This paper studies monopoly as an economic category. The research is mainly focused on the distinctive features of natural monopoly
as a type of monopolistic structure of the market economy. The author
came to the conclusion that the concept of natural monopoly remains to
be a disputable issue, since in spite of all advantages of the
productive efficiency, in the absence of competition there is a high
probability of the abuse of monopoly for the purpose of profit
maximization.
In the beginning of new millennium the development of infrastructure,
international commercial relations, and information networks inexorably
involves creation, and development of the huge international companies.
The turnover of the biggest of them exceeds even the gross domestic
product of some countries. And there is nothing strange, that such
companies hold leading positions on national and international markets,
and at times, excluding competitors, become monopolists.
Company has a monopoly, if it is the only supplier of a product, and if
it does not have any substitutes. The principal reason for the
occurrence of monopoly is barriers at the admission to the market, which
do not allow other companies to compete with a monopolist. Such
barriers appear in following cases:
only one company owns a key resource of manufacture;
a government has given exclusive rights for manufacture of certain
production to one company;
because of the production costs the highest efficiency of output is only
possible in the presence of one manufacturer on the market.
The monopolistic market is considered to be the market of the seller.
The profits of the manufacturer are in this case guaranteed by the
production volume, and by the high prices. Actually, in the given
conditions the buyer is always forced to accept the price, which is
considerably above cost.
There are very few examples of pure monopoly. It is rather one of the
ideal concepts, as far as all companies aspire to full monopoly, but
cannot reach it, or reach it only for a certain period. Though, this
rule has one exception- natural monopolies. In case of natural monopoly
the scale effect allows one monopolist to serve all market, having costs
lower, than in the presence of two or more competing managing subjects
in the given market. Such monopolist uses its resources the most
effectively. Being a large enterprise, it possesses high technical
equipment and big capacity. These factors conduct to the higher labor
productivity and the decrease of the product unit costs. Thanks to the
lowest possible cost price of the manufacture of the given goods,
natural monopoly is a desirable phenomenon for a society. Otherwise the
government interferes for the purpose of regulation of the monopolists
activity. Practically, the natural monopoly can be resulted by
availability of unique property (power supply systems, pipeline and rail
transport, unique natural resources, post), necessary for branches,
where long-term average costs are minimum only in case, when the market
is served by one manufacturer.
The naturalness of monopoly can be determined by its attitude, or to be
more precise, by its fear of competition. Genuine natural monopoly
knows, that size matters, and if competitors enter the market, they will
not manage to seize the greater share. A typical example of all
mentioned above are railways in Sweden. The government of this country
conducted a classical vertical division into an infrastructure and rail
transportation, and the free competition in the market of transportation
was allowed. For 10 years the new companies managed to win from
monopoly only about 10 % of the market. The scale effect protects
monopoly better than any entry restrictions.
Monopolies have natural advantages in those markets, where the action of
entire branch as a single mechanism is important. Though, such
situation can has its disadvantages. Companies have no stimulus for
self-restriction of monopolistic abuse, since the client cannot leave
them for other competitors on the market. It often leads to such
inevitable consequences, as overpricing, uneconomical treatment of
expenses, indifference to the requirements of the clients, artificial
understating of the production volume, and a full set of other
consequences of the monopoly, accompanied by ultrahigh monopolistic
profit earning. Such conditions indicate the classical fiasco of the
market, the contradictions, which the market is not able to overcome
without state intervention. For this reason in all countries natural
monopolies are either state companies, or are under tight state control.
World practice of the state regulation of natural monopolies has more
than a century of history. In the USA, first federal control commissions
were set up in ХІХ century. For example, the Federal Power Commission
was organized in 1930. Today in the USA under the state regulation
remain such spheres of natural monopolies, as railway, aviation and
other types of transport; a number of fuel and energy manufactures (gas
supply, power generation); rendering of numerous public services. State
regulation concerns mainly those aspects of business activities in these
areas, which make a direct impact on the interests of the consumers:
price-level, production volume, bounds of the outlets, requirements to
the quality of the goods and services. The most widespread method is
that the prices of certain goods and services are established by state
structures.
Conclusion
Natural monopoly in the market economy is considered to be a contradictory phenomena. As a type of monopolistic structure, it combines all negative displays of market monopolization, and can result the abuse of the unlimited market power. At the same time, acting as a necessary element of the production process, and representing socially significant branches of the national economy, the natural monopoly plays the important positive role in the market economy. The state regulation of natural monopolies should be aimed first of all at the termination or control of price growth of the natural monopolies production on the domestic market, and simultaneous preservation of these prices at the level, which allows extended reproduction. In this case the national policy can ensure further prosperity of both monopolies and citizens of the country.
Natural monopoly in the market economy is considered to be a contradictory phenomena. As a type of monopolistic structure, it combines all negative displays of market monopolization, and can result the abuse of the unlimited market power. At the same time, acting as a necessary element of the production process, and representing socially significant branches of the national economy, the natural monopoly plays the important positive role in the market economy. The state regulation of natural monopolies should be aimed first of all at the termination or control of price growth of the natural monopolies production on the domestic market, and simultaneous preservation of these prices at the level, which allows extended reproduction. In this case the national policy can ensure further prosperity of both monopolies and citizens of the country.
