase their profits. One of them, the most attractive and reliable, is the creation or achievement of a monopoly position. Thus, we can conclude that monopolistic tendencies in the economy follow from the law of profit maximization.
Another driving force behind the actions of entrepreneurs in this direction is the law of concentration of production and capital. As is known, the effect of this law is observed at all stages of the development of market relations. Its driving force is competition. In order to survive in such a struggle and make big profits, entrepreneurs are forced to introduce new technology and increase the scale of production. At the same time, several larger ones are separated from the mass of medium and small enterprises. When this happens, the largest entrepreneurs have an alternative: either continue unprofitable competition among themselves, or come to an agreement regarding the scale of production, prices, sales markets, etc. As a rule, they choose the second option, which leads to the emergence of collusion between them, which is one of the main signs of monopolization of the economy. Thus, the conclusion suggests itself that the emergence of monopolistic enterprises is due to the progress of the productive forces, the realization of the advantages of a large enterprise over a small one.
Modern theory distinguishes three types of monopolies:
1) 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 a monopoly can be considered “decent”, since it provides for a constant increase in operational efficiency and achieving an advantage over competitors.
More accessible and common is the path of agreement between several large firms. It makes it possible to quickly create a situation where sellers (manufacturers) act as a “united front” on the market, when competition, especially price, is reduced to nothing, and the buyer finds himself in no alternative conditions.
There are five main forms of monopolistic associations. Monopolies monopolize all spheres of social reproduction: direct production, exchange, distribution and consumption. Based on the monopolization of the sphere of circulation, the simplest forms of monopolistic associations arose - cartels and syndicates.
Cartel - this is an association of several enterprises in the same sphere of production, the participants of which retain ownership of the means of production and the product produced, production and commercial independence, and agree on each person’s share in the total volume of production, prices, and sales markets.
Syndicate - this is an association of a number of enterprises of the same industry, the participants of which retain funds for the means of production, but lose ownership of the produced product, which means they retain production, but lose commercial independence. For 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.
Trust - this 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 manufactured product (production and commercial independence). That is, production, sales, 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 profits.
Diversified concern - this is an association of dozens and even hundreds of enterprises from various sectors of industry, transport, and trade, the participants of which lose ownership of the means of production and the product produced, and the main company exercises financial control over the other participants of the association.
In the 60s, in the USA and some countries, capital appeared and began to develop conglomerates , that is, monopolistic associations formed by absorbing the profits of diversified enterprises that do not have technical and production unity.
Experience shows that monopolies, having monopolized a certain industry and captured strong and monopolistic positions, sooner or later lose the dynamics of development and efficiency. This is explained by the fact that the advantages of large-scale production are not absolute; they bring an increase in profitability only up to a certain point.
In general, any monopoly can exist only with imperfect competition. A monopoly market assumes that a given product is produced by only one firm (the industry consists of one firm) and it has very high control over prices.
The oligopoly market is more loyal, which can be divided into two types: the first type of oligopoly is an industry with exactly the same products and a large enterprise size. The second type of oligopoly is a situation where there are several sellers selling differentiated products. In this case, there is partial control over prices. The market of monopolistic competition with product differentiation assumes that the buyer prefers a product of a certain type: he is attracted by this particular variety, quality, packaging, brand, level of service, etc. Signs of such a market: many producers, many real or imagined differences in products, very weak control over prices.
1.3. Reasons for the existence of monopolies.
There are several reasons why monopolies exist.
First reason: "natural monopoly". If it costs less to produce any volume of output by one firm than to produce it 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 produced, the lower their cost.
The second reason : A single firm has control over some rare and extremely important resource, either in the form of raw materials or knowledge, protected by patent or kept secret. Example: the De Beers diamond monopoly rests on control over raw materials; Xerox controlled the process of making copies, called xerography, because it had knowledge of the technology, in some cases protected by patents.
Third reason: government restriction. Monopolies exist because they buy or are given the exclusive right to sell a certain good. In some cases, the state reserves the right to a monopoly; In some countries, only state monopolies can sell tobacco.
1.4. Monopoly pricing and monopolist release
In this part, we will clearly show the traditional pricing of a monopoly in order to understand the mechanism for regulating monopoly prices and the reaction of monopolists.
In Figure 1.1. shows the short-run average and marginal cost curves of a monopoly firm. The demand for the monopolist's product and the marginal revenue from it are also shown. Monopoly output is denoted as Qm and is the output corresponding to the point where the marginal revenue and marginal cost curves intersect. To induce buyers to purchase this quantity of goods, the monopolist sets a price equal to Rm.
At this price and output level, the monopolist receives a profit per unit of goods (Рм - АСм). Total output is equal to Qm. Total economic profit is therefore equal to (Рм -АСм)Qм.
How much profit a monopolist actually earns depends on both costs and demand for its product. If fortune turns against you, you may not find anyone willing to buy the rights to your concerts, even if you offer them at a reduced price. That's show business: you can be praised today and ostracized tomorrow. Having a monopoly does not guarantee that you will make profits. Monopolists can and do exit an industry when demand for the product they sell declines. Owning the only authentic Turkish bath in the city will be unprofitable if the price is less than the average cost for the volume of output at which MR = MC.
If demand and marginal revenue for the product supplied by the monopolist decline, it may be impossible to earn a profit. If the price corresponding to the output at which MR = MC falls below average cost, the monopoly will suffer losses. This is shown in graph B (Fig. 1.1). In the United States of America, Amtrak has in recent years enjoyed a monopoly on passenger rail service on many routes. However, even despite this, the company suffered losses.
Rice. 1.1. Monopoly price and output
A monopoly firm maximizes profit by producing the quantity of a product corresponding to the point where MR = MC. She then sets the price Rm. which is required to induce buyers to purchase a quantity of goods Qm. Possession of a monopoly, however, does not guarantee profit. In option A, the monopolist receives economic profit. In option B, demand is insufficient to generate profit at the point where MR is MC. The firm incurs economic losses because P< АС.
1.5. Costs and efficiency of monopolies
How to evaluate the efficiency of a monopolistic market? We have seen that a monopoly, unlike a competitive firm, charges a price that exceeds marginal costs. From the consumers' point of view, a monopoly is undesirable. On the other hand, the monopoly high price is very attractive to the owners of the company. How do the benefits of the company's owners compare with the costs that consumers are forced to bear? Perhaps a monopoly is beneficial from the point of view of society as a whole?
We use total surplus as a measure of economic welfare. Recall that total surplus is equal to the sum of consumer surplus and producer surplus. Consumer surplus is defined as the difference between the amount that consumers are willing to pay for a good and the amount actually paid. Producer surplus is the revenue received from goods sold minus the costs of its production. In our case, we have a singular producer - a monopolist.
The balance of supply and demand in a competitive market is not only a natural, but also a desirable result of its functioning. The "invisible hand" of the market ensures the allocation of resources that maximizes the amount of total surplus. Since a monopoly results in a different allocation of resources than a competitive market, a monopoly market must, in some way, fail in maximizing economic welfare.
Irretrievable loss
We begin our analysis by examining the behavior of a monopoly as if it were managed by a benevolent planner who is interested not only in the profits of the firm's owners but also in the profits of its consumers and seeks to maximize total surplus equal to the sum of producer surplus (profit) and consumer surplus. Remember that total surplus is equal to the value of the good to the consumer minus the cost of producing the good to the monopoly producer.
Rice. 1.2 shows us the determination of production volume by our “goodwill specialist”. The demand curve reflects the value of a good to consumers, that is, the amount they are willing to pay for the good. The marginal cost curve reflects the costs of a monopolist. Thus, The socially efficient level of output is at the intersection of the demand curve and the marginal cost curve. At volumes below this level, the value of the product to consumers exceeds the marginal cost of its production, therefore, an increase in output leads to an increase in the total surplus. Above this level, marginal cost exceeds the value of the product to consumers, which means that as output decreases, the total surplus will increase.
Rice. 1.2. Efficient production level
If a monopoly were truly run by a benevolent planner, it would achieve efficient output by setting a price at the intersection of the demand and marginal cost curves. That is, a “good will specialist,” like a competitive firm and unlike a profit-maximizing monopoly, would set a price equal to marginal cost. Since such a price would provide consumers with accurate information about the cost of producing the good, consumers would purchase an efficient quantity of the good.
We can estimate the welfare impact of a monopoly by comparing the output the monopolist chooses with the output our planner would choose. The monopolist decides to supply the volume of output that corresponds to the point of intersection of the marginal revenue curve and the marginal cost curve; the planner selects the volume of output corresponding to the point of intersection of the demand curve with the marginal cost curve. Rice. 1.3 shows us the difference in approaches: The monopolist's decision is less than the socially efficient level of output.
The inefficiency of a monopoly is also considered in terms of the price of the monopolist. Since the market demand curve expresses the inverse relationship between the price and the quantity supplied of a good, production volume below the socially efficient output corresponds to a price exceeding the socially efficient price. When a monopolist sets a price that exceeds marginal cost, some potential consumers who value the product above the marginal cost of production but below the monopolist's price will refuse to purchase it. This is the essence of inefficiency, because for such consumers the value of a given product is higher than the costs of its acquisition. Thus, monopoly pricing is to a certain extent an obstacle to mutually beneficial trade.
Rice. 1.3. Monopoly inefficiency
The inefficiency of a monopoly can also be measured (Figure 1.3). Recall that the demand curve reflects the value of the product for consumers, and the marginal cost curve reflects the no-cost price of the monopoly producer. Thus, the area of the return loss triangle between the demand curve and the marginal cost curve is equal to the decrease in total surplus due to monopoly pricing. The deadweight loss caused by a monopoly is similar to the deadweight loss caused by taxation. Indeed, a monopolist is like a secret tax collector. The introduction of a tax on a product “drives a wedge” between consumers’ willingness to pay for a product (demand curve) and producer costs (supply curve). Since a monopoly, exercising power over the market, sets a price above marginal costs, it drives in the same “spacer.” In both cases, the forced introduction of the wedge causes sales to fall below the socially optimal level. The difference between the wedges is that the government receives tax revenues, while the private firm receives monopoly profits.
Monopoly profits: costs to society?
It is difficult to avoid the temptation and not accuse monopolies of “profiting at the expense of society.” Indeed, a monopoly firm, thanks to its power over the market, receives higher profits. An economic analysis of a monopoly shows, however, that its profit itself does not always represent a social problem.
Welfare in a monopoly market, as in any other, includes the welfare of producers and the welfare of consumers. Every time a consumer pays an extra dollar to the monopolist, the producer's welfare increases by the same amount. But this “leakage” of money from consumers of goods to the monopoly does not change the total market surplus. In other words, monopoly profits in themselves do not mean a reduction in the size of the economic pie; It’s just that the supplier gets a larger piece, and the consumer has to be content with little. Unless you consider (based on some special consideration) consumers to be more worthy market actors - and such a judgment lies outside the scope of the concept of economic efficiency - monopoly profits do not pose a problem for society.
The problem of a monopoly market is associated with the fact that the level of production is below the value that maximizes total surplus. Deadweight loss is a measure of reducing the size of the economic pie. A decrease in efficiency is an inevitable consequence of a monopoly high price: at a price above marginal costs, the volume of consumption of the product decreases. However, the profit brought by the products sold does not create problems. The problem is inefficiently low output." Or, to put it another way, if the high price of a monopoly did not discourage some consumers from buying the good, it would simply increase producer surplus by exactly the same amount as consumer surplus decreases; total surplus would remain the same as if the monopoly was managed by the above-mentioned beautiful planner.
There may, however, be one exception to this conclusion. Let us assume that the monopoly incurs additional costs to maintain its exclusive position. For example, a monopoly created by a government incurs the cost of expanding the ranks of lobbyists necessary to extend its monopoly rights. In this case, it can use part of its monopoly profits to cover additional costs. Then the social costs of the monopoly include, along with the deadweight loss arising from the discrepancy between the price and the marginal costs, and these unreasonable costs.
1.6. Natural monopoly
Sometimes the effect of economies of scale in production can be so large that it determines the uniqueness of the producer of the good (see the dotted curve in Fig. 1.4).
Rice. 1.4. Economies of scale and industry structure
In other words, in some industries, the rule applies without any restrictions: the larger the scale of production, the lower the costs. This creates the preconditions for the strengthening of one single manufacturer in such an industry.
A natural monopoly is a monopoly that arises from the fact that a single firm provides the market with a good or service at a lower cost than two or more firms would do.
When a firm's average total cost curve is continuously decreasing, a so-called natural monopoly exists. In this case, if production is distributed among two or more firms, each firm produces less output and average total costs increase. As a result, for any volume of output, costs are minimal when the producer is a single firm. A striking example of a natural monopoly is water supply to populated areas. To provide water to the city's residents, the company must build a water supply network covering all its buildings. If two or more firms were to compete in offering a given service, each would have to incur fixed costs to construct its own water supply. The average total cost of water supply is minimal when the entire market is served by a single firm. In some cases, one of the factors determining the emergence of a natural monopoly is the size of the market.
This state of the market is a monopoly - a situation fraught with a number of major problems for the economy. In this case, however, the monopoly arises due to natural reasons: the technological features of production are such that a single manufacturer serves the market more efficiently than several competing firms can do. Economists call such a monopoly natural or technological. Its classic example is various types of infrastructure. Infrastructure is the area of supply organization that includes:
1) networks through which products (people) are supplied between economic agents remote from each other;
2) activities related to the operation of these networks.
It is not difficult to understand that the effectiveness of a natural monopoly in infrastructure industries is ensured by the technological unity of the network at its disposal. Indeed, it is not economically feasible to build two alternative airports or to lay two competing railways next to each other. It is absurd to install several taps in apartments, from which water supplied by different companies will flow!
From an economic point of view, this will mean a multiple increase in average fixed costs. Thus, under the conditions of a natural monopoly, the cost of the energy supply network is distributed in the form of costs for all electricity sold. If there are two parallel networks, then their cost will double accordingly. The flow of energy passing through each will drop by half. And the fixed costs per kilowatt of energy purchased by the consumer will increase by 2 times!
It makes no sense to split up natural monopolies. For example, even if the railway network, monopolistically operated by one company, is divided into several regional sections and transferred to the ownership of independent companies, the natural source of monopoly will still not be eliminated. It will still be possible to travel from city A to city B along one road.
As a result, the single market for transportation services will be divided into a number of local ones. Instead of one monopoly, several will arise (each in its own area). The level of competition will not increase. Moreover, due to the difficulties of coordinating the work of regional companies, the overall costs of the railway industry may increase.
The macroeconomic aspect of the problem is also important. Infrastructure networks, which are natural monopolies, ensure the interconnection of economic entities and the integrity of the national economic system. It is not for nothing that they say that in modern Russia the economic unity of the country is not least determined by unified railways, common electricity and gas supplies.
Summary: both microeconomic analysis and macroeconomic considerations indicate that the destruction of natural monopolies is unacceptable. Does this mean that the state should refrain from interfering in the activities of natural monopolies? Not at all!
The impact of natural monopolies on the reformed
Russian economy
Russia has not avoided the negative impact of natural monopoly industries in market conditions. In Russian industry there are four thousand monopolistic enterprises and their products account for 7% of the total. Of these, 500 are natural monopolies.
With the general decline in production in Russia, the demand for products and services of natural monopoly industries, with the exception of communications industries, has been constantly declining. These industries are extremely capital intensive, with a significant portion of their costs being fixed. As a result, the share of fixed costs in the unit price of production increased. In addition, until recently, natural monopoly entities financed investments largely from internal sources (investment and stabilization funds formed from costs and profits), which determined the excessive burden on tariffs.
In almost all industries, cross-subsidization of some consumer groups at the expense of others remained. Low tariffs for the population and budgetary organizations were subsidized by industrial and commercial consumers. For example, in railway transport, losses on passenger transportation are covered by freight tariffs.
In 1996 - 2000 Industry prices of Russian natural monopolies grew at a faster rate than in other sectors of the economy. They have approached world levels, and in some cases (for example, international telephone tariffs) have surpassed them. Consumers began to put pressure on the government, even to the point of demanding a price freeze.
The rapid and significant increase in prices in the electric power industry, gas industry, communications and railway transport has necessitated raising the question of the validity of costs (wages, social benefits, investment activities) and the correspondence of the quality of products and services offered to the price level. In all industries containing natural monopoly segments, wages exceeded the average for the economy and their workers enjoyed greater social benefits compared to other industries.
Considering the fundamental nature of these industries, it is obvious that the rise in prices for the products they produce was a powerful factor in macroeconomic inflation, which is rightly characterized by economists as cost-push inflation.
However, it cannot be stated unequivocally that natural monopoly industries have secured prosperity for themselves at the expense of the rest of the economy during the years of transition to the market. The consequence of price discrimination - catastrophic non-payments - hit its own source the hardest.
According to data from industry structures included in the Ministry of Fuel and Energy, the debt of debtors for settlements and payments to electric power enterprises amounted to 12.9 trillion by August 1, 1998. rub. and continued to increase further by an average of 36 billion rubles. per day, half of the supplied energy was not paid on time. The Ministry of Economy presented to the government of the Russian Federation a draft decision providing for the implementation of a previously concluded agreement between basic industries, energy and transport on joint actions to stabilize prices and tariffs and improve payments between enterprises. The project was not accepted.
RAO UES of Russia then believed that it was necessary to bring the maximum number of generating sources to the federal wholesale market for electric energy and capacity in the expectation that electricity producers would be involved in competition, which would lead to finding ways to reduce production costs and reduce the cost of energy (reducing tariffs ).
These calculations of the “market romantics” from RAO UES of Russia are not destined to come true for the simple reason that regional energos are monopolists, at least in relation to consumers in their region and, therefore, do not feel the need for competition. No less important is the fact that a competitive market can only arise if there is reserve capacity. Their level in Russia is 3% (versus ~ 30% in the USA and Germany) and is not enough even to compensate for seasonal and daily consumption peaks. The latter are covered by interregional flows, which protects the European part of Russia from massive consumer outages due to a critical drop in frequency in the power system.
By November 2000, consumer defaults reached 27 trillion. rubles, and already 86% of the supplied electricity was not paid for on time. It is clear that the most important role in this mechanism of pumping up receivables belonged to the tariff policy of the industry. In addition, the high price of electricity affects the cost of industrial products, which is why the energy sector itself suffers. By the end of 2000, payments for supplied electricity were already 70% carried out in the form of barter transactions. Now the goods of debtors, received as payment for electricity, are themselves subject to sale through a network of resellers.
By August 1, 2001, overdue receivables from electricity consumers amounted to 63.2 trillion. rubles, gas - 8.7 trillion. rubles, railways and oil pipeline transport - 65.3 trillion. rub. [Goskomstat of the Russian Federation], which in total exceeds 56% of all non-payments in the Russian economy.
Due to the government's stricter regulatory impact on prices of natural monopolies in the first half of 2001, their growth was significantly limited. The results were not long in coming: a sharp reduction in inflation has been achieved since the beginning of summer.
However, strict containment of tariff growth, according to industry experts, has led to a sharp deterioration in the financial condition of natural monopoly industries. Moreover, in conditions of closed financial information and without an independent audit of the relevant enterprises, it is difficult to support or refute such conclusions. One way or another, in a number of cases, natural monopolies themselves need protection from unjustified pressure from certain political forces, which leads to undermining the financial stability of these industries vital for the state.
II. ANALYTICAL PART
2.1. International monopolies
A special type of monopoly 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 their scope of activity. For example: the American oil concern Standard Oil 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 overwhelming majority of the production facilities and sales organizations of the Swiss food concern Nestlé are located in other countries. Only 2-3% of total turnover comes from Switzerland. The second type is actually international monopolies. A feature of international trusts and concerns is the international dispersion of share capital and the multinational composition of the core of the trust or concern. For example: the Anglo-Dutch chemical and food concern Unilever, the German-Belgian trust of photochemical products Agfa-Gevert. Their number is not significantly large, since combining capital of different nationalities is associated with great difficulties: differences in the laws of countries, double taxation, opposition from any government, etc. The main forms of association: the establishment of a joint company by monopolies from different countries in the form of an independently existing trust or concern; acquisition by one monopoly of a controlling stake in a foreign monopoly; direct merger of assets of firms from different countries (de jure merger); unification of companies of different nationalities through “quasi-mergers”. The latter is carried out through the exchange of shares between firms maintaining legal independence, either through the mutual appointment of administrators, or through collective ownership of shares in joint ventures. A merger of this type is the most common form of formation of international trusts and concerns. They help multinational firms that combine operational activities not only to avoid double taxation, but also to maintain formal independence, corporate structure, individual characteristics of production and sales, their own trademarks, the former location of the headquarters of parent companies and affiliation with the national legislation of their country .
2.2. State control over monopolistic activities in countries with developed economies
The implementation of the provisions of antimonopoly legislation abroad is carried out through administrative, judicial or mixed procedures. In the latter case, decisions of administrative bodies can be appealed in the courts.
The most difficult situation with state control over monopolistic activities has developed in Great Britain. Features of the development of antitrust legislation in Great Britain led to the creation of two systems of control over monopolies. In the first of these, based on fair trading and competition laws, the key roles are played by the Office of Fair Trading, the Monopoly Commission, and the Secretary of State for Trade and Industry. The second control system provided for by restrictive trade practices legislation gives a key role to the Restrictive Trade Practices Court. The Fair Trading Office keeps various records of abuses of dominance, informs the government of its decisions and, if necessary, initiates the following proceedings: refers cases of monopoly situations in any industry to the Monopoly Commission, monitors proposed mergers of enterprises, refers cases of cartel agreements to the court on restrictive practices, initiates cases regarding the establishment and maintenance of resale prices. It should also be noted that the Agency’s activities in determining competition policy are advisory in nature.
The main task of the Commission on Monopolies and Mergers is to conduct investigations and draw up reports regarding the existence (or the possibility of occurrence) of a monopoly situation or the implementation of a merger of enterprises. If the Monopolies Commission comes to the conclusion of a violation of public interests, the Secretary of State has broad powers to apply various measures of influence on the offender: issuing orders to terminate the contract, prohibitions on the supply of goods, binding transactions, discrimination, prohibition or restriction mergers, division of enterprises by selling any of their parts or in some other way).
The role of the Secretary of State for Trade and Industry of Great Britain in the regulation of monopolies and competition is very significant. Since the conclusions in the reports of the Monopolies Commission are advisory in nature, the final decision on issues of monopoly situations or anti-competitive practices is carried out by the Secretary of State or other ministers. In addition, the Secretary of State has the power to grant exemptions from restrictive trade practices legislation on the basis of the economic insignificance of the cartel agreements involved.
In the United States, the main work of government control over monopolistic activities is carried out by the antitrust department of the Department of Justice, which is empowered to initiate legal proceedings against individuals who violate antitrust laws. In addition to the Ministry of Justice, the Federal Trade Commission carries out state control over compliance with antitrust laws. However, it should be noted that the main burden in carrying out these activities falls on the federal courts and, first of all, on the US Supreme Court, which assesses the legality or invalidity of certain restrictive covenants in contracts or business practices.
In Germany, government regulation of market relations, which leads to mitigation of the negative consequences of excessive monopolization, is carried out by the so-called cartel authorities. These authorities include the Federal Office for Cartel Affairs, the Federal Minister of Economic Affairs and the highest state authorities. Adjacent to them is the Monopolies Commission, created to provide opinions on the concentration of enterprises in Germany. The activities of industrial and professional associations in drawing up competition rules for their industries can be recognized as self-regulation of competitive relations by private business. Cartel authorities may carry out administrative proceedings, administrative fines or investigations against enterprises, cartels, industrial or professional associations. In the course of administrative proceedings, in particular, issues of permission or prohibition of cartel agreements, invalidation of merger agreements, and prohibition of illegal behavior of enterprises dominating the market are resolved.
In France, control over monopolistic activities is vested in the Competition Council, the Ministry of Economy and the courts of general jurisdiction. The Competition Council is considered an independent administrative body whose decisions cannot be vetoed by the Minister of Economy. He performs advisory functions on behalf of various institutions and organizations, and in certain cases he himself imposes appropriate sanctions. An important part of the control of monopolistic practices in France is the check of economic concentration in the market. At the initiative of the Minister of Economics, the Competition Council may review any concentration project or any concentration of enterprises that could harm competition, in particular the creation or strengthening of a dominant position in the market.
2.3. Natural monopolies in the Russian market and their reform
1. Electric power industry. The formation of RAO "UES of Russia" in the form of a joint stock company dates back to November 1992, when the capacities of over 700 power plants (hydroelectric power plants, state district power plants, thermal power plants) and the Unified Energy System were combined. The main purpose of the formation of RAO was the formation of a wholesale electricity market. When RAO UES was created, about 50 new power plants - more than half of the total capacity - were removed from the territorial AO-energos and entered into federal ownership by RAO UES of Russia. In the capital structure of RAO UES of Russia, the state owns 52.6% of shares, foreign investors account for 30.7%. RAO UES of Russia controls 77.7% of the total capacity of the country's power plants. The company consists of 72 regional energos. In the capital of 53 of them, RAO has 50 percent or more shares, in the rest - less than 50%. The company's fixed assets are estimated at $400 billion, the market capitalization of the holding is about $13 billion. Owning most of the energy capacity, RAO UES of Russia is the owner of the entire network of power transmission lines in the country. Among the stations not included in RAO, a significant share is made up of nuclear power plants, which account for 13% of the total electricity production in the Russian Federation.
Most of the problems of this most “advanced” natural monopoly from the point of view of what is commonly called liberal reforms are generated by two reasons: firstly, the ill-conceived concept of the so-called Federal Wholesale Electricity and Capacity Market (FOREM), designed to introduce elements of competition both between producers , and between electricity consumers; secondly, the fragmentation of the unified energy system in the process of corporatization of regional energy companies, the transformation of the latter into local monopolists, which ultimately found themselves completely subordinate to local authorities.
To be fair, it should be noted that the impetus for regionalization and fragmentation of the single electricity market was the introduction in 1991 of differentiated tariffs for paying for electricity by consumers in individual regions, depending on the real costs of each energy system. This decision led to irrational utilization of energy capacities: large, highly efficient stations remain chronically underutilized, while less efficient small stations belonging to regional energy systems are more fully loaded.
Tensions also remain in the relationship between RAO UES of Russia and independent power plants trying to enter the wholesale market with their often cheaper electricity. In conditions of “competition,” the owner of the networks, RAO UES of Russia, is interested not only in selling primarily “its own,” often more expensive, electricity, but also in making a profit from the resale of “foreign” electricity purchased at a low price. Producers of cheap energy are deprived of the opportunity to sell it directly to solvent consumers, bypassing regional and federal intermediaries.
The main problem of the Russian electric power industry is non-payments. Due to the specific nature of the products manufactured, the application of sanctions against defaulters is extremely difficult. The situation caused by non-payments can be significantly improved by realizing the significant export potential of RAO. Currently, about 1/3 of the installed capacity of power plants (200 billion kWh) turned out to be redundant due to a sharp decline in production. According to some estimates, the export of electricity produced at excess capacity would make it possible to receive up to $16 billion annually. However, in order to transmit large volumes of electricity over long distances while maintaining its parameters, modernization of power lines and auxiliary facilities is required. So far, only about 10 billion kWh of electricity is exported to non-CIS countries.
In our opinion, it is necessary to make fuller use of the advantages of a unified centralized energy system as a more sustainable form of organizing the energy economy. The organization of electrical energy production, in which generating capacities, transmission and distribution networks are concentrated in one hand, provides more opportunities for expansion into foreign markets. It is no coincidence that a similar scheme works successfully in France, one of the world's largest exporters of electricity.
The main goal of reforming the energy system - reducing costs - is fundamentally unattainable without a well-thought-out investment policy aimed at technical re-equipment of the industry. The half-measures proposed by RAO UES of Russia (organizing separate accounting for energy systems, streamlining the payment of bills by the population, eliminating intermediaries, transferring social and cultural facilities to the balance of local authorities, reorganizing the work of energy sales organizations) are in themselves useful, but insufficient.
2. Gas industry. RAO Gazprom was created in February 1993 through the transformation of the State Gas Concern; in 1999 it was transformed into OAO Gazprom in accordance with the requirements of the legislation on joint stock companies. It accounts for about 25% of all federal budget revenues. Gazprom is the largest creditor of the Russian economy. According to Gazprom's reporting, its monthly foreign exchange earnings are 600 million dollars, 800 million rubles. Mezhregiongaz receives from domestic consumers. OJSC Gazprom owns about 30% of the European gas market (21% of supplies to Western and 56% to Eastern Europe). Abroad, he has huge assets, mainly in the form of shares in companies that own gas transportation and gas distribution systems. Gazprom includes 8 gas production associations and 13 regional gas transportation enterprises, as well as the foreign economic enterprise Gazexport; they carry out about 95% of gas production and 100% of gas transportation.
Among the factors determining the stability of Gazprom's position on the world market is the uniqueness of the resource base and the presence of a developed gas pipeline system. In creating a unified gas supply system, Russia was ahead of the countries of Western Europe, where such a system is just beginning to take shape. Thus, in Germany, Gazprom has a powerful gas pipeline system that allows it to reach consumers directly and thereby significantly increase revenue from gas sales. Gazprom has created a number of alliances with major Western corporations, which have made it possible to combine the technological, financial, scientific and technical potential of the companies. Thus, the merger with the Wintershall group (a subsidiary of the BASF concern) gives Gazprom the opportunity to control up to 10% of the German market with the prospect of increasing this share.
The economic and financial successes of Gazprom are largely explained, firstly, by the start of reform of the gas industry in 1989, which gave the concern two additional years to adapt to new business conditions. Secondly, by the beginning of the reforms, Gazprom had experience working in foreign markets. He managed to successfully implement his own “Gazprom” model of economic reforms. Both large and less significant enterprises included in the Gazprom system actually remain its production divisions. Being legal entities, they are not the owners of either their assets, including subsoil use rights, or their income. Their statutory status is “OJSC enterprise”. From a legal point of view, these are unitary enterprises established by OJSC and based on the right of operational management.
Gazprom's rigid vertical organizational structure allows it to develop and implement a long-term development program. Along with active foreign expansion, it envisages large investments in the domestic manufacturing industry, according to some estimates, amounting to hundreds of millions of dollars. The strategy of competition in foreign markets requires independence from the supply of imported equipment.
The development model chosen by Gazprom determines the nature and direction of the corporation’s interaction with the state. Only as a large company - a natural monopoly - is Gazprom capable of becoming a powerful "locomotive" of the Russian economy in the foreseeable future. Demonopolization of Gazprom would mean creating favorable conditions for external competitors with the most negative consequences not only for it, but also for the country as a whole.
The inexpediency of restructuring Gazprom, in particular, separating Gazexport from its structure, is confirmed by domestic experience. Thus, during the Soviet period, when production, transportation and export operations were organizationally separated. The Soviet Union acted as a “supplier to the border.” As soon as Gazprom became a vertically integrated structure, its position in the fight against foreign competitors sharply strengthened.
3. Rail transport. The share of railways in the total freight turnover of all types of public transport in the country is about 80%. The share of railway transport in passenger transportation reaches 41%, which is comparable in volume to road transportation. The most important feature of the industry is that its main product - transportation - is created, as a rule, by several enterprises - railways, that is, at the level of the entire industry. Hence the need for the centralized formation and distribution of transportation revenues, the accumulation of financial resources for the development of the railway network, the acquisition and repair of railway stock, and the introduction of scientific and technological progress.
A comparison of productivity indicators of Russian railways, estimated by the number of ton-kilometers per employee employed in transportation, with foreign data indicates that in Russia it is 2.5-3 times higher than in England, France, Germany and China . At the same time, the turnaround time for wagons in our country is 2-3 times less than in the USA, despite the long transportation distances. In Western Europe, railways are unprofitable: losses reach 50% and are compensated by government subsidies. In Russia, railways generally operate at a profit (despite the fact that the average railway tariff in Russia is 8-10 times lower than in Western countries). Losses of passenger transport are covered by the work of freight transport.
There are three concepts for reforming the Ministry of Railways. In descending order of their radicality, these are: the concept proposed by the European Bank for Reconstruction and Development; concept of the Ministry of Transport of the Russian Federation; a concept developed by the Ministry of Railways itself, the so-called “government”. The essence of the latter is that the transportation sector is separated from railway transport as a whole. It is defined as competitive and open to everyone who wants to start a business here. It is expected to develop competition in this sector through the acquisition by manufacturing enterprises - users of the railway network services - of their own rolling stock, and the creation of freight and passenger companies. All this should lead to a competitive reduction in transport costs. The implementation of this concept includes three stages. The first stage - until 2000 - provides for the creation of unitary freight and passenger companies in the MPS system. At the same stage, some factories, construction enterprises, agriculture, and housing and communal services facilities should be withdrawn from the MPS system. The second stage - until 2005 - establishing the work of passenger and cargo companies. The third stage - after 2005 - corporatization of passenger and freight companies, redistribution of state and economic functions of the Ministry of Railways, creation of a central railway company. However, the effectiveness of the proposed reform will be low, if only because the share of costs for the car fleet in the cost of transportation accounts for no more than 18-20%. Moreover, the quality of services of new operators will depend little on their efforts, since over 80% of costs are associated with the work of centralized services: track maintenance, electrification, traction, etc. In addition, the proposed concept contradicts existing legislation. The law “On Federal Railway Transport” states: “Railway transport is a single production and technological complex.” The concept is ultimately aimed at its fragmentation. Where reform is really needed urgently is in the freight forwarding business, which is an extremely profitable form of customer service around the world. There are more than two thousand forwarding companies operating in the transport services market. Their activities are characterized by a one-sided focus - they only carry out the sale and resale of freight, that is, railway transportation tariffs. This devalues the very concept of “transport expedition”, the purpose of which, as is known, is to attract additional volumes of traffic, provide additional transport services and speed up the delivery of goods, freeing shippers and consignees from a large number of operations. Today, the receipt of freight forwarding services is actually replaced by the use of the right to a discount provided by the Ministry of Railways to one or another forwarder or shipper. As a result, discount volumes are growing and transportation volumes are falling.
2.4. Tariff regulation of natural monopolies and impact on efficiency
Earlier in the work, issues such as the concept of monopoly and natural monopoly were considered (since this type of monopoly is mainly common in Russia), the influence of monopolies on the efficiency of the economy, now I would like to highlight in the statistical part such a problem as the regulation of monopolies and their presence in Russian economy. Monopolies are fraught with losses for society. Therefore, the state takes on the function of regulating monopolies, especially natural ones.
No price regulation, even the most perfect, will lead to success without restoring state influence in the natural monopolies that belong to it (RAO UES of Russia, Ministry of Railways and RAO Gazprom). It is not the case when the trust agreement for the management of the state’s stake in Gazprom is characterized by the president as nothing less than “robbery of the country,” and since the formation of RAO UES of Russia, not a single discussion of this problem has been held jointly with the government, while it “overgrown” with hundreds of intermediary firms that direct financial flows, bypassing not only the budget, but also the company itself.
In accordance with Presidential Decree No. 221 of February 28, 1995 “On measures to streamline state regulation of prices (tariffs)”, to restore order, boards of state representatives in natural monopolies were created, which should promote the growth of the market value of the shares of these companies, monitor the timeliness of contributions to the state budget all required payments, monitor compliance with antitrust laws and create elements of a competitive environment. The presidential decree is conceptual in nature and does not contain a specific reorganization plan, although the allocation of structural units within natural monopolists is spelled out quite clearly.
Natural monopolists have not been forgotten in the public utilities sector either. Thus, bringing order to local natural monopolies (utility enterprises) involves the introduction of energy-saving technologies, starting with the installation of meters and water meters in the apartments of Russian citizens, which, according to B. Nemtsov, can provide up to 30% cost savings.
More questions arise with price regulation of natural monopolies. The Russian price space currently includes two areas. The first is the sphere of free market prices, which are set by business entities themselves based on the balance of supply and demand. Moreover, prices for the products of enterprises that occupy a dominant position in the market, but are not classified as natural monopolies, are also formed freely and are included in this area, although they are controlled by the antimonopoly authorities of Russia. The second is the sphere of direct state regulation of prices and tariffs for the products of natural monopolies and so-called socially significant goods.
Periodic inspections of the practice of setting tariffs carried out by the State Commission of the Russian Federation from year to year show the same thing: systematic violations of the procedure for setting tariffs, indicating the imperfection of the regulatory documents on pricing themselves. These documents make it possible to increase the number of industrial production personnel while reducing production volumes, and to provide numerous benefits.
They were developed only in the interests of producers and do not take into account the economic interests and capabilities of consumers. Such tariffs ensure: receipt of unreasonably high wages compared to other industries and regions; payment of dividends regardless of how the enterprise performed; insurance of its employees; misuse of part of the funds intended for the construction of housing and social welfare facilities.
For example, in railway transport it is widely practiced: charging additional payments for unfulfilled (underfulfilled) work (services) for escorting wagons and cargo by paramilitary guards of the Russian MP; inflated tariffs in suburban passenger services; imposing on counterparties, when concluding contracts for the carriage of goods, conditions that are not related to the subject of the contract; allocation of food and industrial goods and various materials to the railway; requirement of payment in excess of tariffs for the shipment of export goods, etc.
Numerous violations of the current pricing procedure and the imperfection of the latter were also revealed by inspections in other sectors of natural monopolies.
The point is that the very mechanism for regulating prices for products and tariffs for services of natural monopolies should be as open, understandable and “transparent” as possible, that is, every buyer has the right to know what and how much he pays. At the same time, he must be sure that the price or tariff assigned is reasonable and fair. All of the above applies equally to freight and passenger tariffs for railway transport services, electricity transmission and gas transportation.
The Law “On Natural Monopolies” stipulates that government bodies, among the methods of regulating the activities of natural monopolies, may apply price regulation by determining prices (tariffs) or their maximum level. Let us recall that in accordance with the government decree, in addition to the use of maximum price change factors, which we propose to use taking into account inflation indices, price regulation can be carried out in other ways, for example, by establishing fixed prices, ceiling prices, markups, profitability limits, declaration price increases.
The use of fixed prices, marginal prices or markups for effective price regulation in an inflationary transition economy is obviously inappropriate due to the fact that their values will have to be constantly revised. It is desirable that price regulation over a significant period of time, at least throughout the year, should occur automatically.
Recently, in particular, in the Concept of the Pricing Policy of the Russian Federation for 1996-1997, developed by the Ministry of Economy of the Russian Federation, it was proposed as a method of regulation to “take into account when setting prices a reasonable rate of return on the capital used, ensuring dividends on share capital.” However, professional revaluation of fixed capital requires a lot of time, that is, the procedure for approving and revising regulated prices and tariffs will last for years. This is evidenced by the regulatory experience in the United States. In addition, in world practice the question of what cost - initial or replacement - should be used to evaluate capital investments has not yet been resolved.
Another major problem is also difficult - establishing a “reasonable” or “fair” rate of profit, because our specialists in price regulation, due to the underdevelopment of official statistics, have no idea even about the size of the average rate of profit in Russia. Finally, regulation of prices and tariffs for the products of natural monopolies by establishing a fixed rate of return on the corporation's invested capital will serve as a stimulant for the search for illegal ways to obtain “fair” profits, as was the case when applying the profitability standard in 1996-2000. Only then did the monopolist increase current costs, and now investments will also be maximized.
Thus, among the methods of price regulation proposed by the government decree, the method of price change coefficients remains, which was actively used (unsuccessfully) during the years of reforms and, most likely, will continue to be used in the future. On the one hand, this is natural. On the other hand, there is an urgent need to eliminate the accumulated shortcomings and errors on the basis of domestic and foreign regulatory experience. Unfortunately, the Russian economy will continue to be characterized by inflation for quite a long time, despite the successes in the field of financial stabilization, if we approach the matter by Western standards. And in developed countries, an economy with an annual price increase exceeding 3-5% per year is considered inflationary. Therefore, we all the more need special instruments of the state’s pricing policy in relation to natural monopolies. Obviously, in the conditions of the transitional inflationary economy of Russia, regulation of prices for their products should be carried out by indexing, for example, using the consumer price index (or industrial wholesale price index). Such recommendations are based on modern foreign experience.
In particular, in the UK, since 1985, the regulator initially determines the so-called “fair” price, based on the reasonable costs of the enterprise and normal profits. He is then allowed to increase his prices according to the formula CPI - X. The first component here is the consumer price index, the second is the planned cost savings. All values are taken as percentages. If, for example, the estimated cost savings are planned at 2% per year, and annual inflation is expected to be U/o, then an enterprise subject to a natural monopoly can increase its prices by only 3% on an annual basis. When an enterprise objectively needs investment, the planned cost savings may be negative.
Table 2.1
Telephone price regulation in the UK
Based on this experience, it is quite appropriate to talk about the need to adjust the price level for the products of natural monopolies in accordance with the general level of inflation (consumer price index). However, if the main share of the costs of a monopolist enterprise is the price of raw materials, you can use indicators of price increases specifically in the raw materials industry. Of course, there are more complex dependencies.
So, if the regulatory body, after appropriate monitoring of prices for the products of a natural monopolist, came to the conclusion that its prices should be closely correlated with inflation in the country (region) or rising prices in any raw materials industry or (as in the case of RAO Gazprom) ) industry as a whole, then current prices can be adjusted using the formula:
where: Pi is the base price in the previous (i-th) period (month, quarter, year). The desired price can be determined based not on the calculated base price, but on the actual price of the product, which has already “taken root” in the market, that is, recognized by the seller and the buyer; Jp - predicted (regional or federal) price index for the industry selected by the regulatory agency or for the industry as a whole; k- correlation coefficient between the consumer price index and the selected price index for the products of a natural monopolist, calculated for regulatory authorities based on the results of price monitoring. In theory, it should take into account the possible planned cost savings or other criterion for increasing efficiency, or, conversely, the need for urgent investments (in fact k = 1-X).
The calculation can also be made by adjusting for specific production conditions, that is, multiplying the base price by the cost index for individual (or all) cost items that occupy the largest share in its structure:
where: Р R - regulated price; Р F - basic calculated or actual ("established") price; Js i , is the growth rate of costs for the t-th article of calculating the cost of the products being tested, in%; Ys i - the share of the i-th calculation item in the cost of the products being inspected, in %. If costs for all costing items are taken into account, then SYs i = 100%.
In practice, from May 1994 to September 1995, the Ministry of Economy of the Russian Federation tried to implement this, or rather a similar idea, by developing, together with the Ministry of Railways of the Russian Federation, the “Procedure for indexing tariffs for the transportation of goods and fees for loading and unloading operations performed by railway transport of the Russian Federation". A nomenclature of material and technical resources consumed by railway transport was agreed upon and approved, and when prices change, tariffs for cargo transportation and loading and unloading operations are indexed. It included eleven items: diesel fuel; diesel lubricating oil; fuel oil; coal; electricity; lumber; railway rails; railway sleepers; crushed stone; reinforced concrete structures; thin sheet steel of ordinary grades (up to 4 mm).
However, the price index based on this nomenclature was compiled not taking into account the specific weights of the types of products included in it, but in such a way as to ensure for MGTS the desired growth rate of railway tariffs (transportation profitability reached 26%). Although such a distortion cannot discredit the method itself.
They tried to eliminate the “monopolistic overlap” with the level of railway tariffs by “freezing” them in October-December 1995. Another extreme arose - in December the industry suffered losses in the amount of 134 billion rubles. In the first six months of 1996, railway tariffs were indexed in an amount not exceeding the increase in wholesale industrial prices, that is, in fact, according to formula (1) with a coefficient k = 0.8 (or X = 20%). Transportation losses amounted to 1.838 trillion. rub. It couldn't be any other way. Even if we assume that the tariff, which “thinner” in the context of the inflationary “freeze” by the beginning of 1996, became “reasonable and fair”, and this is still a big question, then where should the 20% increase in the efficiency of railway transportation included in the plan come from? tariff change algorithm?
From the second half of 1996 to June 1997, the revision of tariffs was carried out in parallel with the change in the industrial wholesale price index (a scheme tested and proven in Gazprom). And if in 1996 railway transportation was still unprofitable due to inertia (156 billion rubles), then in 1997 it already became profitable. And so, on July 1, 1997, a decision was made to reduce tariffs for rail transportation, as well as to reduce gas and electricity prices for industrial consumers. What is this - a calculated tariff policy or a political situation?
The conclusion from the analysis is obvious: in the transition economy of Russia, to regulate prices and tariffs for the products of natural monopolies, the most appropriate method is the indexing method, and the formula for tariffs for the products of natural monopolies should look like this:
Of course, the “X” value is not a criterion for increasing efficiency, but only an indicator of urgent investments (in the conditions of the Russian permanent budget crisis, one cannot seriously count on state support). By the way, the problem of the investment component of the tariff will be resolved at the same time.
True, a number of questions arise here too. Firstly, it is necessary to determine as accurately as possible the base price to be indexed, and after the appropriate period, revise it. The base, or “fair” price, after carrying out these calculations, can be clarified and ultimately be the result of negotiations, agreement or, more simply put, bargaining between the seller and the buyer. However, if this calculated and agreed “reasonable” tariff is lower than the tariff that had developed in practice by that time, then it is unrealistic to raise the question of reducing it. However, the answer to this question has already been found by economic practice. Tariffs in this case should be “frozen”.
In addition to what is proposed above, in certain cases and industries, alternative methods of price regulation can be used. English experts recommend using the cost comparison method. The regulatory body, in the presence of markets that are generally similar in territory, equipment of manufacturers and consumer demands, has the right to order an economic entity that is a natural monopolist to change the level and structure of its prices (tariffs) in accordance with a similar enterprise in this industry, but conducting a reasonable tariff policy. This method of regulation may become quite widespread in our country.
The approach to this problem taken in Poland is of interest. According to him, if obstacles to competition in the market cannot be eliminated quickly enough, then government regulation measures must be applied. For example, when tariffs for telephone services increased sharply, the Antimonopoly Office prohibited further increases until the overall cost structure was changed in accordance with European standards. This experience is very useful for Russian energy commissions that regulate electricity tariffs to take into account.
American experts recommend that regulatory authorities control not the costs and income of the monopolist themselves, but the satisfaction of needs in the regulated market. The essence of this approach boils down to the following: if a shortage develops and queues arise, if the buyer wants, but cannot, purchase goods at a regulated price, then the latter needs to be increased. Scarcity is considered a greater evil than high prices.
2.5. Prospects for the restructuring of natural monopolies and the impact on economic efficiency
The restructuring of natural monopolies is very promising for Russia. The price arbitrariness of natural monopolists here leads to increased regionalization of national and localization of local markets. This is aggravated by the underdevelopment of market infrastructure and the absence or weakness of information systems. But the main thing is that state regulation of the activities of natural monopolies is, in principle, imperfect and ineffective.
It should be noted that regulatory authorities in almost all countries do not have enough time, qualified personnel, or information. In most cases, audits of financial statements and accounting documents of natural monopoly entities are random, superficial and extended over time. Inspection bodies base their conclusions mainly on the data provided by the inspected enterprises themselves. The effectiveness of such regulation is low and often, by limiting competition, does more harm than good.
Due to bureaucratic red tape, a fairly long period of time passes between the deadline for making a regulatory decision and the moment it is implemented, which becomes a brake on the development of these industries. Thus, in Russia, the deadlines for implementing the resolutions of the government of the Russian Federation on regulating prices for the products of natural monopolies were almost always impossible. And the regulation process itself generates additional costs on the part of both the enterprises subject to it and the state.
Consequently, from the point of view of long-term strategy, more effective measures are needed to force monopolists to civilized behavior than administrative regulation of prices and tariffs. An alternative way to influence natural monopolists is deregulation and stimulation of competition.
It should be noted that the presidential decree provides not only short- and medium-term measures to carry out structural reform of natural monopolies, but also long-term ones, in particular, the restructuring of RAO UES of Russia. It is planned to significantly expand the federal wholesale electricity and capacity market (FOREM) by increasing the number of electricity generating enterprises from 30 to 51, which should launch competitive mechanisms and help reduce energy tariffs. However, all this is not new. Much less explored is the question of what needs to be done (and whether it is necessary?) to restructure the Ministry of Railways and RAO Gazprom.
It is known from foreign experience that a subject of a natural monopoly may face competition from enterprises that use fundamentally different equipment or technology in the production of the same or similar products. For example, modern innovations have opened up the possibility for many enterprises to independently build fairly large electric generators. Naturally, in this case it becomes impractical to regulate tariffs for electricity and its transmission.
An identical situation may arise during the transportation of oil and gas, and rail transportation. Therefore, when deciding whether to deregulate tariffs, it is very important that both suppliers and their customers have effective access to alternative and competitive sources of supply or demand. In our opinion, Russian natural monopoly entities should be given the right to apply to the government of the Russian Federation with proposals to abolish regulation of prices and tariffs on their products in all cases of serious competition.
State-encouraged competition within railway transport enterprises, division of ownership or management of the operation of railway tracks and trains should become powerful factors in curbing the growth of railway tariffs. The main objective obstacle to competition in railway transport is the contradiction between the owner of railway facilities, who would like to charge the maximum fee for using the tracks, and the user of these facilities, who is interested in minimizing his costs. A characteristic feature of Russia at the moment is that the owner of both railway tracks and cars is the state, represented by MP S.
The distinction between the ownership and operation of railway tracks and trains can be carried out as an experiment on one of the country's railways. It is advisable to start separating enterprises that use railway cars from the owner of the tracks, which will be the state for a long time, with the separation of accounts followed by organizational separation. If this project is obviously successful, it can be completed by privatizing at least the enterprises operating rolling stock.
Administrative and legal forms of such division of economic entities at various stages are the subject of legal research and elaboration. The task of economists is to solve the problem in such a way that the owner of the track does not set too high a fee for “access” to the infrastructure, and the enterprises operating railway cars actually enter into competition for the consumer of transportation services.
The separation from the general “bundle” of capacities of those enterprises that provide products and services to end consumers is currently occurring in other sectors of natural monopolies. For example, in the USA and Europe - in oil and gas pipeline transport, telecommunications and electric power. The Russian government, in our opinion, should also not trail behind events, but play ahead of the curve by trying to introduce the latest Western developments into domestic economic practice. However, in all of these cases, carefully thought-out measures are required to control prices, which the owner can freely set. It is important that the separation of infrastructure (its products and services) from the provision of such services does not lead to new manifestations of monopolism and inefficiency.
As for the restructuring of RAO Gazprom, it is necessary to measure seven times and, perhaps, not cut at all. First, the monopolized gas industry is introducing new capacity at a cost that exceeds annual government investment. Secondly, Gazprom (the only Russian natural monopoly) is a subject not of the national, but of the world market, where fierce competition reigns, and its demonopolization is a gift to foreign capital. Finally, thirdly, according to Russian antimonopoly legislation, in exceptional cases, the actions of an economic entity can be recognized as lawful if it proves that the positive effect of them, including in the socio-economic sphere, will exceed the negative consequences for the product market in question.
2.6. The presence of natural monopolies in the Russian market. Their share, impact on the national economy
2.6.1. Regulation of natural monopolies
The high economic efficiency of natural monopolies makes their fragmentation absolutely unacceptable. This, however, does not mean that the state can refrain from regulating natural monopolies. After all, their uncontrolled activities can cause significant harm.
As monopolists, these structures are trying to solve their problems primarily by increasing tariffs and prices. The consequences of this for the country's economy are the most devastating. Production costs in other industries are increasing, non-payments are growing, and interregional ties are paralyzed. And this is not an abstract theory. The entire Russian business press in recent years is full of complaints from industrial enterprises about inflated railway tariffs, extremely rapidly growing energy prices, etc.
At the same time, the natural nature of a monopoly position, although it creates opportunities for effective work, does not at all guarantee that these opportunities will be realized in practice. After all, there is a mechanism of x-inefficiency. Indeed, theoretically, RAO UES of Russia could have lower costs than several competing electric power firms. But where are the guarantees that it wants keep them at a minimum level, and, say, will not inflate the costs of the company's top management. In the real history of RAO UES of Russia, there was, in particular, a case when the costs of the company included payment for a flight to the USA on a special plane for the mother-in-law and dog of the general director of the company.
The main way to combat the negative aspects of natural monopolies is through state control over pricing of natural monopoly goods and/or the volume of their production (say, by determining the circle of consumers subject to mandatory service).
2.6.2. Maximizing production levels
Price regulation of the activities of natural monopolies involves the forced fixation of maximum prices for the monopolist's products. Moreover, the consequences of this regulatory measure directly depend on the specific level at which prices will be fixed.
Rice. 2.1. Regulating the prices of natural monopoly products in order to maximize production
In Fig. Figure 2.1 shows a common regulatory option in which the highest acceptable price is fixed at the level of intersection of marginal costs with the demand curve (P = MC = D). The main consequence of setting a maximum price from the point of view of the behavior of a monopolist firm is a change in the marginal revenue curve. As long as the monopolist cannot raise the price above the named level even at those volumes of production where the demand curve objectively allows this to be done, his marginal income curve from position MR shifts to position MR 1 (highlighted on the graph with a bold line), coinciding with the maximum allowed price value R. In fact, if the maximum price of electricity is fixed at 21 kopecks. for 1 kW/h, then each additional kilowatt sold will generate income equal to this amount, and the marginal income curve will degenerate into a horizontal straight line passing at this level.
Next, the rule MC = MR comes into force. Like any other company, the monopolist itself without any government coercion(which is a major advantage of this regulation technique!) will strive to bring the volume of production to Q M, corresponding to the intersection point of the marginal revenue and marginal cost curves. In Fig. 2.1, other advantages of this method of limiting monopolistic prices are clearly visible: a significant increase in production is achieved (Qreg > Q M) and prices are reduced (Preg< Рм).
But the described method of regulation also has a drawback: the price level set by the state is in no way related to average costs, i.e. he can, by the will of the state, secure both the receipt of economic profits (Fig. 2.1a) and the incurrence of losses (Fig. 2.1b). Both options are undesirable. The presence of constant economic profits from a natural monopolist is tantamount to a tax on consumers. By paying inflated prices, they increase their costs with all the ensuing negative consequences (reduced demand for their products, decreased competitiveness, etc.). But perhaps even more dangerous is consolidation of losses. A natural monopolist can cover them in the long term only through government subsidies, otherwise he will simply go bankrupt. And this opens a wide path to wastefulness. Since there is no hope for profit one way or another, and the state will still cover the losses, the monopolist can only benefit by wasting public funds. High salaries for managers, inflated staff, huge entertainment expenses - all these are hidden forms of enrichment at the expense of the treasury. In other words, x-inefficiency in this case reaches the highest level.
2.7. Ensuring self-sufficiency
Another guideline for setting maximum prices may be the point of intersection of the average cost curve and the demand line (P = ATC = D). Since average costs in this case are exactly equal to the selling price, the natural monopolist operates in this case without losses and profits. This eliminates the main problem of the previous regulation method.
In Fig. 2.2 it is clear that this approach to regulation also solves the problem of increasing production (Qreg > Q M) and lowering prices (Preg< Р M).
However, the MC = MR rule is working against the regulators this time. Up to the point of intersection of the marginal cost curve and the new, government-fixed marginal revenue curve MR, increasing production is beneficial to the monopolist. But after this point (N), each extra good produced will cause more costs than it generates revenue (MC > MR). It is obvious that the monopolist, by hook or by crook, will strive to stop production at the Q N level and not bring it to Qreg. Since demand at price P will be exactly Qreg, there will be a shortage in the market (Qreg > Q N).
Rice. 2.2. Regulation of prices for natural monopoly products to ensure break-even production
Citizens of large Russian cities experienced something similar in the early 90s. The Ministry of Railways stopped repairing electric trains, and fewer and fewer of them were on the lines every day. Of course, there were “objective” reasons for this: vandalism by teenagers breaking seats and breaking glass, and lack of funds for repairs. But as if by magic, they all disappeared (or at least stopped affecting the number of trains running) as soon as ticket prices were raised.
Thus, the second approach to price regulation is also not ideal. In its pure form, it causes commodity shortages and therefore requires additional coercive measures in relation to monopolists. The most common of these measures in modern Russia is the compilation of lists of consumers to whom the monopolist has no right to stop supplying.
2.8. Reforming the structure of Russian natural monopolies
In addition to price regulation, reforming the structure of natural monopolies can also bring certain benefits - especially in our country. The fact is that in Russia, within the framework of a single corporation, both the production of natural monopoly goods and the production of goods that are more efficiently produced in competitive conditions are often combined. This association is, as a rule, of the nature of vertical integration. As a result, a giant monopolist is formed, representing an entire sphere of the national economy.
RAO Gazprom, RAO UES of Russia, and the Ministry of Railways are the three pillars of “monopolism in Russian style,” the clearest examples of such associations. RAO Gazprom, along with the Unified Gas Supply System of Russia (i.e., a natural monopoly element), includes geological exploration, production, instrument-making enterprises, design and technological structures, and social sphere facilities (i.e., potentially competitive elements). The Ministry of Railways is in charge of both infrastructure - railways, stations, information systems - and non-monopoly activities - contracting, construction and repair organizations, catering enterprises. Entire villages and cities are on the balance sheet of the ministry. RAO UES of Russia integrates both electrical networks and power plants.
The essence of the intensively discussed reforms in our country is this: it is proposed to develop competition in those types of activities of natural monopolies where it can be achieved. Thus, competition between different companies to receive sewage from each apartment in a multi-story building is obvious nonsense. But competition between companies that provide preventive maintenance and repair of water supply and sewer systems in apartments is probably the only way to protect consumers from the arbitrariness of modern remote control systems, electronic control systems, etc. Only if there is competition, residents will not have to wait weeks for a plumber to be called.
It is obvious, however, that the separation of the natural monopoly and potentially competitive sectors should not be forced and mechanistic. After all, not only competition, but also production integration has its potential to reduce costs. Will, for example, the efficiency of the energy industry increase if, instead of the current RAO UES of Russia, we create a national company that manages power transmission lines and many corporations that own power plants? After all, even in countries with very strict rules of antitrust regulation - Japan, the USA, Germany - the main scheme for organizing energy is the energy system, i.e. concentration of generating capacities and transmission networks in one hand.
The idea of disaggregating the energy industry by creating independent regional energy systems requires even more careful consideration. The level of competition in the industry is unlikely to increase, but the isolation of regions will increase. In addition, the country’s unified energy system provides savings, since it allows the use of the “sleeping” capacities of the western regions during these hours to cover the daily peak consumption in the eastern part of Russia and vice versa (benefits of horizontal integration). Will it be possible to achieve similar coherence in the operation of independent regional energy systems?
When reforming Russian monopolists, one should keep in mind their position in international competition. For example, RAO Gazprom is the largest international corporation. Its restructuring could undermine Russia's position in the global gas market. In general, it is obvious that reforms of structures that include the natural monopoly sphere should be carried out in stages, with great care and analysis of each stage of transformation.
2.9. National or private?
Finally, another difficult issue regarding natural monopolies relates to their status: should these companies be public or private? The origins of this problem are related to the fact that natural monopolies, as we have seen, are a very specific economic entity that never operates according to purely market principles. If natural monopolies exclude competition; if the consumer has absolutely no choice; if prices and production volumes are determined not by the play of market forces, but either by the arbitrariness of the monopolist or by decisions of the state; if many other market functioning mechanisms are disrupted. If all this is true, then isn’t it better to manage natural monopolies not as private, but as state enterprises?
Economic science has not developed a clear answer to this question. In many developed market countries, natural monopolies are nationally owned, but not less so in countries where they are privately owned.
The usual arguments in favor of nationalization are that in a state-owned enterprise it is easier to implement government policies regarding prices, tariffs, production volumes, etc. (remember that regulation of these parameters is inevitable in any case - both under private and state ownership). In addition, state ownership excludes monopolistic abuses aimed at enriching the owners. Simply put, where a private monopolist will extract every penny from consumers for the sake of its profits, a state monopolist will most likely take a moderate position. After all, profit is by no means his main goal. If a natural monopolist is unprofitable, then it is not at all clear what can keep private capital in such an enterprise.
Arguments against nationalization are related to fears of reducing the efficiency of a natural monopolist. Without the need to focus first and foremost on commercial success, the director of such a company turns into a government official. And he readily carries out any, even the most ridiculous, instructions, as long as they comply with the wishes of his superiors. At state-owned enterprises, dependency sentiments are also on the rise: there is nothing to be afraid of losses, everything will be covered by the budget. Finally, the danger of corruption increases: too large amounts of government, i.e. “no one’s personal money” passes through the monopolist’s cash registers. Given the complex nature of the business activities of such firms, keeping track of this money can be difficult.
Thus, both sides have serious arguments. In practice, the issue of property rights is most often resolved in the spirit of national traditions. Countries with a statist mentality prefer the nationalization of natural monopolies. In countries with strong individualistic traditions, on the contrary, they tend to favor private property.
CONCLUSION
Monopolies set output below efficient output by charging a price above marginal cost, resulting in a deadweight loss to society. The consequences of such policies can be mitigated through reasonable government action or, in some cases, by the monopolist itself through price discrimination. How widespread is the problem of monopoly?
In a sense, monopoly is a very common phenomenon. Most firms have some degree of control over the price they charge. Nobody forces them to set a market price for their goods, because they differ significantly from the products of other companies. Mercedes is not Samara, TV So pu - not at all Rubin. Each of these goods has a downward-sloping demand curve, which gives each producer some power over the market.
Yet firms with truly monopoly power over the market are rare. Few of the products are truly unique. Most have substitutes that, if not completely identical to them, are very close. Company Nestle may raise the price of ice cream slightly, but if its marketers overdo it, sales will plummet.
After all, monopoly power over a market is very relative. It is true that many firms have some monopoly power. However, it is no less true that their monopoly power is limited. We would not make much of a mistake in assuming that the markets in which such firms operate are competitive, even if this is not entirely true.
Monopoly is the only supplier in the market. Monopolies arise when a firm manages to control the source of a key resource, obtain exclusive rights from the government to supply a product, or satisfy market demand at a lower cost than several firms. Since the monopoly is the only supplier, the demand curve for its products is downward sloping. When a monopoly increases production by one unit, it causes the price of its product to decrease, which reduces its income from sales of the product. As a result, the marginal revenue of a monopoly is always lower than the price of its product. Like a competitive firm, a monopoly firm maximizes profit by producing that level of output at which marginal revenue equals marginal cost. The monopoly then sets a price that corresponds to the demand for that volume of output. Unlike a competitive firm, the monopoly price exceeds the firm's marginal revenue and, therefore, its marginal cost. The profit-seeking monopolist's output lies below the level that maximizes the sum of consumer surplus and producer surplus. That is, when a monopolist charges a price above marginal cost, some consumers who value the product above marginal cost but below the monopoly price will not purchase it. As a result, the activities of a monopoly lead to irreversible losses for society, similar to those that arise when a tax is introduced.
The government responds to the monopoly problem in one of four ways: using antitrust laws to increase competition in the industry; regulates prices set by monopolies; transforms monopolies into state-owned enterprises; In the event of a market fiasco that is minor compared to the inevitable policy imperfections, policymakers can simply “go with the flow.” One method of increasing monopoly profits is to charge different prices for the same product depending on the willingness of different groups of consumers to pay for it. The practice of price discrimination leads to an increase in economic welfare, since those buyers who would otherwise refuse to purchase the product will purchase it. In the special case of perfect price discrimination, there is no deadweight loss. In the more general case of imperfect price discrimination, it can lead to either increases or decreases in welfare compared to setting a single monopoly price.
We can say that the monopolist's output is "too small" and the price of its products is "too high." This forces society to look for ways to regulate the monopoly and achieve efficiency in the market. So, we have examined the essence and position of monopolies (especially natural ones) on the Russian market, their impact on the Russian economy, and the prospects for their reform. A modern approach to the regulation of natural monopolies, in our opinion, should be based on the position that natural monopolies are an integral part of what J. Galbraith called the “planning system”. In a modern highly developed economy, it includes the largest corporations. The laws of their behavior differ from the laws of the functioning of the traditional market system, which plays a subordinate role in the modern economy. The market itself is not able to either manage or control the “planning system”. These functions can only be performed by the state and society as a whole. For natural monopolies, such controls should relate to costs, prices and profit distribution. The economic activities of monopolies, including natural ones, should be considered in the context of the globalization of the world economy and the tightening of international competition of transnational corporations. It is transnational corporations that act as the main subjects of the global economy, accumulating most of the income generated in it. The creation and successful development of these companies require enormous effort, time, a favorable climate, and support, including at the government level. A national economy without such companies is doomed to a passive role in global economic relations. Today, our country has the only truly transnational company that has undeniable weight on the European continent - OAO Gazprom.
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Main features of a monopoly
1) the only seller, i.e. one firm or industry is the only producer of a given product or the only provider of a service;
2) there are no close substitutes. A monopoly product is unique in the sense that there are no good or close substitutes.
3) dictated price: a pure monopoly dictates prices or exercises control over prices;
4) blocked entry: the entry of competitors into the industry under conditions of a pure monopoly is limited by insurmountable barriers (patents, monopoly on sources of raw materials, vehicles, etc.).
In conditions of monopolistic competition, each enterprise, having achieved equality of marginal costs (MC) and marginal revenue (MR), can receive economic profit (Fig. 2a). However, in the future, other enterprises will appear on the profitable market. This partially reduces demand, thereby “lowering” the demand curve for each “old” firm. Their struggle to maintain their market share, as a rule, increases the costs of production and sales of products. The emergence of “new” enterprises will continue until a long-term equilibrium is established, reducing income. Price discrimination is the setting of different prices for the same product, provided that the differences in prices are not associated with different costs. Types of price discrimination: 1) Price discrimination of the first kind - the practice of charging each buyer a fee equal to his subjective price, that is, the maximum price that the buyer is willing to pay. It is, rather, an ideal case, since the seller does not know absolutely exactly the subjective price of each buyer. However, sometimes the seller may engage in imperfect (in practice) price discrimination of this kind. This is possible when specialists (doctor, actor) are represented as sellers. 2) Price discrimination of the second type - changing the price depending on the volume of consumption (different Internet tariff plans, where the price increases disproportionately to the increase in channel speed). 3) Price discrimination of the third kind. Selling the same product to different categories of consumers at different prices.
As monopolists, these structures are trying to solve their problems, primarily by increasing tariffs and prices. The consequences of this for the country's economy are the most devastating. Production costs in other industries are increasing, non-payments are growing, and interregional ties are paralyzed. The main way to combat the negative aspects of natural monopolies is through state control over pricing of natural monopoly goods and/or the volume of their production. Price regulation of the activities of natural monopolies involves the forced fixation of the maximum price for the monopolist's products.
An artificial monopoly develops in those areas where a single producer does not have increased efficiency compared to several competing firms. In the case of artificial monopoly, the main direction of regulation is to counter the formation of monopolies, and sometimes to destroy existing ones. To do this, the state uses a wide range of sanctions: preventive measures (prohibition of the merger of large firms) and direct demonopolization (forced fragmentation of the monopolist into several independent firms). The basis for enforcing antimonopoly policy is the presence of any of the two main signs of market monopolization, namely: 1 ) concentration of a very large market share in the hands of one company; 2) intertwining of the leading company with competitors.
When determining the degree of concentration in a particular industry, the state usually focuses on three indicators of the activities of the largest companies: the size of turnover, the number of employees and the amount of capital.
A monopolized market is characterized by the following features: a) the product on the market is sold by a single seller; b) the product is unique in the sense that it has no close substitutes; c) the seller sells only his goods. Such a market, by analogy with an ideal competitive market, is an abstraction and practically does not occur in life, but it can well be considered as a model to which highly monopolized markets are approaching: The closest to such markets are state corporations that supply gas, electricity, water to enterprises and the population, cable television, telephone services, post and telegraph, manufacturers of certain types of weapons sold, airlines that solely service routes to points accessible only to aviation.
The Herfindahl-Hirschman index is an indicator of the degree of concentration of production in a particular market sector. It is calculated as the sum of the squares of the market shares of suppliers represented in this sector. The formula is used to identify industries in which the concentration of production and capital is such that mergers could lead to limited competition.
The Herfindahl-Hirschman index is defined as the sum of the squares of the shares of all firms operating in the market: , where HHI is the Herfindahl-Hirschman index; - the share of production (sales) of the i-th company in the total volume of output (sales) of the industry; N is the number of firms in the industry.
Values of y i can be expressed as fractions or percentages: 
The lower the Herfindahl-Hirschman index, the stronger the competition in the market, the lower the concentration and the weaker the market power of firms.
When assessing the role of monopolies in the economy, there are arguments for and against monopolies. Arguments in favor are related to the fact that a large association usually acts as a monopolist. As such, it has the ability to: - apply the latest technologies, take advantage of mass production. All this allows him to produce products at lower costs and reduce prices; - allocate more funds to finance research and development of new products and technologies, which helps accelerate 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 exposed to the risk of ruin (and increased unemployment) than small and medium-sized enterprises. Thus, the existence of monopolistic associations has a beneficial effect on economic development. At the same time, monopolies have the opportunity to: - increase their profits by raising prices without reducing production costs; - exploit consumers by raising 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.
The state uses economic and administrative measures in the fight against monopolies. Economic measures to support competition and fight monopolies: - encouraging the creation of substitute goods; - support for new firms, medium and small businesses (tax breaks, provision of subsidies, loans); - provision of government contracts; - attracting foreign investment, establishing joint ventures, free trade zones; - financing of measures to expand the production of scarce goods in order to eliminate the dominant position of individual economic entities; - government funding of R&D.
A monopolistic market is a theoretical construct in which only one company can offer products and services to the public. This is the opposite of a perfectly competitive market in which there are an infinite number of firms. In a monopolistic model, a monopoly firm can restrict output, raise prices, and earn excess profits in the long run.
PERMISSION “Monopoly market”
Purely monopolistic markets are extremely rare and may even be impossible in the absence of absolute barriers to entry, such as a ban on competition or complete ownership of all natural resources.Causes of monopolistic markets
Historically, monopolistic markets arose when individual manufacturers received exclusive legal privileges from the government, such as the arrangement between the Federal Communications Commission (FCC) and AT&T between 1913 and 1984. During this period, no other telecommunications company was allowed to compete with AT&T because the government mistakenly believed that the market could only support one manufacturer.
In fact, the term "monopoly" originated under English law to describe a royal grant. Such a grant allowed one merchant or company to trade in a particular product while no other merchant or company could do so.
Short-term private firms may engage in monopolistic behavior when production has relatively high fixed costs, causing average average costs to decrease in the long run as output increases. This may temporarily allow one producer to operate on a lower cost curve than any other producers.
Impact of monopolistic markets
A common political and cultural objection to monopolistic markets is that the monopoly can charge a premium for its customers, who, lacking useful substitutes, are forced to hand over even more money to the monopolist. In many ways this is an objection to high prices, not necessarily monopolistic behavior.
The standard economic argument against monopolies is different. According to neoclassical analysis, a monopolistic market is undesirable because it limits output, not because the monopolist benefits by raising prices. Limited output equates to less production, which reduces overall real social income.
Even when monopoly powers exist, such as the US Postal Service's legal monopoly on the delivery of first class mail, consumers often have many alternatives, such as using standard mail through FedEx or UPS, or using email instead of letter. For this reason, it is very rare for monopolistic markets one can successfully limit output or make abnormal profits in the long run.
Regulation of monopolistic markets
As with the ideal competition model, the model for monopolistic competition is difficult or impossible to replicate in a real economy. A true monopoly is usually the result of competition regulation. For example, for cities or towns, local monopolies could be granted to utility and telecommunications companies. However, governments often regulate private business behavior that appears to be a monopoly, such as one firm owning a large market share. The FCC, WTO and EU have rules to combat monopolistic markets. These are often called antitrust laws.
The market economy with its mechanisms for regulating free competition and entrepreneurship has largely contributed to the formation of the picture of the world that we have today. The advantages of this type of system are undeniable, but this was not always the case. Moreover, some sectors of the economy of different countries still have a monopolistic basis. This is the only possible option for their effective functioning. So what is a monopoly? What is its essence?
Expanding the concept
A monopoly is a market situation when an industry is dominated by a large enterprise or their association engaged in the production and sale of unique products. Such an economic entity is protected from competition. He is the only representative of the market producing a certain product.
Since a monopolistic enterprise is in privileged conditions of existence and is the only source of supply, there is no need to fear for the size of demand. This gives him the opportunity to independently set prices and plan production processes according to qualitative and quantitative characteristics. Thus, monopolization is the capture of the entire market or a larger share of it by one large company.
In modern legislation, such activity is defined as an economic entity’s abuse of its position against the economy and existing laws.
Characteristics of a monopolized market
Among them are the following:
- There is only one seller.
- The product or technology is unique and irreplaceable. Therefore, buyers have no choice.
- There are insurmountable barriers to entry for competitors into the market.
- The company dictates its price to the market.
- Legal. When a monopoly is purposefully created by the state, it is under its total control. And in order to avoid the emergence of competition, a ban is declared at the legislative level on the entry of similar enterprises into a specific industry.
- Natural. Barriers to the entry of competitors form themselves. For example, public utilities are regulated by the state, and for completely natural reasons, competition is not allowed here.
- Economic. This type of barriers to the market is organized by the monopolist himself or they appear due to the political or economic situation in the country.
Types of barriers to entry into a monopolistic market
Reasons for the emergence of monopolies:
- There are a number of sectors of the economy that are best managed economically by a single company or state. These sectors include: energy supply, gas and water supply, pipeline transport, post office, railway transport, metro, etc. Economies of scale in the absence of competition make a monopoly in these industries financially justified.
- Possession of a unique resource or technology. Monopolization is a temporary phenomenon until competitors catch up with the company that has taken the lead.
- Reduced need for goods. A low level of demand also leads to the formation of a natural monopoly, since everyone understands the inappropriateness of creating competition due to low demand.
- Association of the largest companies in the industry. Firms may voluntarily merge to eliminate competitors. A forced merger or even an acquisition can also occur, where a more successful company buys a smaller or more profitable competitor.
Classification
Monopolization is a multifaceted, complex phenomenon; therefore, many types of it are distinguished depending on what is taken as a basis. The most common criteria for classification are the following.
According to the form of ownership, the types of monopolies are:
- government;
- private.
By nature and cause of occurrence:
- Natural. Due to limited resources or the characteristics of the production of a product, it is more economically profitable and efficient to create a monopoly.
For example, the management of natural resources such as oil and gas is carried out exclusively by the state.
- Artificial. This type of monopoly arises in the event of a merger of companies or in the absence of competitors.
- Temporary, when the company is a temporary monopolist as long as it has a unique product or technology and has no competitors. This provision will last until other enterprises begin to produce a similar product.
- Legal. State approved. Protected from competition by the legal field.
By level of government regulation:
- Indirectly controlled. They are created by business entities and are under state supervision.
- Directly adjustable. Monopolies are created and regulated by the will of the state in the public interest.
By territorial nature: local, regional, national and transnational.
Types of monopolies are a whole section in economic theory. Due to versatility, there is also a division by form. Let's consider their varieties.
Forms of monopolies
The simplest is a cartel, since economic independence is retained by each of the participants. The main point is to exchange information and conclude an agreement regarding prices and division of sales markets.
A syndicate is an association of several companies from the same industry, as a result of which each of them retains control over its own production facilities, but commercial activities are carried out by agreement of the parties. As a rule, to simplify functioning, a common sales department is created.
A trust is an association of several companies representing one or more sectors of the economy. There is a merger of production, sales and financial management. In accordance with the percentage contribution of each organization to the common cause, shares and subsequently profits are distributed.
The concern is an association of companies from different industries based on diversification. The legal independence of the participants is preserved, while a single financial center is created. This increases the potential for production development.
Conglomerate is a merger or acquisition of diversified companies for the purpose of unified financial control. Enterprises may be located in completely unrelated industries. The main purpose of this is diversification.
Assessing the degree of market monopolization
It depends on the predominance of one type of relationship or another in the economy. In order to assess the level of monopolization and competition, the following are distinguished:
- Market of pure struggle. This is a situation where there are many companies with a variety of products on a mass production scale. Moreover, there are practically no barriers to the entry of new participants in economic relations.
- Market of monopolistic competition. There are many sellers in the industry with interchangeable differentiated products, so there is a risk that if the price is inappropriately inflated, the buyer may go to a cheaper competitor. This is the most common type of market structure today. This includes manufacturers of well-known sportswear brands, cosmetic brands, etc.
- Oligopoly. This type of market structure occurs when the number of companies producing similar and interchangeable goods does not exceed five. The barriers to entry are very high. Therefore, there is often, but not always, consistency between competitors. In this case, they can agree to divide the sales market among themselves. Examples are companies involved in the production of aircraft and automobile manufacturing.
- Monopoly. In this case there is no competition; this is the complete opposite of the first type of market device.
Monopolization indicators
One of them is the number of manufacturers producing a particular product, and their division into groups depending on size and specialization. To assess the level of monopolization, they also look at the volume of market share by manufacturer.
Other indicators:
- Determining what share of the total market is accounted for by small, medium and large enterprises.
- The Hirschman-Herfindel index as the main coefficient of monopolization is expressed as the sum of the squares of the companies' shares as a percentage. The market is not captured when the indicator is below 1800. In this case, the possibility of mergers and acquisitions of companies is allowed. If this ratio is in the range between 1800 and 2500, then there is a certain risk that a large enterprise will capture too much of the market share, which will allow it to dictate its own rules to its remaining competitors and customers. In this case, the merger of companies requires the consent of the state. If the index value is above 2500, then any enlargement of the enterprise through acquisition or merger is prohibited.
Positive aspects: there are a number of sectors of the economy where competition is unacceptable. The presence of a monopoly in these areas contributes to the rational distribution of resources and savings due to the factor of mass production and cost reduction. Control over natural resources, high-tech and military developments, public services, and enterprises with a unique focus absolutely cannot be given into private hands. The most effective way would be to manage one company.
The main negative consequences of monopolization are associated with the lack of competition. This leads to a long list of negative factors affecting the development of the country’s economy.
Consequence of monopolization
- Setting inflated prices.
- Inefficient resource allocation.
- Lack of incentives to update production capacity and introduce new technologies.
- Reduced production efficiency.
- Risk for an effectively functioning economic sector.
Regulation of monopolies
The state tirelessly monitors the state of the market. It maintains a balance between competition and monopolization. Otherwise, excessive growth in the number of dominant companies may worsen the functioning of the entire industry. Like any other component of the economy, the activities of monopolies are under the control of a specialized government body. 
Its main goals are:
- Price regulation.
- Creating and maintaining healthy competition.
- Ensuring economic freedom for all economic entities in the market.
- Formation and maintenance of the unity of the economic space.
Thus, competition and monopolization are two radically different concepts that counterbalance each other. However, both have a dual characteristic, which implies that these market structures have both positive and negative sides. Competition is necessary for the progressive development of all sectors of the economy. However, as the practice of most states shows, it is also impossible to do without monopolistic structures.
Monopolization is an economically justified phenomenon in certain market sectors. But without its regulation, a negative impact on the development of the industry is possible. That is why antimonopoly legislation was developed, which allows you to keep the situation under control and maintain a balance between these two types of economic relations.
