Despite economic and legislative measures taken by the authorities of different countries to deal with the monopoly, this phenomenon is quite common.The monopoly power of individual companies poses a major threat to economic development.
Monopoly and its sources
Under monopoly understand the market dominance of one manufacturer (implementer) or a combined group of subjects (cartels).
main sources of monopoly:
- elasticity of demand.This factor, in turn, is determined by the presence in the market similar products, the rate of reaction of customers to the change in prices, important goods for buyers, market saturation, a variety of features the product and its conformity to income buyers.
- market concentration.Where 2-3 companies cover 80-90% of consumer monopoly appears faster than in competitive markets.
- cooperation between the companies.Acting consistently, sellers or producers have more power.
consequences of monopoly
companies with monopoly power, deliberately limits the amount of output of goods and sets high prices.She has no incentive to lower production costs.In addition, the company incurs additional costs in order to maintain and strengthen its position.
Monopoly in the market leads to such consequences:
- resources are used inefficiently;
- society loses the necessary goods;
- no incentive for the development and implementation of new technologies;
- rising production costs.
As a result, the production does not reach the maximum possible efficiency.
monopoly price
One result of manifestations of monopoly is the sole monopoly price regulation.
Under monopoly understand the price is significantly divergent from its normal level, which could take place in a competitive environment.Under normal conditions, the price is formed as a result of a ratio of consumer demand and market supply.Under conditions of monopoly price is established dominant subject at a level which will provide him cover the excess profits and excess costs.
monopoly price could be over or under.Overpriced is a consequence of the dominance of a large retailer.If the market is dominated by a large buyer with a large number of sellers, it will seek to understate the price as much as possible.
Lerner Index as an indicator of monopolization
level of monopoly power and market concentration is measured using a rule of thumb, the index and the index of Lerner Garfindelya-Hirschman.
Lerner Index was proposed in 1934. It is one of the oldest methods of determining the level of monopolization and calculating the losses incurred by the company due to the monopolists.Being simple and intuitive, this figure clearly describes the effects of monopolization.Today it is used by economists around the world in assessing the well-being of society.
If the product is manufactured and sold under the monopolization, then the price will always be higher than the marginal cost.Lerner Index is the result of dividing the price minus the marginal cost to the price.The more the price deviates from the cost, the greater the value of the index takes.
calculation and interpretation of the index Lerner
Lerner Index is calculated as follows:
- IL = (P - MC) / P = - 1 / ed.
P - is a monopoly price, and MC - marginal cost.
perfect competition implies that one firm can not influence the price level.Price is on the same level as the marginal cost (P MS), respectively:
- P - MC = 0;
- IL = (P - MC) / P = 0 / P = 0.
Any increase in prices relative to marginal costs suggests that the company has a certain power.The maximum value of the index is 1, and is a sign of absolute monopoly.
Lerner index can be expressed in another way - by using the coefficient of elasticity:
- (P - MC) / P = -1 / ed;
- IL = -1 / ed.
ed index characterizes the elasticity of demand for the products of the company in terms of prices.For example, if E = -5, the IL = 0,2.
high level of monopolization does not always mean that the company gets the profits.She can spend on maintaining its credibility so much money that all profits earned as a result of increasing prices leveled.
manifestations of monopoly in Russia
During the transitional period of 90th.the Russian economy has been characterized by a high concentration in the manufacturing sector.The market is dominated by super-large organizations, the choice of business partners was very limited.Business success is strongly dependent on energy supplies.Performance indicators companies fell, production went down, process is stagnating.
In 1992, after liberalization, the main players in the market have become regional and sectoral monopolies.Questions relating to the financing of large firms decided by small partners, which is why there is a problem at the macro level imbalances.
monopolists without regard for consumer inflated prices and receive additional income.The government did not have sufficiently powerful leverage on prices.The legislation was unclear, and government institutions - is too weak.Taking advantage of the situation, the monopolists of different branches of secretly united in cartels.There cartels among buyers and sellers, as well as mixed.
With the advent of the new century the situation has changed little.Almost all of the monopoly formed in the '90s, continue to operate.Formally been decentralized in some sectors, but the rise in prices for gas and electricity suggests that monopolies still strong.The disparity generated by the strong influence of the major players in the market, has become one of the causes of the crisis of 2008-2009.
