Sources of monopoly power and its measurement. Measuring monopoly power

Under certain conditions, the monopolist can expand sales volumes and increase profits by exercising price discrimination. It occurs when a product is sold at more than one price and these differences are not justified by differences in costs.

The following conditions are necessary for price discrimination to take place:

1) The seller must be able to divide buyers into groups based on the elasticity of demand for the good. Those buyers whose demand is inelastic will be set a high price, and those whose demand is more elastic will be set a lower price;

2) Goods cannot be resold by buyers of one market to buyers of another market, since the free movement of goods will lead to a single price;

3) Buyers must be identified.

Types of price discrimination:

1) Price discrimination of the first degree(perfect discrimination) occurs when a price is set for each unit of a good equal to its demand price. Therefore, the selling prices of a good are different for all buyers;

2) Price discrimination of the second degree occurs when the prices of a good are the same for all buyers, but differ depending on the volume of purchases;

3) Third degree price discrimination It assumes that a good is sold to different people at different prices.

57. Monopoly power and its measurement.

Monopoly power is the ability of a monopolist to set the price of his product by changing the amount he is willing to sell. The degree of monopoly power depends on the availability of close substitutes for the product and the share of total sales in the market. The measure of monopoly power is the amount by which the profit-maximizing price exceeds marginal cost - the Lerner coefficient.

where MC - marginal costs;

E is the elasticity of demand.

The numerical value of L is in the interval (0;1). For a perfectly competitive firm, the Lerner coefficient is 1. The larger it is, the greater the monopoly power.

58. Economic and social consequences of a monopoly

The processes of monopolization have made significant changes in the social and economic life of society. They caused a change in the economic mechanism, strengthening the conscious regulatory forces in it. The accelerated emergence of large economic objects, the coordination of activities on the scale of the industry and intersectoral space expand the scope of the planned development of the economy. The number of negative factors in the existence of monopolies is much greater, and the first of them is the practice of forming monopoly prices. Monopoly prices deviate from market prices, create additional profits for monopolists and at the same time impose a kind of “tribute” on the consumer in their favor.

Another negative factor in the presence of monopolies is their inhibition of the development of scientific and technological progress. By weakening competition, the monopoly creates economic prerequisites for limiting the introduction of innovations into production. Monopolization also leads to deformation of economic relations and processes. A structure is created that meets the goal of the monopoly - the optimization of monopoly profits. In this case, there is also an incorrect distribution of income (in favor of the monopolist), resulting in an incorrect allocation of resources. Thus, monopoly causes stagnation and decay of the economic mechanism, hinders competition, and is a threat to a normal market. After analyzing the positive and negative factors and consequences of monopolies, we can conclude that the monopoly causes great harm to the national economy.

The degree of monopoly power, oddly enough, can be measured. The following indicators of monopoly power are used:

1. Lerner's exponent of monopoly power:

The Lerner coefficient shows the degree to which the price of a good exceeds the marginal cost of its production. L takes values between 0 and 1. For perfect competition this indicator is 0, because P = MC. The more L the greater the firm's monopoly power. It should be noted that monopoly power does not guarantee high profits, because. the amount of profit is characterized by the ratio P And ATC .

2. If we multiply the numerator and denominator of the Lerner exponent by Q, then we get a formula for calculating monopoly power index: , or . Thus, high profits long term are also seen as a sign of monopoly power.

3. Degree of market concentration, or Herfindahl-Hirschman index:

where Pi is the percentage market share of each firm, or specific gravity firms in the industry's market supply, n is the number of firms in the industry. The greater the share of the firm in the industry, the greater the opportunity for the emergence of a monopoly. If there is only one firm in the industry, then n=1, Pi=100%, then H=10.000. 10.000 is the maximum value of the market concentration indicator. If H< 1000, то рынок считается неконцентрированным. Если Н? ≥ 1800, то отрасль считается высокомонополизированной. Нужно иметь в виду, что данный показатель не дает полной картины, если не учитывать удельный вес импортируемых товаров.

40. Oligopoly. The main methods of pricing in an oligopoly.

Oligopoly is a market structure in which the market is dominated by big number sellers, and the entry of new producers into the industry is limited by high barriers.

Characterized by:

1. a small number of large firms;

2. heterogeneity (or uniformity) of products;

3. possible entry difficulties associated with large investments;

4. somewhat limited access to information;

5. universal interdependence.

Price war. There are two main forms of behavior of firms in the conditions of oligopolistic structures: non-cooperative and cooperative. In the case of non-cooperative behavior, each seller independently solves the problem of determining the price and volume of output.

To simplify, consider an industry in which there are only two sellers - a duopoly. Duopoly is private simplest case oligopoly. Let us assume that each of firms A and B produces half of the output, the total value of which is 400 thousand units, and that the average costs are constant and equal to 25 thousand rubles. We also assume that the initial prices are equal and amount to 50 thousand rubles. If firms believe that lowering prices will help them force a competitor out of the market, then a price war begins between them. price war- This a cycle of gradual reduction of the existing price level in order to force competitors out of the oligopolistic market. Price cuts, however, have their limits. In the example discussed (Figure 8-1), it will continue until the price falls to the level of marginal cost. And since average costs are constant, then P = MC = AC. Equilibrium will be established at point B because no firm can lower the price lower without incurring a loss. The price will actually become the same as under conditions of perfect competition, and the economic profit as a result of the war will become equal to zero. Consumers will benefit from a price war and producers will lose. In our example, none of the manufacturers will win. Unfortunately for consumers, price wars are short-lived and are now quite rare. Competitive fight with each other more often leads to agreements that take into account the possible actions of other manufacturers.

rules (such as playing cards or dominoes). During the game, various joint actions are possible - coalitions of players, conflicts, etc. The strategy of the players is determined by the objective (payoff) function, which shows the gain or loss of the participant. The forms of these games are diverse. The simplest variety is games with two participants. If there are at least three players in the game, it is possible

formation of coalitions, which complicates the analysis From the point of view of the payoff, games are divided into two groups - with zero and non-zero sums. Zero-sum games are also called antagonistic:

the gain of some is exactly equal to the loss of others, and the total gain is zero. By the nature of the preliminary agreement, games are divided into cooperative (when coalitions of players are formed) and non-cooperative (when everyone plays for himself against everyone). Most famous example non-cooperative zero-sum game - the Cournot model, and with a non-zero sum - the "prisoner's dilemma". Consider the latter case (Figure 8-5). Two thieves were caught red-handed and charged with a number of thefts. Each of them faces a dilemma - whether to confess to old (unproven) thefts or not. If only one of the thieves confesses, then the one who confesses receives the minimum term of imprisonment (1 year), and his unrepentant comrade receives the maximum (10 years). If both thieves confess at the same time, then both will receive a small leniency (6 years each), if both persist, then both will be punished only for the last theft (3 years each). The prisoners sit in different cells and cannot agree with each other. Before us is a non-cooperative (inconsistent) game with a non-zero (in this case, negative) sum characteristic feature this game is a disadvantage for both participants

be guided by their private (mercenary) interests.

broken curve

Demand

In conditions of high uncertainty, oligopolists behave differently. Some try

Ignore competitors and act as if the industry is perfectly competitive. Others, on the contrary, try to anticipate the behavior of rivals and closely monitor their every move. Finally, some of them consider collusion with enemy firms to be the most profitable.

In reality, all these three variants of market behavior can occur simultaneously. Since the company's management must constantly make many decisions, it is almost impossible for it to predict the reaction of competitors to each of its actions. Therefore, on many tactical issues relating to secondary aspects, decisions are made quite independently. On the other hand, when developing strategic decisions, the company is working to optimize relationships with rivals. The task of economic theory is to study the rules of rational choice, involving the apparatus of game theory. Each "player" is looking for such a move in order to maximize his own profit and at the same time limit the competitor's freedom of choice. In search of the most "simple" way, rival firms can enter into direct collusion, agreeing on a common price policy, on the division of sales markets, etc.

The latter case is the most dangerous for society and is usually prohibited by antitrust laws. The first option is reduced to perfect competition, the third - in the limiting case - to pure monopoly. It can be studied both with and without game theory. Usually study

oligopolistic pricing begins with the analysis of a broken demand curve.

Let's say on industry market three (I, II and III) firms compete. Consider the reaction of firms II and III to the behavior of firm I. Two situations are possible: when it raises prices and when it lowers them. In the event that firm I raises prices above P0 (Fig. 8-7a), its demand is depicted by curve D: above the line PaA Competitors (firms II and III) will not follow it, and their prices will either remain unchanged or increase in much smaller proportion, as curve D shows above the line P0A. If firm I lowers prices below P0, firms II and III will follow it, which is shown by curve D: below the line Р„А. As a result, a broken demand curve D2AD arises, highly elastic above the current price level P0 and low elastic below it (Fig. 8-76). Curve marginal income at the same time, it is not continuous and consists, as it were, of two sections - MR2 above point B and MRj below point C. The proposed model explains the relative inflexibility of prices in an oligopoly. The fact is that, within certain limits, any increase in prices worsens the situation. A price increase by one firm carries the risk of market capture by competitors who can lure away the firm's former buyers, preserving low prices. Lowering prices in the conditions of an oligopoly may also not lead to the desired increase in sales, since competitors, having lowered prices in the same way, will retain their quotas in the market. As a result, the leading company

will not be able to increase the number of buyers at the expense of other firms. In addition, lowering the price is fraught with a dumping price war. The proposed model explains well only the inflexibility of prices,

but does not allow determining the initial price level and the mechanism of their growth. The latter is easier to explain by collusion of oligopolists.

Cartel The desire of oligopolists to cooperative behavior contributes to the formation of cartels. Cartel- is an association of firms that agree on their decisions about prices and volumes of production so that How if they merged into a pure monopoly. Forming a cartel requires a joint strategy

(about prices, production volumes), setting quotas for each participant and creating a mechanism for monitoring the implementation decisions taken. The establishment of uniform monopoly prices increases

the revenue of all participants, but the price increase is achieved by a mandatory reduction in sales volume. As a result, each participant is tempted to get a double win, to sell their products at a high cartel price, but in excess of low cartel quotas. If this kind of opportunistic behavior becomes general, the cartel will fall apart. A cartel is a classic example of a cooperative game with n players, where n can be 2, 3, etc. Required condition the cartel agreement is that each of its participants receive no less than what he could count on if all other oligopolists united against him who suffered from quota cuts. These payments play the role of equalizing payments.

A potential threat to the cartel is the association of outsiders into a counter-cartel. If the total income of industry participants is constant and equals the maximum value, then we have a zero-sum game of two participants (coalitions), a special case of which is the Cournot duopoly model.

Game theory at its current level does not sufficiently take into account the institutional aspects of the process of emergence, flourishing and decline of cartel unions. At present, explicit cartel-type agreements are rare. Much more often you can observe implicit (hidden) agreements, collusion.

Monopoly (market)power is that the company can influence the price (increase) and receive economic profit by limiting the volume of production and sales. However, it should be borne in mind that a firm with monopoly power cannot increase the price of its products indefinitely.

Degree (strength) of monopoly power is limited by price elasticity demand for the company's products, which depends on the following factors: price elasticity of industry demand, the number of firms in the market, the nature of interaction between firms.

Price elasticity of industry demand- the demand for the products of an individual firm cannot be less elastic than the market (industry) demand. Monopoly power is the reciprocal of the price elasticity of demand.

Number of firms in the market- the more firms, the more elastic will be the demand for the products of each of them and the less monopoly power. However, the number of firms alone does not give an idea of the degree of market monopolization. For such an assessment, certain indicators are used: the Lerner coefficient, the concentration coefficient, the Herfindahl-Hirschman index.

The nature of interaction between firms- with fierce competition, prices can approach the competitive level; when colluding on prices, limiting production, dividing the market, prices will be close to monopoly.

The monopolist in the market has the strongest economic power, since he completely controls the entire volume of output of the goods and, as a result, can raise the price of his products. In this regard, the state takes control of the activities of monopolies, restrains their arbitrariness.

Demand for the monopolist's products coincides with the market (industry), so the elasticity of demand is an objective factor limiting price growth.

In the real economy, the prevailing market structures are monopolistic competition and oligopoly. Firms operating within these structures have some degree of monopoly power and can, by changing the volume of production, influence market prices. However, the degree (strength) of this power is less than that of pure monopolists.

The degree of monopoly power can be measured in various ways.

Lerner coefficient (L). In 1934, A.P. Lerner proposed to measure the strength of monopoly power using the following coefficient:

If we multiply the numerator and denominator by the number of products (q), we get profit (π) in the numerator, and gross income (TR) in the denominator:

(p – AC) x q π

L = --––––-- = –––––.

Consequently, the higher the share of profit in gross income, the higher the degree of monopolization.

Concentration factor shows the share (in percent) of the revenue of a certain number of firms in the industry-wide sales volume.

The firm occupies a dominant position in the market if one enterprise accounts for more than 1/3 of the total industry turnover, or 3 or less enterprises produce more than half of the industry's products, or 5 or less firms have more than 2/3 of the entire industry turnover.

The market is considered non-monopolized if more than 10 competing firms operate in the industry, and the share of the largest of them should not be more than 31%, the two largest - 44, three - 54, four - 63%.

Most often, the concentration ratio is calculated for the four or eight largest firms in the industry (Table 7.1).

The coefficient has a number of disadvantages:

firstly, it characterizes the positions of only the largest producers, and not the entire set of firms in the industry and its structure;

secondly, the coefficient does not show the difference between industries where the market is divided relatively evenly and industries dominated by one large firm.

For example, if one industry is represented by five firms with the same output (i.e., 20%), and another by 44 firms, the four largest of which account for 75%, 2, 1.5 and 1.5% of output industry, and for the remaining 40 firms - 0.5% each, then the concentration ratio for the four largest firms in both cases will be equal to 80%.

Herfindahl-Hirschman index ( Herfindahl - Hirshmfn ) is determined by the formula

Inn \u003d S l 2 + S 2 2 + S 3 2 + ... + S n 2,

where S is the company's share in the industry-wide sales volume, %;

n is the total number of firms in the industry.

Table 7.1

Share of sales of the largest US industrial companies

in the industry sales volume, % *

	4 largest	8 largest
Oil refining
Manufacture of engines and car bodies
Blast furnaces and steel plants
aircraft industry
Meat processing plants


sawmill
Plastics and resins
Soaps and detergents

* Heine P. Economic way of thinking. - M .: "Case", "Catallaxy", 1993. - P.245.

Its numerical values can vary from a value close to 0 (with many small enterprises in the industry) to 10,000 (in the case of pure monopoly). A market where the Herfindahl-Hirschman index is less than 1000 is considered safe from the point of view of monopolization.

In the two industry example above, the coefficients

whose concentrations for the four largest firms coincided, the Herfindahl-Hirschman index for the first industry will be 2000:

Inn \u003d 20 2 + 20 2 + 20 2 + 20 2 + 20 2 \u003d 2000,

and for the second - 5643.5:

Inn \u003d 75 2 + 2 2 + 1.5 2 + 1.5 2 + 40 x (0.5) 2 \u003d 5643.5.

In the second branch, Inn is much larger. Comparing the values of the Herfindahl-Hirschman index for these two industries allows us to conclude that the presence of one dominant firm in the market makes this market less competitive.

The word monopoly comes from two Greek words (monos - one, poleo - sell), meaning " sole seller". A monopoly is a large economic entity that has certain economic advantages and dominates the industry market.

Historically, monopoly was originally defined as legal concept. For the first time it appeared in Roman law, where such signs as the possession of power, exclusive right, advantage, allowing to receive super profits, were distinguished. At present, monopoly is characterized as a legal concept, a market model, and as a form of organization of production. Western economic theory is dominated by the first two types of definitions, i.e. monopoly is presented as one of the main market models. In this case, the concept of "pure monopoly" is used, which is defined as a firm that is the only producer of a product that does not have close substitutes (substitutes), or as an industry in which a small number of firms control all or most of its production, or as the only seller of goods, having the ability to influence the price by controlling the availability (supply) of goods.

A perfect monopoly is a rather rare phenomenon. It assumes the following conditions are met:

1. One seller is opposed by a large number of buyers. In other words, monopoly means the loss of economic equality between producer and buyer. A market where there is only one buyer is called a monopsony.
2. Absence of perfect substitutes. The buyer is forced to either buy this product from the monopolist, or do without it.
3. Lack of freedom to enter the market (industry).

A monopoly can exist only because it is unprofitable or impossible for other enterprises to enter the market. Entry barriers are many and varied. Among them:

economies of scale - occurs when in some industries (steel production, automotive industry, etc.) the existing technology is such that it is possible to achieve minimum costs in the long run only with a large volume of production both in absolute terms and in relation to market share. Small firms that try to enter such an industry will not be able to make a profit and stay in the industry due to the fact that they are not able to realize economies of scale and produce products at lower or the same costs as a monopolist;
· Financial barriers mean that in some industries, in order to have efficient production, large capital investments are needed. For these purposes, it is difficult to find financial resources;
· patents - in the legislation of many countries, including Belarus, legal protection of an invention is provided for a certain period of time. Also, a large firm has the opportunity to finance its own research and development or to buy patents from other firms;
· the existence of government licenses, quotas or high duties on the import of goods. The restriction as a result of this supply of goods leads to the monopolization of the industry (for example, the production of medicines);
control by the monopolist of sources of income necessary raw materials or other specialized resources;
high fare, which contribute to the formation of isolated local markets, so that a technologically unified industry can represent many local monopolists.

In addition, the monopoly enterprise itself may pursue a price policy that makes entry into the market unattractive for potential competitors.

4. The ability to simultaneously influence the price and the quantity of products supplied. However, in reality this rarely happens. The degree of influence of the monopolist on market price very high, but not limitless, since any company, including a monopoly, faces the problem of limited market demand and a reduction in sales in direct proportion to price increases. That is, the main restrictive force of the market power of a monopoly is the elasticity of demand for its products. If the seller has set the price, then the market demand dictates the volume of production.

Thus, monopoly power can be defined as the ability of a producer to control the market price of his product and influence it by regulating the quantity supplied to the market. As a result, the monopoly position is for the monopolist a kind of factor of production, a source of income. At the same time, market power can only be possessed to a certain extent, since for its long-term preservation, certain conditions are necessary that will limit the access of competing firms. It should be noted that the concepts of "monopoly", "market" and "economic" power are often used as synonyms (R. Pindike, D. Rubinfeld, S. Fischer, L. Erhard, etc.).

The following features are inherent in monopoly power: a) an increase in demand is not necessarily accompanied by an increase in the quantity of goods offered. A monopoly often just raises the price. The decisive factor in determining the size of the supply of a good is the change in the marginal revenue curve, not the demand curve; b) it is impossible for a monopolist to determine the demand curve, since a given quantity of goods offered by a monopoly can be sold at different prices depending on demand and its price elasticity.

Monopoly power can only be exercised to some extent. Factors contributing to the strengthening or weakening of monopoly power are: the economic potential of the firm, the expected profit, the scale of innovation, the presence of trade secrets, high barriers to the emergence of competitors, including the protectionist policy of the state. The presence of substitute goods, competition from firms producing similar products, and potential competition from companies that have the opportunity to organize similar production, imperfection of market information, crises, wars, violence. Thus, the pressure of potential competition significantly limits market power.

So, monopoly power is the ability of a subject to influence the situation that has developed in a particular market, bringing benefits to himself. The bearers of monopoly power can be the state, enterprises, individual individuals. Monopoly power can be large firms, and small ones that have certain advantages.

Modern economic theory does not have a clear classification of the types of monopoly, but proposes to single out pure or absolute, natural and artificial, industrial and organizational, closed and open, simple. A pure monopoly is represented by a firm or industry that is the only producer of a product that does not have substitutes and determines production volumes and prices. The company's market share is usually 100%. Usually there are three main types of pure monopoly: natural, open, closed monopoly. The existence of these types of monopoly presupposes the existence various kinds circumstances whereby one firm may become sole supplier products on the market. A natural monopoly is interpreted as the only firm or industry that serves the entire market due to the inefficiency of unbundling and due to the minimization of production costs due to economies of scale or the possession of unique natural resources. For example, the scope of the natural monopoly of the Republic of Belarus includes the transportation of oil and gas through pipeline transport. As a kind of natural monopoly, there is a production (technological) monopoly - an enterprise (association) that controls the production and marketing of certain products, the specifics of the production technology of which determines the large size and the presence of a close technological interconnection of the enterprises included in the association. Artificial include monopolies created by the state in order to concentrate and specialize production. Organizational monopoly acts as an association of similar enterprises and organizations. Occurs when high level concentration of production is associated with the existence of sectoral ministries. This is nothing more than an artificial monopoly, meaning the centralized management of any area of production. An open monopoly is a monopoly in which one firm (at least temporarily) becomes the sole supplier of a unique product, but has no special protection from competition. Firms that first enter the market with new products often find themselves in a situation of open monopoly. Innovation activity forms the basis for the functioning of such firms. A closed monopoly is a monopoly protected by legal prohibitions placed on competition. Such monopolies include enterprises that have exclusive rights received from the state to supply any product to the market. In a situation of closed monopoly, entire industries (for example, manufacturers of domestic cars) may find themselves protected from imported products by high customs duties. Other options for the emergence of a closed monopoly include patent protection, the institution of copyright. A simple monopoly is a monopoly that sells its products at the same price to all buyers at any given time.

If we consider a sufficiently long period, then many monopolies become open, because:

· legal prohibitions as barriers to competition can be lifted;
cost advantages of natural monopolies can be negated significant changes in technologies;
· All monopolies experience the blows of competition from substitute goods.

Historically, there have been three main forms of monopolistic unions: cartels, syndicates and trusts. A cartel is an association of a number of enterprises in one industry with the preservation of their production and commercial independence, but providing for the establishment of uniform monopolistically high prices for the products sold, the demarcation of sales markets, etc. A syndicate is an association of a number of enterprises in one industry with the liquidation of the commercial independence of these enterprises. Sales of the products of the combined enterprises are carried out by the syndicate through its sales offices. The trust provides for the unification of the property of enterprises in one or more industries with the complete elimination of their industrial and commercial independence.