Monopoly– (Greek monos-one, field-sell) is an exclusive right that belongs to a person, a group of persons or the state on the market in production, trade and other types of economic activity.

This brings a threat to competition, and therefore to the effective functioning of the market, since one economic entity with a dominant position dictates market conditions, including setting the price.

Types of monopolies

Depending on the nature and causes of occurrence

• Artificial – the result of a conspiracy or merger of firms (see table below).
• Natural – arises because the economic entity owns rare and irreproducible factors of production (railroads, water supply system, etc.).

Reasons for the emergence of natural monopolies:

• uniqueness of a natural resource. For example, diamond deposits in Yakutia make it a monopolist in Russia in diamond production.
• technological uniqueness, that is, a discovery, invention belonging to a given company. For example, the monopolist of Baikonur - RK (Republic of Kazakhstan).

Spheres of natural monopolies

1. Transportation of oil and petroleum products
2. Gas transportation
3. Operation of railway lines.
4. Port and airport services
5. Telecommunications services using local lines
6. Water and sewerage services
7. Postal services, etc.

• Random – a temporary excess of demand over supply. It may arise at a time when other competitors have not yet mastered the production of a particular product.

According to the degree of protection by the state

• Closed (legal) - monopolies that are regulated by the state. These include:

1. State monopolies, that is, artificial ones. Created by the state to satisfy public interests.
2. Natural - in which the creation of a competitive environment is impossible at a given level of innovation. With such competition, the provision of market needs by one company is more effective.

• Open (temporary)) is a temporary lack of competition in the creation and sale of a product. Such monopolies have no legal protection from competition

By type of ownership

• Private
• State

By territorial basis

• Local
• Regional
• National
• Extraterritorial

Signs of a pure monopoly

• sole seller (monopolist)
• The product being sold is unique (there are no analogues)
• complete control of the monopolist over the price of the product and its volume
• presence of barriers to entry into the market system (administrative, economic)

Pure monopoly is an extremely rare phenomenon

Reasons for the emergence of monopolies

• The desire to make a profit by depriving the buyer of an alternative, that is, choice
• High costs, which, in the presence of competition, do not pay off.
• Large production scales, which significantly reduce the cost of production, and therefore the price, which becomes attractive to buyers.
• Connivance on the part of the state when it does not oppose the creation of monopolies.
• Concentration and centralization of production
• Concentration and centralization of capital
• Barriers to entry that prevent other firms from competing with the monopolist.

Reasons for the difficulties of entering the market in the presence of monopolies

• Availability patent c- that is, the exclusive right of one manufacturer to produce a given product or apply this or that technology
• Availability state license– that is, permission for this type of activity only to certain companies or one.
• Ownership of rare raw materials by certain firms
• High capital intensity of production, which is not feasible for everyone.

Forms of artificial monopolies

Forms of monopolies	How do they maintain independence?	How do they depend on each other?
Cartel(from Latin agreement)	1. Economic, that is, production independence 2.commercial independence	1. Prices for goods2. Production volumes3. Market division (who sells where) 4. Determination of quotas (who sells how much)
Syndicate(from Latin representative)	Retain ownership of the means of production, that is, production independence	Joint, centralized sales of products and acquisition of raw materials, that is, loss of commercial independence
Trust(from Latin trust)	Loss of independence	1. Joint ownership 2. General management 3. Consolidation of finances 4. General sales of goods of one type.
Concern(from Latin care)	Production independence includes enterprises from different industries.	1. Consolidation of multi-industry firms 2. Unified financial center 3. Unified sales policy
Holding(from English holding)	These are commercial companies = parent company (has a controlling stake) + subsidiaries (remaining shares).	1.Parent company 2. Owns shares in the concern's participants 3. Affects activity
Conglomerate(from Latin collected)	A gigantic industrial complex with significant decentralization of management	Penetration of large corporations into industries that have no connection (production and technological) with the field of activity of the parent company.
Consortium(from lat. complicity)	Temporary voluntary association of economically independent firms.	Coordination of business activities.

Integration, that is, association into monopolistic unions, is of two types.

Horizontal integration-within one industry (cartels, syndicates, trusts)

Vertical integration(more popular since the 20s of the 20th century) - activities within the framework of one corporation of enterprises different industries in order to reduce costs and further diversification , that is, increasing diversity, changes: expanding the range, developing new types of production, preventing bankruptcy.

Types of monopolies

• Monopsony– one large buyer who determines the price of the product.
• Oligopoly– many sellers are opposed by several large buyers.
• Duopoly– the presence of only two sellers of goods on the market.
• Bilateral monopoly– one large seller and one large buyer.
• Monopolistic competition- a large number of sellers of the same, but not identical products.

Antimonopoly policy of the state

• Antimonopoly legislation– government laws and regulations that promote competition and limit or prohibit monopoly.

Laws:

"On Natural Monopolies" (1995),

“On Competition and Limitation of Monopolistic Activities” (1991).

"On Unfair Competition" (1998).

Some provisions of the law, types of unfair competition:

• Illegal use of a company name, trademark
• Copying, reproduction of external design of goods
• Imposing additional services on customers
• Advertising containing incorrect reviews of competitors
• Distortion or concealment of product information in advertising
• Direct price regulation— this is the establishment of maximum permissible prices, for example, for some medicines and basic necessities.
• Taxation– a reduction in the tax rate for small businesses and an increase for large ones.
• Regulation of natural monopolies(for example, regulation of electricity prices, initiation of competition by the authorities - the right to serve the market to the enterprise that undertakes to contribute the largest amount to the state budget.
• Administrative control monopolized markets: financial sanctions against violators of antimonopoly laws, dissolution of companies found in unfair competition, etc.
• Using an organizational mechanism, which consists in preventing the monopolization of markets through market liberalization. Target: to make monopolization of markets unprofitable: reducing customs duties, supporting medium and small businesses, simplifying the licensing procedure, etc.

Consequences of monopolistic activity

Positive

• More efficient operation
• More funds and incentives for the development of scientific and technological revolution
• Product uniqueness

Negative

• Irrational use of society's resources
• Increased social inequality as goods are sold at inflated prices
• Possibility of stagnation and inhibition of scientific and technological progress

Material prepared by: Melnikova Vera Aleksandrovna

Introduction

An international monopoly is an international or transnational firm or union of firms that controls the overwhelming market share in one or more areas of the world economy. Thus, being a serious obstacle to the further development of the market niche on which the monopoly is located. In view of this, at the moment the world is fighting both international and regional monopolies by promoting the formation of market relations based on the development of competition and entrepreneurship, as well as preventing, limiting and suppressing monopolistic activities and unfair competition, creating state bodies to combat with monopolies.

Based on the brief material presented above, it is clear that the topic “International monopolies” is relevant at the moment, which is why it will be presented in this work.

The object of study of the course work is international monopolies.

The subject of the study is Analysis of international monopolies abroad and in the Republic of Belarus.

The goals of the work are as follows:

study of international monopolies;

consider types and forms;

analyze the activities of international monopolies in the Republic of Belarus and abroad.

When conducting the study, we used an analysis of Internet resources and news reports.

Monopoly: definition, history, types and forms

Monopoly (from the Greek monos - one, poleo - sell) is the exclusive right of a state, enterprise, organization, trader (i.e. belonging to one person, group of persons or state) to carry out any economic activity. A monopoly is the exact opposite of a competitive market. By its nature, a monopoly acts as a force that undermines free competition and the spontaneous market.

The history of monopolies reaches back to ancient times. Monopolistic tendencies in different forms and to varying degrees appear at all stages of development of market processes and accompany them. But their modern history begins in the last third of the 19th century. The interconnectedness of the phenomena - crisis and monopolies - indicates one of the reasons for monopolization, namely: the attempt of many firms to find salvation from crisis shocks in monopolistic practice. It is no coincidence that monopolies in the economic literature of that time were called “children of the crisis.”

The history of monopolies is inextricably linked with the development of those processes that at each stage accelerated the growth of monopolization of the economy, giving it new forms.

The most important of them include:

growth of shareholding;

the new role of banks and the development of the participation system;

monopolistic mergers as a way to centralize capital;

the evolution of forms of capitalist associations and the newest forms of associations.

Each of these processes has independent significance in the development of modern capitalism. And at the same time, each of them in its own way accelerated the development of monopolization of the economy.

There are two ways to form monopolies: through capitalization of profits or through mergers and acquisitions.

Recently, there has been a significant predominance of the latter method.

An important form of creating sectoral and inter-sectoral monopolistic unions was the participation system. The possibility of its development is inherent in the joint-stock form of organization of companies, which belongs to the owner of the controlling stake. If the owner of a controlling stake is another company, then it thereby gets the opportunity to manage its “subsidiary” company. This is a system of participation, which can be multi-stage, providing the company at the very top of the pyramid with control over enormous capital.

The rapid growth of capital was also ensured by increased centralization, which took place in the form of mergers of independent companies. This form of centralization of capital was widely used in the United States. The first large wave of monopolistic mergers occurred in the United States in the 90s of the 19th century and in the early years of the 20th century. As a result, the largest companies were formed, subjugating entire industries.

An important characteristic of monopolies of the second half of the 20th century is their entry into the international arena not only in the field of trade, but also directly in production, organized in the form of branches and subsidiaries abroad, i.e. transformation of national monopolies into transnational corporations (TNCs).

Let's look at the types of monopolies

In modern life, various types of monopolies are considered. The term “monopoly” refers to enterprises and organizations whose scale of activity covers a large part of the country’s market. They receive priority rights to set prices for certain types of goods and services, and are given the opportunity to suppress or annex small companies.

Specific types of monopolies can be distinguished:

A closed monopoly is a monopoly that is protected from competition by legal restrictions, patent protection, copyrights, etc. An example is the US Postal Service's monopoly on first class mail.

An open monopoly is a monopoly in which one firm (at least for a certain period of time) is the sole supplier of products, but does not have special legal protection from competition. An example of such companies can be considered companies that first entered the market with new products.

A natural monopoly is a type of monopoly that occupies a privileged position in the market due to the technological features of production (due to the exclusive possession of the resources necessary for production, extremely high cost or exceptional material and technical base). Natural monopolists have a huge impact on the country's economy, as they lead the pricing process in the market. Thanks to the large volume of production, the cost of raw materials is reduced, which makes it possible to reduce its cost. And this creates serious problems for companies producing similar goods, but in smaller volumes, because they have to find ways to reduce prices in order to maintain their position in the market. Most often, natural monopolies are firms that manage labor-intensive infrastructures, the re-creation of which by other firms is economically unjustified or technically impossible (for example, water supply systems, electrical supply systems, railways).

Artificial monopolies are associations of enterprises created to obtain monopolistic benefits. These monopolies deliberately change the structure of the market.

In a market economy, the state (as a regulatory body) always strives to create conditions for equal and fair competition between market players, carefully ensuring that no player captures a significant part of the market and becomes a monopolist. Because a monopoly for the state, as a rule, is not beneficial. At the same time, under certain conditions, the state can deliberately promote the emergence of a monopoly (the so-called artificial monopoly). This, by the way, is very typical for the states of the former USSR.

For example. The state intends to put up for sale a large block of shares in a state-owned enterprise, and naturally wants to get as much money as possible for this block. In this case, the state creates the most favorable operating conditions for this enterprise (preferential tax rates, priority issuance of licenses, etc.)

International monopoly - private, largest capitalist firms with assets abroad or unions of firms of different nationalities, establishing dominance in one or more spheres of the world capitalist economy in order to extract maximum profits.

Forms of monopolistic associations:

A cartel is a union of several enterprises of the same industry, in which its participants retain their ownership of the means and products of production, and they themselves sell the created products on the market, agreeing on a quota - the share of each in the total output of products, sales prices, distribution of markets, etc.

Syndicate - an association of a number of enterprises manufacturing homogeneous products; here, ownership of the material conditions of business is retained by the members of the association, and the finished product is sold as their common property through an office created for this purpose.

A trust is a monopoly in which joint ownership of a given group of entrepreneurs is created for the means of production and finished products.

A concern is a union of formally independent enterprises (usually from different industries, trade, transport and banks), within which the main company organizes financial (monetary) control over all participants.

A diversified concern is an association of dozens and even hundreds of enterprises in various sectors of industry, transport, and trade, the participants of which lose ownership of the means of production and the manufactured product, and the main company exercises financial control over the other participants of the association.

Monopoly is the absolute dominance in the economy of a sole producer or seller of products

Definition of monopoly, types of monopolies and their role in the development of the market economy of the state, state control over the pricing policy of monopolists

Monopoly is the definition History of the emergence and development of monopolies in Russia Characteristics of monopolies State and capitalist monopolies Types of monopolies Natural monopoly Administrative monopoly Economic monopoly Absolute monopoly Pure monopoly Legal monopolies Artificial monopolies The concept of natural monopoly Subject of natural monopoly Monopoly price Demand for a monopolist's product and monopoly supply Monopolistic competition Economies of monopoly scale Monopolies in the labor market International monopolies The benefits and harms of monopolies Sources and links

Monopoly is the definition

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Subject of natural monopoly

The subject of a natural monopolist is a business entity ( entity) any form of ownership (monopoly formation) that produces or sells goods on a market that is in a state of natural monopolist.

These definitions are based on a structural approach; competition in some cases can be considered as an inappropriate phenomenon. The subject of a natural monopolist is only legal face carrying out economic activities. Natural monopoly and state monopoly are different concepts that should not be confused, since the subject of a natural monopolist can function based on any form of ownership, and a state monopoly is characterized, first of all, by the presence of state property rights.

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The areas of activity of natural monopoly entities are: transportation of black gold and petroleum products by pipelines; transportation of natural and oil gas by pipelines and its distribution; transportation of other substances by pipeline transport; transmission and distribution of electrical energy; use of railway tracks, dispatch services, stations and other infrastructure facilities that ensure the movement of public railway transport; air traffic control; public connection.

"Silvinit" and " Uralkali» are the only potassium producers in the Russian Federation. Both enterprises are located in the Perm region and develop one field, Verkhnekamskoye. Moreover, until the mid-1980s they constituted a single enterprise. Potash fertilizers are in high demand on the world market due to limited offers, and the Russian Federation contains 33 percent of the world's potash ore reserves.

Monopoly is

In accordance with the general direction of introducing state regulation of the activities of natural monopolists, the responsibilities of natural monopolists are legally established:

Adhere to the established pricing procedure, standards and indicators of product safety and quality, as well as other conditions and rules for carrying out business activities, defined in licenses to carry out business activities in the areas of natural monopolies and related markets;

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Maintain separate accounting records for each type of activity that is subject to licensing; - ensure the sale of goods (services) produced by them to consumers on non-discriminatory terms,

Do not create obstacles to the implementation of agreements between producers operating in adjacent markets and consumers;

Submit to the bodies regulating their activities the documents and information necessary for these bodies to fulfill their powers, in the amounts and within the time limits established by the relevant bodies;

Provide officials of bodies regulating their activities with access to documents and information necessary for these bodies to exercise their powers, as well as to facilities, equipment, land plots owned or used by them.

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In addition, subjects of natural monopolies cannot commit acts that lead or may lead to the impossibility of producing (selling) goods that are regulated in accordance with the law, or to replacing them with other goods that are not identical in consumer characteristics.

Monopoly

The issue of pricing requires special attention. politicians monopolistic entities. The latter, as mentioned above, using their monopolistic position, have the opportunity to influence prices and sometimes even set them. As a result, a new type of price appears - a monopoly price, which is set by an entrepreneur occupying a monopoly position in the market and leads to restriction of competition and violation of the rights of the acquirer.

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To this it should be added that this price is designed to obtain excess profits, or monopolistic profits. It is in price that the profit of a monopoly position is realized.

The peculiarity of the monopoly price is that it deliberately deviates from the real market price, which is established as a result of the interaction of demand and offers. The monopoly price is upper or lower depending on who forms it - a monopolist or a monopsonist. In both cases, the profit of the latter is ensured at the expense of the purchaser or small producer: the first overpays, and the second does not receive the part of the goods due to him. Thus, the monopoly price is a certain “tribute” that society is forced to pay to those who occupy a monopoly position.

There are monopoly high and monopoly low prices. The first is established by a monopolist who has occupied the market, and the acquirer, deprived of an alternative, is forced to put up with it. The second is formed by a monopolist in relation to small producers, who also have no choice. Consequently, the monopoly price redistributes goods between economic entities, but such a redistribution that is based on non-economic factors. But the essence of the monopoly price is not limited to this - it also reflects the economic advantages of large-scale, high-tech production, ensuring the production of super-excess goods.

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The monopoly price is the upper price for which a monopolist can sell a product or service and which contains the maximum. However, as experience shows, it is impossible to maintain such a price for a long time. Excess profits, like a powerful magnet, attract other businessmen into the industry, who as a result “break” the monopoly.

It should also be taken into account that a monopoly can regulate production, but not demand. Even she is forced to take into account the reaction of buyers to price increases. Only a product for which there is inelastic demand can be monopolized. But even in such a situation, the rise in price of products leads to a restriction of its consumption.

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The monopolist has two options: either use a small one to keep the price high, or increase the volume of sales, but at reduced prices.

One of the options for price behavior in oligopolistic markets is “price leadership.” The existence of several oligopolists, it would seem, should entail competition between them. But it turns out that in the form of price competition it would only lead to general losses. Oligopolists have a common interest in maintaining uniform prices and avoiding “price wars.” This is achieved through an unspoken agreement to accept the prices of the leader company. The latter is, as a rule, the largest organization that determines the price of a particular product, while other organizations accept it. Samuelson determines that “companies silently develop a line of behavior that eliminates intense competition in the price industry.”

Other pricing options are possible politicians, not excluding direct agreements between monopolists. natural monopolies are under state control. The government constantly checks prices, sets maximum limits, based on the need to ensure a certain level of profitability of the organization, development opportunities, etc.

Demand for the monopolist's product and monopoly

A company has monopoly power when it has the ability to influence the price of its product by changing the quantity it is willing to sell. The extent to which a monopolist can exploit its monopoly power depends on the availability of close substitutes for its product and its share of the given market. Naturally, in order to have monopoly power, a firm does not need to be a pure monopolist.

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Moreover, it is necessary that the demand curve for the company's products be sloping downward, and not be horizontal, as for a competitive organization, since otherwise the monopoly will not have the opportunity to change the price by changing the quantity of the product offered.

In the extreme, limiting case, the demand curve for the product sold by a pure monopolist coincides with the downward sloping market demand curve for the product sold by the monopolist. Therefore, the monopolist takes into account the reaction of buyers to price changes when setting the price for its product.

The monopolist can set either the price of his product or the quantity of it offered for sale at any given price. period time. And once he has chosen the price, the required quantity of the product will be determined by the demand curve. Similarly, if a monopolist company chooses as a set parameter the quantity of a product it supplies to the market, then the price that consumers will pay for this quantity of the product will determine the demand for this product.

The monopolist, unlike a competitive seller, is not the recipient of the price, and on the contrary, he himself sets the price in the market. A monopoly can choose a price that maximizes it and let consumers choose how much to buy of a given product. An organization decides how many goods to produce based on information about the demand for its product.

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In a monopolized market, there is no proportional relationship between price and quantity produced. The reason is that the monopoly's output decision depends not only on marginal cost but also on the shape of the demand curve. Changes in demand do not lead to proportional changes in price and supply, as does the supply curve for a freely competitive market.

Instead, changes in demand may cause prices to change while output remains constant, changes in output may occur without a change in price, or both price and output may change.

The influence of taxes on the behavior of a monopolist

Because the tax increases marginal cost, the marginal cost curve MC will shift to the left and up to position MC1, as shown in the figure.

The organization will now maximize its profit at the intersection of P1 and Q1.

Influence tax on the price and production volume of a monopolist firm: D - demand, MR - marginal profit, MC - marginal costs without accounting tax, MS - maximum flow rate s taking into account tax

The monopolist will reduce production and increase price as a result of the tax.

The effect of a tax on the monopoly price thus depends on the elasticity of demand: the less elastic the demand, the more the monopolist will increase the price after introducing the tax.

Monopolistic competition

Monopolistic competition is a common type of market that is closest to perfect competition. The ability for an individual company to control price (market power) is negligible.

Let us note the main features characterizing monopolistic competition:

There are a relatively large number of small firms on the market;

These organizations produce a variety of products, and although each company's product is somewhat specific, the buyer can easily find substitute products and switch his demand to them;

Entry of new firms into the industry is not difficult. To open a new vegetable shop, atelier, or repair shop, no significant initial capital is required. Economies of scale also do not require the development of large-scale production.

The demand for the products of firms operating in conditions of monopolistic competition is not completely elastic, but its elasticity is high. For example, the sportswear market can be classified as monopolistic competition. Adherents of the Reebok organization's sneakers are willing to pay a higher price for its products than for sneakers from other companies, but if the price difference turns out to be too significant, they will always find analogues from lesser-known companies on the market at a lower price. The same applies to products from the cosmetics industry, clothing, medicines, etc.

The competitiveness of such markets is also very high, which is largely due to the ease of access of new firms to the market. Let us compare, for example, the washing powder market.

Difference between pure monopoly and perfect competition

Imperfect competition exists when two or more sellers, each with some control over price, compete for sales. This happens when the price is determined by the market share of individual firms. in such markets, each produces a large enough portion of the good to significantly influence supply, and hence prices.

Monopolistic competition. occurs when many sellers compete to sell a differentiated product in a market where new sellers may enter.

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The product of each company trading on the market is an imperfect substitute for the product sold by other firms.

Each seller's product has exceptional qualities and characteristics that cause some buyers to choose his product over a competitor's product. product means that the item sold on the market is not standardized. This may occur due to actual qualitative differences between products or due to perceived differences that stem from differences in advertising, prestige trademark or “image” associated with the possession of this product.

Monopoly is

There are a relatively large number of sellers in a market, each of whom satisfies a small, but not microscopic, share of the market demand for a common type of product sold by the company and its competitors.

Sellers in the market do not take into account the reactions of their rivals when choosing what price to set for their goods or when choosing targets for annual sales.

This feature is a consequence of the relatively large number of sellers in a market with monopolistic competition. that is, if an individual seller reduces the price, then it is likely that the increase in sales volume will occur not at the expense of one organization, but at the expense of many. As a result, it is unlikely that any individual competitor will incur significant losses in market share due to a reduction in the selling price of any individual company. Consequently, competitors have no reason to respond by changing their policies, since the decision of one of the firms does not significantly affect their ability to make profits. The organization knows this and therefore does not consider any possible reaction from competitors when choosing its price or sales target.

With monopolistic competition, it is easy to start a company or leave the market. Profitable market conditions in a market with monopolistic competition will attract new sellers. However, entry into the market is not as easy as it was under perfect competition, since new sellers often have difficulty with their new brands and services.

Consequently, established organizations with established reputations can maintain their advantage over new producers. Monopolistic competition is similar to a monopolist situation because individual companies have the ability to control the price of their goods. It is also similar to perfect competition because each product is sold by many firms and there is free entry and exit in the market.

Monopoly in a market economy

Monopolists, unlike competitive markets, fail to allocate resources efficiently. Volume money issue Monopolists have less of what is desirable for society, and as a result, they set prices that exceed marginal costs. Typically, the government responds to the monopolist problem in one of four ways:

Tries to transform monopolized industries into more competitive ones;

Regulates the behavior of monopolists;

Transforms some private monopolists into state-owned enterprises.

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Market and competition have always been the antipodes of monopolism. The market is the only real force that prevents the monopolization of the economy. Where efficient market mechanisms existed, the spread of monopolies did not go very far. An equilibrium was established when monopoly, coexisting with competition, preserved old forms of competition and gave rise to new ones.

But ultimately, in most countries with developed market systems, the balance between the market and monopolists turned out to be unstable and necessitated an antitrust policy aimed at protecting competition. Thanks to this, large organizations that are able to suppress any germs of competition often prefer to refrain from pursuing a monopoly policy.

As long as monopoly markets exist, they cannot be left without government control. Thus, the elasticity of demand becomes in this situation the only factor, but not always sufficient, limiting monopolistic behavior. For this purpose, an antimonopoly policy is being pursued. Two directions can be distinguished. The first includes forms and methods of regulation, the purpose of which is to liberalize markets. Without affecting monopoly as such, they are aimed at making monopolistic behavior unprofitable. These include measures to reduce customs tariffs, quantitative restrictions, improve the investment climate, and support small businesses.

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The second direction combines measures of direct influence on the monopoly. In particular, these are financial sanctions in case of violation of antimonopoly legislation, up to the division of the company into parts. Antimonopoly regulation is not limited to any time frame, but is a permanent state policy.

Economies of monopoly scale

Highly efficient, low-cost production is achieved in the largest possible production environment driven by market monopolization. Such a monopoly is usually called a "natural monopoly." that is, an industry in which long-term average costs are minimal if only one organization serves the entire market.

For example: production and distribution of Natural gas:

Development of deposits is necessary;

Construction of main gas pipelines;

Local distribution networks, etc.).

It is extremely difficult for new competitors to enter such an industry as it requires large capital investments.

The dominant company, having lower production costs, is able to temporarily reduce the price of products in order to destroy the competitor.

In conditions when competitors of the monopoly are artificially not allowed into the market, the monopolist can, without loss of income and market share, artificially restrain the development of production, gaining profit only by increasing prices with a relatively stable number of sales due to the absence of competitors, demand becomes less elastic, that is, price less impact on sales volumes. This leads to inefficiency in the allocation of resources “a net loss to society when significantly less product is produced and at a higher price than consumers could have at this level of development in a more competitive environment. In a free economy, the excess profits of monopolists would attract new investors and competitors into the industry, seeking to repeat the success of the monopoly.

Monopolies in the labor market

An example of a monopolist in the labor market can be some industry trade unions and unions at enterprises that often put forward demands that were too heavy for the employer and unnecessary for the employees. This leads to business closures and layoffs. A monopolist of this type also cannot do without violence, both state and individual, expressed in legislatively enshrined privileges trade unions at enterprises that oblige all employees to join and pay contributions. In order to fulfill their demands, unions often use violence against those who want to work under conditions that do not suit the union members, or do not agree with their financial or political demands.

Monopolists that arise without violence and without government involvement are usually a consequence of the monopoly's effectiveness relative to existing competitors, or they naturally lose their dominant position. Practice shows that in some cases a monopoly arises as a natural reaction of consumers to the beneficial properties of a product and/or a lower cost than competitors. Each stable monopoly, which arose without violence (including from the state), introduced revolutionary innovations, which allowed it to win the competition, increasing its share both through the purchase and re-equipment of competitors’ production facilities, and through the growth of its own production capacities.

Antimonopoly policy in Russia

The problem of the need for state regulation of natural monopolists was recognized by the authorities only in 1994, when the rise in prices for the products they produced had already had a significant impact on undermining the economy. At the same time, the reformist wing of the government began to pay more attention to the problems of regulating natural monopolies, not so much in connection with the need to stop price increases in relevant industries or to ensure the use of the possibilities of the price mechanism for macroeconomic policy, but primarily in an effort to limit the range of regulated prices.

The first draft of the law “On Natural Monopolists” was prepared by employees of the Russian Privatization Center on behalf of the State Committee for Administrative Offenses of the Russian Federation in early 1994. After this, the draft was finalized by Russian and foreign experts and agreed upon with industry ministries and companies (Ministry of Communications, Ministry of Railways, Ministry of Transport, Minatom, Ministry of Nationalities, RAO Gazprom, RAO UES of the Russian Federation, etc.). Many line ministries opposed the project, but the SCAP and the Ministry of Economy managed to overcome their resistance. Already in August, the government sent a draft law agreed upon with all interested ministries to the State Duma.

The first reading of the law in the State Duma (January 1995) did not cause lengthy discussions. The main problems arose at parliamentary hearings and at meetings in State Duma committees, where industry representatives again made attempts to change the content or even prevent the adoption of the project. Numerous issues were discussed: the legality of granting regulatory authorities the right to control the investment activities of companies; on the boundaries of regulation - the legality of regulating activities that do not belong to natural monopolies, but are related to regulated activities; on the possibility of retaining regulatory functions at line ministries, etc.

In 2004, the Federal Antimonopoly Service was created to regulate natural monopolies:

In the fuel and energy complex;

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Federal Service for Regulation of Natural Monopolists in Transport;

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Federal Service for Regulation of Natural Monopolists in the Field of Communications.

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Particular attention was paid to the financial indicators of the gas industry, the opportunity to improve the state of the state budget as a result of increasing taxation of RAO Gazprom and the abolition of privileges for the formation of an extra-budgetary fund, etc.

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According to the Law “On Natural Monopolists”, the scope of regulation includes transportation black gold and petroleum products through main pipelines, gas transportation through pipelines, services for the transmission of electrical and thermal energy, rail transportation, services of transport terminals, ports and airports, public and postal communication services.

The main methods of regulation were: price regulation, that is, the direct determination of prices for consumer goods or the setting of their maximum level.

Monopoly is

Identification of consumers for mandatory service or establishment of a minimum level of provision for them. Regulatory authorities are also charged with monitoring various types of activities of natural monopoly entities, including transactions for the acquisition of property rights, large investment projects, sale and rental of property.

International monopolies

During the 19th century, the capitalist mode of production rapidly spread throughout the globe. Back in the early 70s of the last century, the oldest bourgeois country, Britain, produced more textiles, smelted more iron, mined more coal than the United States of America, Republic of Germany, France, combined. Britain belonged to the championship in the world index of industrial production and an undivided monopoly on the world market. By the end of the 19th century the situation had changed dramatically. The young capitalist countries have grown their own large ones. By volume industrial production index The United States of America took first place in the world, and Federal Republic of Germany first place in Europe. In the East, Japan is the undisputed leader. Despite the obstacles created by the thoroughly rotten tsarist regime, Russia quickly followed the path of industrial development. As a result of the industrial growth of young capitalist countries Great Britain lost its industrial primacy and monopoly position in the world market.

The economic basis for the emergence and development of international monopolists is the high degree of socialization of capitalist production and the internationalization of economic life.

The iron and steel industry of the United States of America is dominated by eight monopolists, under whose control was 84% ​​of the total production capacity countries by steel; of these, the two largest American Steel Trust and Bethlehem Steel had 51% of the total production capacity. The oldest monopoly in the United States is the Standard Oil Trust.

Monopoly is

Three companies are critical to the automobile industry: General Motors,

Chrysler.

The electrical industry is dominated by two organizations: General Electric and Westinghouse. The chemical industry is controlled by the DuPont de Nemours concern, and the aluminum industry by Mellon.

Monopoly is

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.

In Great Britain, the role of monopoly trusts especially increased after the First World War. wars, when cartel associations of enterprises arose in the textile and coal industries, in the black metallurgy and in a number of new industries. The English Chemical Trust controls about nine-tenths of the total production of basic chemicals, about two-fifths of all the production of dyes and almost the entire production of nitrogen in the country. He is closely connected with the most important branches of English industry and especially with military concerns.

The Anglo-Dutch chemical and food concern Unilever occupies a dominant position in the market

In the Republic of Germany, cartels have become widespread since the end of the last century. Between the two world hostilities, the country's economy was dominated by the Steel Trust (Vereinigte Stahlwerke), which had about 200 thousand workers and employees, the Chemical Trust (Interessen-gemeinschaft Farbenindustri) with 100 thousand workers and employees, a monopolist in the coal industry, the Krupp cannon concern, and electrical concerns General company.

Capitalist industrialization Japan was carried out during the period when in Western Europe and the USA has already established an industrial capitalism. Dominant position among monopoly enterprises Japan conquered the two largest monopolistic financial trusts - Mitsui and Mitsubishi.

The Mitsui concern had a total of 120 companies with a capital of about 1.6 billion yen. Thus, about 15 percent capital of all Japanese companies.

The Mitsubishi Concern also included oil companies, glass industry organizations, warehouse companies, trade organizations, insurance companies, plantation management organizations (natural rubber cultivation), and each industry accounted for about 10 million yen.

The most important feature of modern methods of struggle for the economic division of the capitalist part of the world is the arrangement of joint ventures, which are jointly owned by monopolies of various countries, which is one of the forms of economic division of the capitalist part of the world between monopolists characteristic of the modern period.

Such monopolists included the Belgian electrical engineering Concern Philips and the Luxembourg Arbed.

Later the partners created their branches in the UK, Italy, Federal Republic of Germany, Switzerland and Belgium. Thus, this is a new powerful breakthrough into the world market of competing partners, a new round of movement of international capital.

Another well-known example of creating joint ventures is the creation in 1985. Corporation Westinghouse Electric ( USA) and the Japanese organization "" joint company "TVEK" with headquarters in USA.

Among modern monopolistic unions of this type there are agreement with a large number of participants. An example is the agreement on the construction of an oil pipeline, which is planned to run from Marseille through Basel and Strasbourg to Karlsruhe. This union involves 19 concerns from various countries, including the Anglo-Dutch Royal Dutch Shell, the English British Petroleum, the American Esso, Mobile Oil, Caltex, the French Petrophina and four West German concern.

The capitalist industrialization of the world played a big role in the development of the economy of the Russian Federation. It served as an impetus for the development of our own industrial enterprises.

The benefits and harms of monopolies

In general, it is difficult to talk about any social benefit brought by monopolists. However, it is impossible to completely do without monopolists - natural monopolists are practically irreplaceable, because the characteristics of the factors of production they use do not allow the presence of more than one owner, or limited resources lead to the unification of the enterprises of their owners. But even in this case, the lack of competition stifles development over a long period of time. Although both competitive and monopolistic markets have disadvantages, generally the competitive market achieves better results in the development of its respective industry in the long run.

Monopoly is

The monopoly of the economy is a serious obstacle to the development of the market, for which monopolistic competition is more typical. It involves a mixture of monopolist and competition. Monopolistic competition is market situation, when a significant number of small manufacturers offer similar, but not identical products. Each enterprise has a relatively small market share and therefore has limited control over the market price. The presence of a large number of enterprises guarantees that secret collusion, concerted actions of enterprises with the aim of limiting production and raising prices is almost impossible.

The monopolist restricts output and sets higher prices due to its monopoly position in the market, which causes irrational allocation of resources and causes increased income inequality. Monopoly reduces the standard of living of the population. Monopolistic firms do not always use their full capabilities to ensure ( scientific and technological progress). The monopolist does not have sufficient incentives to increase efficiency through scientific and technical progress because there is no competition.

Monopoly is

A monopoly leads to inefficiency when, instead of producing at the lowest possible level of marginal cost, the lack of incentives causes the monopoly to perform worse than a competitive organization could perform.

- (Greek: this, see previous word). The exclusive right of the state to produce or sell any items, or granting them the exclusive right to trade to anyone; capture of trade in one hand, as opposed to free... ... Dictionary of foreign words of the Russian language

MONOPOLY- (monopoly) A market structure in which there is only one seller in the market. We can talk about a natural monopoly if the exclusive position of the monopolist is the result of either the exclusive right to own some... ... Economic dictionary

Monopoly- (monopoly) A market in which there is a single seller (producer). In the case where there is a single seller and a single buyer, the situation is called a bilateral monopoly (see also: ... ... Dictionary of business terms MONOPOLY - MONOPOLY, monopolies, women. (from the Greek monos one and poleo I sell). The exclusive right to produce or sell something (legal, economic). The monopoly of foreign trade is one of the unshakable foundations of the policy of the Soviet government. Insurance... ... Ushakov's Explanatory Dictionary

Monopoly- a variant of imperfect competition, in which there is one large seller in the market for a product (service), who, due to his position, is able to influence prices. Other sellers are much smaller and are unable to influence the market. Private... ... Banking Encyclopedia

MONOPOLY- (from mono... and Greek poleo sell), 1) the exclusive right of production, trade, fishing, etc., owned by one person, a certain group of persons or the state; in a broad sense, the exclusive right to something. 2) Monopoly in the field... ... Modern encyclopedia

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Monopoly is a type of market relations in which the entire industry of production of one type of product is controlled by only one seller. There are no other suppliers of similar goods on such a market.

That is, a monopolist in the market has the exclusive right to production, trade and other activities. At its core, a monopoly prevents the emergence and functioning of spontaneous markets and also undermines free competition.

Reasons for the emergence of monopoly

It is impossible to understand what a monopoly is without studying the reasons for its occurrence in the market. The ways in which monopolies are formed are very diverse. In some cases, a larger company buys a weaker one; in others, the merger occurs voluntarily. At the same time, manufacturing organizations can unite not only of the same products, but also enterprises that do not have a common range and production technology.

The next way to form a monopoly in the market is the so-called “predatory” pricing. This term refers to a company setting prices so low that competing enterprises incur high costs, as a result of which they leave the market.

What is a monopoly? This is the main desire of every manufacturer and seller. The essence of monopolies is not only the elimination of a huge number of problems associated with competition, but also the concentration in one hand of a certain branch of economic power.

A monopolist is able to influence not only other participants in market relations, imposing his conditions on them, but also society as a whole!

What is a monopoly?

Monopolies are business associations owned by private individuals and exercising sole control over certain sectors of the market in order to set monopoly prices on it.

Competition and monopoly are integral elements of market relations, but the latter hinders their economic development.

Characteristics of a monopoly:

• The entire industry is represented by one manufacturer of this product.
• The buyer is forced to purchase the goods from the monopolist or do without it altogether. The manufacturer, as a rule, does without advertising.
• A monopolist has the ability to regulate the quantity of its product on the market, thus changing its value.
• Manufacturers of similar goods, when trying to sell them on a monopolized market, face artificially created barriers: legal, technical or economic.

The monopoly of an individual enterprise is a so-called “honest” monopoly, the path to which passes through a constant increase in production efficiency and the achievement of significant advantages over competitive enterprises.

Monopoly as an agreement is a voluntary merger of several large firms in order to stop competition and independently regulate pricing.

Types of monopolies

A natural monopoly arises for a number of objective reasons. A natural monopolist in the market is the manufacturer that best satisfies the demand for a particular product. The basis of such superiority is the improvement of production technologies and customer service, in which competition is undesirable.

A government monopoly arises in response to certain government actions. On the one hand, this is the conclusion of government contracts that grant the enterprise the exclusive right to produce certain types of goods. On the other hand, a state monopoly is a union of state enterprises into separate structures that act on the market as one business entity.

Economic monopoly today is more widespread than others, which is explained by the laws of economic development. There are two ways to achieve the position of an economic monopolist:

• development of the enterprise by increasing its scale through constant capital increase;
• centralization of capital, i.e. voluntary or forced takeover of competitive organizations and, as a consequence, a dominant position in the market.

Classification of markets by degree of monopolization

According to the degree of restriction, competition markets are classified into 2 types:

1. Perfect competition - characterized by the absolute impossibility of influence by its participants on the terms of sale of products, and mainly on prices.

2. Imperfect competition. It in turn is divided into 3 groups.

• pure monopoly market - operates under conditions of absolute monopoly;
• oligopolistic - characterized by a small number of large producers of homogeneous goods;
• market of monopolistic competition - implies the presence of a large number of independent sellers of similar, but not identical goods.

Advantages and disadvantages of monopolies

What is a monopoly? This is the company's leading position in the market, allowing it to dictate its terms. However, this is not its only drawback; there are others:

1. The ability of the manufacturer to impose compensation for the costs of production of goods on their consumers by increasing the selling price.
2. Lack of scientific and technological progress in production due to the lack of competitors in the market.
3. Obtaining additional profit by a monopolist by reducing the quality of products.
4. Replacing the free economic market with an administrative dictatorship.

Advantages of a monopoly:

1. Increase in production volumes and subsequent reduction in costs and resource costs.
2. Greatest resistance to economic crises.
3. Large monopolists have enough funds to improve production, as a result of which its efficiency increases and the quality of manufactured goods increases.

State regulation of monopolies

Every economically developed state is faced with the need to implement an antimonopoly policy, the purpose of which is to protect competition.

The state's plans do not include the universal organization of free markets; its task is to eliminate the most serious violations in the market system. To fulfill it, conditions are created under which competition and monopoly cannot exist at the same time, and the former is more profitable for producers.

Antimonopoly policy is implemented through certain instruments. Monopoly regulation is carried out by promoting free competition, control over the largest producers on the market, promoting small and medium-sized businesses and constant monitoring of prices.

Introduction.

Monopolies begin to appear almost immediately with the advent of exchange and the market. People realized early on how to raise the price of a product: by eliminating competitors and limiting its supply. Moreover, despite the differences in specific situations, in different eras the creation of a monopoly took place according to the same general principles.

In the ancient world they knew well what a monopoly was and what benefits it promised (the word itself comes from the Greek language). For example, the famous philosopher Aristotle, who lived in the 4th century. BC e., generally considered the creation of a monopoly to be a skillful economic policy that an intelligent citizen or ruler could resort to. As an example, he talked about how “in Sicily, someone bought up all the iron from the ironworks with money given to him on interest, and then, when merchants arrived from the harbors, he began to sell the iron as a monopolist, with a small premium on its regular price And yet he earned a hundred for fifty talents." Obviously, such situations were not something rare or exceptional for the economies of the ancient world.

Moreover, even the regulation of monopoly began already in the ancient world. The “someone” in the above example was expelled from Sicily by the government. According to the Roman thinker Pliny, the government set maximum prices for mining companies that abused their monopoly position.

Middle Ages: guilds and privileges

In the Middle Ages, the emergence of monopoly often occurred for the following two reasons. There was a way of organizing producers, which was called the guild system. A workshop was an organization of all producers of certain types of goods, created with the aim of stabilizing prices and creating guaranteed conditions for the existence of artisans. The workshop controlled the output of each artisan and the selling price, and did not allow possible competitors to enter the market. To what extent did these organizations take advantage of their monopoly position? Perhaps they were really only concerned with stabilizing the price at some moderate level, rather than trying to maximize profits. Although nothing could guarantee that the workshop management did not have a desire to raise the price “a little” if there was such an opportunity.

Another common case of the formation of monopolies was the issuance by monarchs of various privileges giving the exclusive right to produce or trade in something. Such privileges were the object of desire of almost any merchant or manufacturer, who thereby sought to avoid competition from their compatriots or foreigners.

In England in the 17th century. such privileges were distributed in large quantities by King Charles I. There were monopolies of individuals or associations in the production of soap, glass, fabrics, pins and other goods. Charles I himself bought up cargoes of pepper brought by the East India Company and then sold them at monopoly prices. Soon the monopolies worsened the market situation so much that by the end of the 17th century. the king is deprived of the right to grant privileges without the consent of parliament.

Sometimes the privileges were completely arbitrary and absurd. For example, the French king Louis XIV, who was not particularly wise in governing the country, as a sign of favor, gave a certain Countess D'Uzes the right to dispose of all the coal mines of the kingdom. The Countess hastily transferred this right to other interested parties, who, as stated in one document of that time, “became the sole owners of the coal market and mined coal only in such quantities that allowed them to sell it at a high price.”

But monopolies could also arise when the opportunity to capture the market with the help of some resource arose. Under the same Louis XIV, a monopoly of “butter pots” arose. According to one Cannes intendant, it was an alliance of “three private individuals who bought up 60,000 empty pots and wanted to thereby become masters of the Izigne oil trade and raise the price of pots by one-quarter of the previous price.”

Or another example of such a monopoly. In the 17th century Parisian stoves were fired with wood, which was delivered to the city by rafting along the river, since other methods of transportation made the benefit of “wood” too expensive. In 1606, the main port merchants organized a “partnership” to sell firewood, and as a result, the price of firewood increased from 4 to 110 livres (!) per cart. The population filed a complaint with the city authorities, and they dissolved the “partnership.”

In some cases, as you will see in Chapter 6, the government itself decided to become a monopolist in order to generate revenue. A product with inelastic demand was selected = salt, vodka, tobacco = and a state monopoly on its sale was declared.

Development of monopolies at the turn of the 19th and 20th centuries.

The rapid growth of monopolies began with the development of large-scale machine production at the end of the 19th century. It became possible to reduce costs by enlarging production units (factories and factories). When a small number of large manufacturers remained in the industry, strong competition could develop between them, which turned out to be unprofitable. To avoid this competition, entrepreneurs organized various “societies”, which were essentially monopolistic associations.

The simplest forms were ring (from the English ring = “circle”) or corner (from the English corner = “corner”) = temporary agreements on a unified sales policy. A long-term agreement was called a syndicate (from the gr. syndikos = “acting together”). Sometimes these syndicates took the form of pools (from the English pool = “boiler”) = in this case, the firms had a common cash register, which pooled profits, which were subsequently divided between the firms.

The trust (from the English trust) was the most complete association of firms when general production management arose (the entire trust was one company).

In the second half of the 19th century. monopolistic associations began to appear in many industries (for example, in the production of sugar, tobacco, petroleum products, metallurgy, and transport). In many industries, trusts controlled almost the entire volume of production. For example, at the very end of the 19th century. The American Sugar Refining Company controlled 90% of all sugar production.

Sometimes these monopolies were natural (the existence of two firms in the industry was not profitable), and in this case the first firm that began producing the good became a monopolist. For example, in 1866, the first American telegraph company, Western Union, remained for a long time the only company in its industry.

Some trusts were impressive manufacturing empires with vast numbers of workers and capital. For example, at the end of the 20th century, J.D. Rockefeller organized a giant trust, the Standard Oil Company, which controlled 90% of all oil production in America. This was partly due to his ownership of a network of pipelines (a natural monopoly), which allowed him to exert influence over independent oil producers. The size of this empire was astounding: in 1903, the Standard Oil Company had about 400 enterprises, 90 thousand miles of pipeline, 10,000 railroad tank cars, 60 ocean tankers, 150 river steamers.

Russia was no exception in this process of industrial monopolization, although the development of monopolistic associations began somewhat later and was sometimes initiated by foreign partners of Russian firms.

In Russia, the first industrial syndicate arose in St. Petersburg with the participation of German entrepreneurs in 1886, when six firms producing nails and wire merged. In 1903 it was already the “Nail” syndicate, which controlled 87% of all nail production. In 1887, a sugar syndicate emerged, which by the beginning of the 1890s. united 90% of all factories (203 out of 224). In 1902, the largest syndicate "Prodameta" emerged, uniting metallurgical plants. In 1906, the emergence of the Produgol syndicate caused a crisis in the coal market, since the policy of reducing production volumes turned out to be dangerous for the entire economy, which was very dependent on this fuel. In 1907, the “Roofing” syndicate appeared, uniting manufacturers of roofing iron. In 1908, the Copper syndicate was formed, which controlled 94% of the production of this metal. In 1904, the Prodvagon syndicate began operating, which controlled 97% of all orders for railway cars.

Antimonopoly legislation

Of course, the increase in prices by monopolists could not but cause protest from consumers. To regulate monopolies, it was necessary to pass appropriate legislation, and in 1890 the first antitrust law was passed in the United States - the Sherman Act. Soon such laws were adopted in almost all countries.

The principle of operation of the antimonopoly law is as follows. First, it is necessary to determine whether there is a monopoly or a situation close to a monopoly in a certain industry. For this, various indicators are used = for example, the share of sales in a company in the overall market. If this share exceeds 60%, the situation is considered close to a monopoly.

The implementation of this principle in practice is not an easy matter, and therefore the first antitrust laws usually turned out to be imperfect, and subsequently many countries adopted new versions of these laws or made amendments to the old ones.

Regulation can be carried out in different ways. If a monopoly arose through the artificial union of several firms, then it is simply separated. If the monopoly is natural and it is impossible to divide it, then the maximum prices that the company can charge for its product are set.

Many of the companies whose names you know had problems with antimonopoly authorities and participated in legal proceedings: these are IBM, Proctor & Gamble, Eastman Kodak and others.

Currently, monopolies (or near-monopolies) continue to exist in some markets. In most cases, these are natural monopolies (electricity, water supply, etc.), which are regulated by the state.

But there are also artificial monopolies. For example, the South African company De Beers controls about 80% of the world's diamond production.

Monopoly(from the Greek μονο - one and πωλέω - sell) - a company (the situation in the market in which such a monopolist company operates), operating in the absence of significant competitors (producing goods (s) and/or providing services that do not have close substitutes ). The first monopolies in history were created from above by state sanctions, when one firm was given the privileged right to trade in a particular product.

Monopoly comes in the following forms:
1) closed – protected from competition legally: by authoritarian law, patent;
2) open - does not have special protection from competition (firms entering the market for the first time with new products);
3) natural – exploiting unique natural resources (electricity networks, water supply companies, gas enterprises).

This classification is very conditional: some monopolistic firms belong to several types at once.

A monopoly that sells products to all buyers at the same price is called a simple monopoly.

A price discriminating monopolist sells its products to different consumers at different prices. Price discrimination of a monopolist is carried out:
1) by volume of purchase (wholesale and retail);
2) buyer (by income, age). For example, selling air tickets to businessmen and tourists. The latter are assigned a lower price, since when going on a tourist trip they book tickets in advance and can choose a cheaper mode of transport (demand is elastic). Businessmen have a shorter order time (usually at the last minute), so there is practically no alternative (demand is inelastic);
3) different prices in the domestic and foreign markets.

By conducting conditional discrimination, the monopolist maximizes profits by capturing a larger share of the market.

Since there is only one monopolist operating in the market, the demand curves for the company and the industry coincide (Fig. 1). The monopolist chooses the combination of price and volume (as opposed to a competitive firm, which chooses only volume) that will maximize profits.

The monopolist maximizes profit by producing a volume of output at which marginal revenue equals marginal cost (Fig. 14.1):

Unlike a modern competitive market, the monopolist's price exceeds MC

Thus P m and Q m are the profit-maximizing price and volume. If Q m were produced under perfect competition, it would be sold at P k (in a competitive market P=MR=MC). Since P m > P k , and P m > MR=MC, therefore P m P k is the value of monopoly power (L). The source of monopoly power is the low price elasticity of demand

Fig.1. Profit maximization by a monopoly firm

That is, the more inelastic the demand for a monopolist's products, the greater his monopoly power, the greater his profit. Since the price of the monopolist P m > P z (cost Q M), the amount of profit is characterized by the rectangle P m mzP z.