What is a monopoly? What can she be? What are the differences between its different species?
general information
So, for starters, let's decide what constitutes a monopoly. This is the name of the situation in the business process or the situation with the presence of a single seller, as a result of which there is no competition (competition) between different suppliers of services and goods.
It should be noted that there are quite a few of its species, depending on the circumstances. An ideal position for a monopolist is a situation in which there are no substitute products (substitutes). Although they always exist in practice, the only question is how effective they are and whether they can help satisfy an existing need.
What are the types of monopolies?
Economic science distinguishes between the following types:
- Closed monopoly. Provides for limited access to information, resources, licenses, technologies and other important aspects. Sooner or later, its discovery occurs.
- Natural monopoly. Her definition is the following - a provision that provides for competitiveness and competition, as a result of which average costs reach their minimum in cases where the company serves the entire market. But at the same time, it exists only where, due to various circumstances, it is beneficial to create something only within the framework of one firm, and not several.
- Open monopoly. The state of affairs when a company becomes the sole provider of a service or product, and this is not affected by any specific competition restrictions. An example is a breakthrough in a certain area by creating a new unique product. You can also use the position with the brands.
- Monopoly of price discrimination. It occurs when different prices are set for different units of one product. It appears when the buyer is divided into groups.
- Resource monopoly. It provides for limiting the possibility of using a certain good. The definition of “resource monopoly” can be more easily understood using a small example: there is a need for a forest. But faster than forestries grow it, it will not work to get wood. In addition, there is a certain restriction on the territory.
- Pure monopoly. In this situation, there is only one seller, and in other industries there are no close substitutes. The definition of pure monopoly provides for a unique product.
Conventionally, all types can be divided into three main classes: natural, economic and administrative. We will now consider them.
Natural monopoly
It arises due to the influence of objective reasons. At its core, as a rule, are specific features of customer service or production technology.
What is a natural monopoly? The definition of this situation would not be complete without examples. You can meet her in the field of energy supply, communications, telephone services and so on. A small number of companies are represented in these industries (and sometimes it happens that there is only one state-owned enterprise). And thanks to this they occupy a monopoly position in the country's market. For example, space exploration. About fifty years ago, only states could deal with this for a number of reasons. But now there is already one private company that offers its services.
Administrative (state) monopoly
It appears as a result of the influence of authorities. So, it can be expressed in the fact that individual companies are granted the exclusive right to carry out a specific type of activity. An example is the organizational structures of state-owned enterprises, which are combined and subordinate to various associations, ministries, or central administrations.
This approach is used, as a rule, for combining within one industry. In the market, they act as one business entity, which implies a lack of competition. An example is the former Soviet Union. That is what state monopoly is. The definition does not provide for the existence of such a situation throughout the country.
Take, for example, the military industry. It is necessary to make sure that she is ready for all sorts of troubles and surprises. And if it is transferred to private hands, then the greatest damage can be done to the military industry. And this should not be allowed in any case. Therefore, it is under state control.
Economic monopoly
This is the most common class. If we consider what this monopoly is, a definition by history, and trends in the development of society, we should note the following feature: compliance with the laws of the economic sector. The central object in this case is the entrepreneur. He can get a monopoly position in two ways:
- Successfully develop the enterprise, constantly increasing its scale through the concentration of capital.
- Team up with other people on a voluntary basis (or by absorbing bankrupt).
Over time, such a scale is achieved that we can talk about market dominance.
How does monopoly arise?
Modern economic science identifies three main ways of this process:
- Market conquest by a separate enterprise.
- Conclusion of an agreement.
- Using product differentiation.
The first way is very difficult. Confirmation of this is the fact of exclusivity of such entities. But at the same time, it is also considered the most decent due to the fact that the market is conquered on the basis of effective activity and gaining a competitive advantage over other enterprises.
More common is an agreement between several large firms. Through it, a situation is created in which manufacturers (or sellers) act as a “united front”. In this case, the competition is nullified. And first of all, under the gun is the price aspect of interaction.
The logical result of all this is that the buyer falls into uncontested conditions. It is believed that for the first time such situations began to arise by the end of the 19th century. Although in fairness it should be noted that such monopolistic tendencies began to appear even in ancient times. But the recent history of this phenomenon dates back to the economic crisis of 1893.
Negative influence
Monopoly is often perceived in a negative way. Why is that? This largely explains the correlation between crises and monopolies. How is everything going? There are two options here:
- The monopoly was established during the crisis by several enterprises in order to stay afloat. In this case, it is easier for them to survive difficult times.
- The monopoly enterprise created the conditions for a crisis in order to oust small players from the market and tidy their market share for themselves.
In both cases, monopolies are large structures, which account for a significant amount of production. Due to their dominant position in the market, they can influence the pricing process, achieving favorable prices for themselves and making significant profits.
It should be noted that a monopoly position is the desire and dream of every enterprise and company. Thanks to this, you can get rid of a large number of risks and problems that competition brings. In addition, in this case they occupy a privileged position in the market and concentrate economic power in their hands. And this already opens the way for imposing its conditions on counterparties and even society.
The specifics of monopolies
Attention should be paid to certain specifics in the economic science that studies this influence. It should be noted that this is not mathematics, and here many terms may have different interpretations, and some may not be recognized in individual textbooks / groups.
Consider an example. At the beginning of the article, the definition of pure monopoly was mentioned, but this does not mean at all that everything is so. It is quite possible to find information about the presence of additional aspects or a slightly different interpretation of the term. This does not mean that one of them is wrong. There is simply no concept approved at the state / international level. And as a result, various interpretations appear.
The same could be said if we considered an artificial monopoly. The definition of this term could be given as follows: a situation when such conditions are created for an individual enterprise that it affects the entire market. It's right? Of course! But if we say that an artificial monopoly is a concentration of resources, production and marketing in the same hands through a cartel or trust, then this is also true!
Conclusion
So the definition of the word "monopoly" was given. It should be noted that this is a very extensive and interesting topic. But the size of the article is limited. One could still talk about the practical features of monopolies in different parts of the world, consider the situation in the countries of the former USSR, find out what and how in Western Europe and the USA. There is a great deal of material on this subject. As they say, he who seeks will gain.