natural monopoly. Natural monopoly arises due to objective reasons

What is a monopoly? What can she be? What are the differences between its different types?

general information

So, first, let's define what a monopoly is. This is the name of the position in the economic process or the situation with the presence of a single seller, as a result of which there is no competitiveness (competition) between different suppliers of services and goods.

It should be noted that there are quite a few of its types, depending on the circumstances. The ideal position for a monopolist is a situation in which there are no substitute goods (substitutes). Although in practice they always exist, the only question is how effective they are and whether they can help meet the existing need.

What are the types of monopolies?

Economic science distinguishes the following types:

1. closed monopoly. Provides for limited access to information, resources, licenses, technologies and other important aspects. Sooner or later it will be discovered.
2. Her definition is as follows - this is a provision that provides for the existence of competitiveness and competition, as a result of which they 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 company, and not several.
3. 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 special restrictions in terms of competition. An example is a breakthrough in a certain area through the creation of a new unique product. You can also use position with brands.
4. Monopoly Arises when different prices are set for different units of the same product. It appears when the buyer is divided into groups.
5. resource monopoly. Provides a restriction on the use of a particular good. The definition of "resource monopoly" can be more easily understood using a small example: there is a need for a forest. But it will not be possible to get wood faster than forestry enterprises grow it. In addition, there is a certain restriction on the territory.
6. In this situation, there is only one seller, and there are no close substitutes in other industries. The definition of pure monopoly involves the existence of 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 causes. It is usually based on specific features of customer service or production technology.

What is a natural monopoly? The definition of this situation would be incomplete without examples. You can meet her in the field of energy supply, communications, telephone services, and so on. There are a small number of companies in these industries (and sometimes 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. Fifty years ago, only states could do 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. As an example, one can cite the organizational structures of state enterprises, which are united and subordinate to various associations, ministries or central administrations.

This approach is used, as a rule, to unite within the same industry. In the market, they act as one economic entity, which implies the absence of competition. An example is the former Soviet Union. That's what the definition does not provide for the existence of such a provision 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 harm can be done to the military industry. And this should not be allowed under any circumstances. Therefore, it is under the control of the state.

economic monopoly

This is the most common class. If we consider what this monopoly is, definition by history, trends in the development of society, then the following feature should be noted: compliance with the laws of the economic sector. The central object in this case is the entrepreneur. It can obtain a monopoly position in two ways:

1. Successfully develop the enterprise, constantly increasing its scale through the concentration of capital.
2. To unite with other people on a voluntary basis (or by absorbing bankrupts).

Over time, such a scale is reached that we can talk about dominance in the market.

How does a monopoly arise?

Modern economic science identifies three main ways of this process:

1. Conquest of the market by a separate enterprise.
2. Conclusion of an agreement.
3. Use of product differentiation.

The first path is very difficult. This is confirmed by the fact of the exclusivity of such formations. But at the same time, it is also considered the most decent due to the fact that the conquest of the market occurs on the basis of efficient operation 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 reduced to nothing. And first of all, the price aspect of interaction is under the gun.

The logical result of all this is that the buyer finds himself in uncontested conditions. It is believed that for the first time such situations began to arise towards the end of the 19th century. Although in fairness it should be noted that such monopolistic tendencies began to manifest themselves in ancient times. But the latest 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 does everything happen? There are two options here:

1. The monopoly was established during the crisis by a few businesses to stay afloat. In this case, it is easier for them to survive difficult times.
2. The monopoly enterprise created the conditions for a crisis in order to force small players out of the market and take their market share for itself.

In both, they 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 the 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 their conditions on contractors and even society.

The specifics of monopolies

Attention should also be paid to certain specifics in economics, which studies this influence. It should be noted that this is not mathematics, and here many terms may have a different interpretation, and some may not be recognized in individual textbooks / collectives.

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 exactly 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, there are different interpretations.

The same could be said if we considered an artificial monopoly. The definition of this term could be given as follows: a situation where such conditions are created for an individual enterprise that it affects the entire market. It's right? Undoubtedly! But if we say that an artificial monopoly is the concentration of resources, production and sales in the same hands through a cartel or trust, then this is also true!

Conclusion

This is the definition of the word "monopoly". It should be noted that this is a very extensive and interesting topic. But the size of the article is limited. We could also talk about the practical features of monopolies in various 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 topic. As the saying goes, whoever seeks will find.

Evgeny Malyar

# business vocabulary

Examples of natural monopolies in Russia

Transportation of oil and gas, Russian Railways, housing and communal services, airports, railway stations - these are some of the many examples of natural monopolies in the Russian Federation

Article navigation

• Monopoly as a form of market dominance
• Classic ways of monopolistic market capture
• What is the difference between a natural monopoly and an artificial one?
• Reasons for the emergence of natural monopoly and its role in the national economy
• The role of natural monopolies in the Russian economy
• Legal status of subjects of natural monopoly
• Pricing under natural monopoly
• State regulation of the activity of natural monopolies in Russia
• Who regulates natural monopolies
• Regulation of natural transport monopolies
• Liability of natural monopolies
• Bankruptcy of a natural monopoly

A monopoly is a market situation in which a certain commercial product is offered by only one business entity. The article will consider the natural form of this phenomenon.

Monopoly as a form of market dominance

The absence of competition is the cherished dream of any entrepreneur or head of an enterprise. Without rivals, it is possible to completely control the market and set maximum prices at which the consumer is forced to purchase products. The term "monopoly" is derived from two Greek words that together mean "trade alone".

Classic ways of monopolistic market capture

An enterprise can take a dominant position in several ways. Let's consider each of them.

Production of a new unique product, the analogues of which have not yet been mastered by competitors. This situation is almost always temporary. It is described by the concept of "open monopoly". The lack of competition is most often due to the technological gap, which rivals will try to overcome as soon as possible.

Achieve the highest production efficiency, allowing you to offer goods at extremely low prices. There are many examples of ousting competitors from the market by this method in history.

Pure monopoly is characterized by the presence on the market of a single supplier of a commercial product (goods or services).

Creation of conglomerates and concerns. Several large producers pool their financial resources and create a market condition in which they can dictate their terms to less powerful competitors. A typical technique for achieving this goal is considered to be the mastery of several large consumer sectors at the same time (for example, establishing control over the production of cars and rail transport).

Formation of cartels. Several monopolistic entities agree on a pricing policy among themselves. Government regulators in almost all countries are actively fighting this type of collusion that restricts free trade (in the US since 1890). The Russian Federation has antimonopoly legislation that effectively prohibits cartels (Article 178 of the Criminal Code of the Russian Federation).

Granting by the authorities of exclusive rights to individual business entities. Distinctive features of an administrative monopoly are the directed actions of the state to limit competition and subordination to budgetary structures (ministries, departments, central administrations, etc.).

Now, having understood the nature of the phenomenon, we can understand what a natural monopoly is.

What is the difference between a natural monopoly and an artificial one?

Competition is at the heart of the functioning of the free market, so the state protects it. However, there are a number of services and goods that have specific features. Their main feature is that they are of vital importance for the national economy. In most cases, the offer of similar products by one seller is justified and rational.

A natural monopoly is a market situation in which competition has a harmful effect on the country's macroeconomic indicators, is strategically dangerous or impossible for technological reasons.

Signs of a natural monopoly:

• Extremely high cost of entry into the business. The initial costs are so high that most often only the state is able to bear them.
• The fixed cost component is also too large.
• Inelastic demand for a product. A good or service is intended to meet a primary need for which the public will pay regardless of the price.
• Lack of alternative consumption of the product. In other words, there is nothing to replace the service or product.

Reasons for the emergence of natural monopoly and its role in the national economy

A natural monopoly occurs when at least one of the following three factors operates in the national economy:

• Unique technological features and special consumer properties. Under this condition, any monopoly (natural and artificial) is formed.
• Lack of alternative sources of raw materials for production.
• Barriers to market entry. The more difficult it is to form a monopoly, the stronger its position in the market.

The role of natural monopolies in the Russian economy

Natural monopolies exist in Russia, as in many other countries. In 2019, the list of industries that meet the above criteria includes a number of positions that are most important for the country's economy.

Types of natural monopolies in the Russian Federation:

• Transportation of oil and gas. Hydrocarbons occupy a significant share of exports, their role in the Russian economy is high, and delivery vehicles are very expensive.
• Railway transport. The only company that performs rail transportation in Russia is Russian Railways. He owns all the track facilities.
• Transport terminals. To imagine a private railway station or airport competing with another one standing nearby is a problem for people with a poor imagination.
• Transportation of electricity. Features of the functioning of the unified energy system do not allow dividing it between individual owners.
• Heat supply. The monopolization of this industry is justified by the same reasons.
• Water supply and utility networks. These branches of natural monopoly are socially critical. The price of housing and communal services is set in a special way, which raises the dilemma of its regulation (the choice between an efficient and fair level). The efforts of the authorities to control the activities of natural monopolies are aimed at preventing an increase in the rate of growth of tariffs that upset the balance of income and expenses of the population.
• Postal services. In the field of delivery of parcels, parcels and correspondence, the Federal State Unitary Enterprise Russian Post enjoys preferences from the federal authorities.

Legal status of subjects of natural monopoly

The subjects of natural monopoly include enterprises to which methods of state regulation are applied. All of them, without exception, are included in the register of the State Antimonopoly Service.

Information about entities holding a monopoly position is available on the official page FAS. For ease of searching, there is a division according to the field of activity into five groups (communications, water supply and sanitation, radioactive waste disposal, energy complex and transport).

The areas of activity and obligations of subjects of natural monopolies are established by Federal Law 147-FZ (“On Natural Monopolies”) dated August 17, 1995, as last amended, adopted on July 29, 2017. The same act clearly defines the participants in the monopoly market.

In addition to 147-FZ, the legal status of subjects of natural monopolies is regulated by other legislative acts of the Russian Federation: Federal Laws “On gas supply”, “On railway transport”, “On mail”, “On electric power industry” and “On state regulation of tariffs for heat and electricity”.

Pricing under natural monopoly

The main reason why the state struggles with the omnipotence of monopolies is the danger of price dictates. The possibility of such a situation taking into account the state regulation of the activities of natural monopolies. It is in solving this problem that the already mentioned dilemma arises between the interests of society and the only enterprise providing a product or service. Methods for solving this problem are divided into two main groups.

Methods of price regulation involve the direct establishment of the maximum value of tariffs (if the service market is considered) or prices (when the monopoly product enters the commodity market). In this case, binding to the average or marginal minimum costs is carried out.

The average cost of producing a product is also called the Ramsey price (this eminent economist studied pricing issues). If a monopoly company sells a product or service on it, then the company will make a profit, but a minimum one, limited by the difference between average and minimum costs.

When selling products at a price equal to the minimum costs of the manufacturer, losses are almost inevitable, and the operation of the enterprise loses economic sense. To maintain the required level of supply, the state is forced to introduce compensatory subsidies, in other words, to pay subsidies.

It should also be taken into account that the achievement of self-sufficiency of monopoly production is possible only if the sales volume curve crosses the cost curve for the production of a good or service and after this equilibrium point. Too high a price will lead to a decrease in sales and, as a result, a loss. The company initially sets the volume of output corresponding to a certain level of profitability.

In the case of a natural monopoly, this in most cases does not occur due to the lack of alternatives and the low elasticity of demand. Supply-demand matching does not work for critical goods. However, there are still negative consequences: in fact, the state does not cope with its functions to ensure the availability of services and products that are vital for the population.

An example is the situation with housing and communal services in some post-Soviet countries, where tariffs for natural gas and heat supply have reached critical levels. A side effect is a non-payment crisis, which only exacerbates the stagnation of the industry.

In addressing this issue, government regulators use the following methods:

1. Establishing different prices for the main categories of consumers. Industrial enterprises pay for energy carriers taking into account the rate of return, while the population covers only minimal costs.
2. Production by a natural monopoly of two or more types of products with compensation for losses from one of them at the expense of others.
3. Setting peak prices. Natural monopolies use this method if their product is characterized by chronological uneven demand. Its meaning is that the most active consumers pay the costs of expanding production capabilities. An example is increased tariffs for electricity if the subscriber spends more than the established monthly limit.
4. Setting prices based on the average consumer basket. In general, the method is tied to the level of inflation and ensures that the population spends on the purchase of a vital product within a certain percentage of statistical income.
5. Regulation on the marginal rate of profit. This means that a natural monopolist cannot earn more per unit of money invested. than the state allows.

The last described method is widely used in the United States, and it is in this country that its systemic flaws have been identified. In particular, we are talking about the "Averch-Johnson effect", that is, an artificial overestimation of the amount of costs due to unjustified inflation of the cost part of the budget.

In addition, monopolists resort to other tricks to get around restrictions: they use excessively capital-intensive equipment, purchase it at inflated prices, introduce special reliability standards (double-triple stock), and so on.

As a result of these costs, efficiency does not increase, but they often allow you to "launder" part of the money spent.

In addition to the described price methods, there are also methods of non-price regulation:

1. Mandatory certification and standardization of natural monopoly product. This measure forces the manufacturer to adhere to strict quality criteria.
2. Mandatory regular audits for possible violations of financial discipline.
3. Separation from a large company, which is a natural monopolist, of an independent structure specializing in this strategically important product.
4. Conducting separate accounting in the direction corresponding to the profile of natural monopoly activity.

State regulation of the activities of natural monopolies in Russia

In the Russian legal field, natural monopolies are required to be regulated by the state. The mechanism of functioning of federal bodies authorized to exercise control includes the directions described below.

Price regulation. This method has been described previously. In practice, it consists in setting limits on prices and tariffs. Reforming the housing and communal services system and other socially significant areas of consumption may lead to an imbalance between spending and the solvency of the population.

Non-price regulation implies the identification of consumer groups who, in any case, need to be provided with access to the products of natural monopolies in full or at least partial sufficient volume. At the same time, the real situation that has arisen in the market for goods and services should be taken into account.

The fundamental tasks and main problems of state regulation are to create conditions under which economic security, nature protection, protection of cultural values ​​and support for low-income citizens will be guaranteed.

In order to implement these tasks, the bodies regulating the activities of natural monopolies in Russia control:

• All transactions for the acquisition of assets not intended for production and sale, the value of which exceeds 10% of the equity capital of a natural monopoly enterprise.
• Investments of a natural monopoly enterprise in areas of activity that are not subject to state regulation in an amount exceeding 10% of the company's equity capital.
• Sale, leasing, renting and other types of alienation of property of natural monopolies used for regulated activities in favor of other persons in the amount of more than 10% of the company's equity.

The calculation base for the mentioned 10% is the amount of equity capital corresponding to the data of the last approved balance sheet.

Exceptions are made for enterprises that are natural monopolies, applying for such transactions if it is approved by the regulatory authorities of their activities. The grounds for refusal are the following:

• obvious public harm from the proposed transaction;
• incomplete amount of information provided about the circumstances of the transaction or the discovery of untruthful facts in it.

In turn, the subjects of state regulation are obliged on the basis of the legislation on natural monopolies:

• Conclude contracts for the supply or provision of services with consumers included in the preferential list, if there is a technical possibility to provide them.
• Provide the regulatory body with current financial statements and projects of its capital investments.
• Ensure that the manufactured product reaches the market without discrimination against consumers, as required by antitrust laws.

Who regulates natural monopolies

Natural monopoly as an object of state regulation is the sphere of control of federal and regional authorities.

At the national level, until July 21, 2015, there were two authorized organizations, but after the abolition of the Russian Federal Tariff Service (FTS), only one remained - the Federal Antimonopoly Service.

Almost every region has its own intersectoral council on the activities of natural monopolies (usually under the governors).

Regulation of natural transport monopolies

Under the transport monopoly in this aspect means economic activity in the field of operation of the railway with all its infrastructure, as well as sea and air ports and terminals. This sector of the economy is specific, since in some cases it is difficult to limit it to a regional framework.

Regulation of the activities of natural monopolies in transport is carried out taking into account the individual characteristics of the subjects. As a rule, large companies of this specialization belong to the state.

The efforts of the regulatory authorities are aimed at maintaining affordable tariffs for the population and at the same time observing the interests of investment financial structures. If the profitability of investments in the Russian transport industry is below the norm, no one will make them.

Liability of natural monopolies

Legal regulation of the activities of subjects of natural monopolies is carried out on the basis of 147-FZ. Depending on the article of the law, liability for violations may be borne in civil law or administrative procedure.

The civil law form of liability is applied in cases where natural monopolies cause damage to other economic entities. The decision to compensate for the loss has the right to be taken directly by the regulatory body on the basis of the decision of the arbitration court.

Administrative punishment may be expressed as a warning or a fine. They are applied only by the bodies regulating the activities of natural monopolies in the following cases:

• overstatement of established tariffs and prices - in the amount of up to 15 thousand minimum wages;
• failure to comply with the instructions or decisions of the regulatory body - up to 10 thousand minimum wages;
• submission of false information about the performance of a natural monopoly to the regulatory body - up to 1000 minimum wages;
• non-submission of documentation at the request of the regulatory authority - from 500 minimum wages.

In administrative order, for various violations, the head of an enterprise that occupies a natural monopoly position on the market can be fined personally in the amount of up to 50 minimum wages.

Bankruptcy of a natural monopoly

The features of bankruptcy of natural monopoly entities are described in Article 197 of Federal Law 127-FZ (“On Bankruptcy”) as amended in 2018. According to the provisions of this document, the subject of natural monopoly is recognized as insolvent on the basis of the following signs:

• Obligations to pay mandatory payments are overdue by more than six months.
• The amount of these overdue liabilities is RUB 1 million. or more.

Information on overdue obligations is documented on the basis of a writ of execution (FZ-197 "On Enforcement Proceedings").

In addition to directly interested persons, a representative of the federal regulatory body (FAS) may participate in the hearings on the bankruptcy case of a natural monopoly on the basis of Art. 198 of the law 127-FZ.

In the process of expropriation of the bankrupt's property and its sale, the buyer enters into a special agreement with the Federal Antimonopoly Service on the fulfillment of the conditions of the auction. If the buyer fails to comply with them, the transaction may be declared invalid at the suit of the Federal Antimonopoly Service.

Participation of representatives of the Federal Antimonopoly Service in bankruptcy hearings is possible (at the request of the court or at the request of an interested person), but is not mandatory.

The sale of the property of a bankrupt natural monopolist may be suspended for up to three months if there are reasonable proposals to restore its solvency.

The procedure for the resolution of proceedings on the bankruptcy of a subject of natural monopoly by law can be initiated if he filed a lawsuit against the authorities about the unjustifiably low prices set by them, which led to his insolvency. During the consideration of the application, the company enjoys the right to a moratorium on payments to creditors (bankruptcy privilege).

An industry is a natural monopoly if a single firm provides the market with a good or service at a lower cost than two or more competitors could. A natural monopoly arises when output above the required level is accompanied by economies of scale. The figure shows the average total cost of a firm with economies of scale. In this case, for any volume of output, the costs are minimal when the products are produced by a single firm. In other words, for any volume of output, an increase in the number of manufacturing firms leads to a decrease in the volume of output of each and to an increase in average total costs.

Rice. Economies of scale as the cause of monopoly. When a firm's average total cost curve is constantly decreasing, there is a so-called natural monopoly. In this case, if production is distributed among two or more firms, each firm produces less output, and average total cost increases. As a result, for any volume of output, costs are minimal when the producer is a single firm.

A prime example of natural- water supply of settlements. To provide water to the inhabitants of the city, the company must build a water supply network that covers all of its buildings. If two or more firms competed to offer a given service, each would have to bear the fixed costs of building its water pipeline. The average total cost of water supply is minimal when the entire market is served by a single firm.

Some products have the property of exclusivity, but are not the object of rivalry. An example is a bridge, the traffic on which is not particularly intense. The bridge has the property of exclusivity because the toll collector may not allow someone to use the service provided. However, the bridge is not an object of rivalry, since its use by the driver of one car does not reduce the possibilities of other motorists. Since in this case fixed costs for the construction of the bridge are inevitable, and the marginal cost of another trip across the river is negligible, the average total cost of a trip across the bridge (equal to the ratio of total costs to the number of trips) decreases with increasing number of trips. Therefore, the bridge is a natural monopoly.

If the firm is a natural monopolist, the chances of undermining its power by new competitors entering the market are minimal. Monopolies that do not have key production resources or are completely dependent on government decisions may feel insecure. Monopoly high profits attract new people who want to enter the market, and competition intensifies. On the contrary, the entry of a natural monopoly into the market is futile, since competitors are well aware that they will not be able to achieve the same low costs as those of a monopolist, because when a new company enters, the market share attributable to each of its subjects will decrease.

In some cases, one of the factors determining the emergence of a natural monopoly is the size of the market. Consider the bridge over the river again. When the population of nearby areas is small, the bridge can be a natural monopoly, as it fully satisfies the demand for low-cost travel across the river. However, as the population grows, the load on the crossing increases and to fully meet the demand, it is likely that one or more bridges will need to be built across the same river. Thus, with the expansion of the market, a natural monopoly can develop into a competitive market.

A monopoly in the economy is an industry in which, for some reason, there is no competition. It may be limited by law through a legal act or a patent, competition may be absent in a new industry with only one manufacturer.

The concept and spheres of existence of natural monopoly

Types of Monopolies: Schematically Speaking in the language of economic science, a natural monopoly is a state of the market when its maximum efficiency is possible only in the complete absence of competition. Goods that are produced in these industries cannot be replaced by any analogues, and the demand for them is maximally inelastic. Even if the price of products of natural monopolies is significantly increased, demand will remain the same, and buyers will start saving on the purchase of goods from other groups. A natural monopoly in an industry is possible only if the costs of producing goods and services by one firm are lower than if two organizations were involved in this business. If the number of producers increases, the volume of production for each of them will become less, and the costs will only increase. In Russia, as in other countries, today there are several industries in which a situation of natural monopoly has formed: Transportation of oil and oil products, as well as natural gas through main pipelines. The operation of such a transport network will be as efficient and profitable as possible if only one company is involved in this. Rail transportation. An example of a natural monopoly in Russia is the Russian Railways company - this is the only enterprise engaged in rail transportation, it also owns the entire transport network throughout Russia. Electricity and heat energy transportation services. Similarly, in this industry, no organization can become a serious competitor to monopolists. Operation of transport terminals: airports, sea and river ports, etc. Water supply services for cities, ensuring the operation of utility networks. The appointment of payment for utilities is under the constant control of the state, tariffs are formed taking into account a number of factors. At the same time, the end consumer has no alternative, he has to pay for water supply, sewerage, heat supply and other services at prescribed rates, and he cannot switch to another supplier. Postal communication. In Russia, the FSUE Russian Post is a natural monopoly in the postal service and mail forwarding industry. Although there are several regional operators operating in the country, their share in the total number of services provided has been less than 1% for more than 10 years, and no changes are expected in the near future. All industries listed are exclusive and not subject to antitrust laws. This is due to the fact that they are designed to protect the industry from low-quality competition, and in all cases their activities are regulated and controlled by the state. MAIN SIGNS OF MONOPOLY IN THE ECONOMY

Any monopoly in the economy has a number of specific features that distinguish it from all types of competition and explain its special position in the market. Monopoly can be natural or artificial, but in any case it must meet several special criteria:

The existence of only one company supplying goods or services to the market. This company can be formed with large investments of capital over a long period of time, such as, for example, the railway network in Russia. Naturally, no new organization will be able to invest as much to become stronger than a monopolist and quickly cover all costs. The product or service is so specific that there are no analogues for it. The consumer can only agree to the conditions set by the monopolist or even refuse the good he offers. The monopolist has the ability to set its own price. In a competitive environment, the price is formed by matching supply and demand, so it changes quickly. A monopoly company can dictate its terms at any time; in natural monopolies, the state plays an important role in pricing. The monopolist himself controls the entire volume of services or goods provided in this industry. That is, he forms not only the price, but also the offer, adjusting their ratio at his own discretion.

REASONS FOR THE FORMATION OF ARTIFICIAL AND NATURAL MONOPOLY

Such a form of industry organization as a monopoly has existed for a very long time, the term itself appeared in ancient times. The very first organizations arose as a result of the combined efforts of several manufacturers who captured the entire market and could independently set prices at their discretion. Almost all civilized countries today have antimonopoly laws that regulate the situation on the market and prevent the capture of an entire industry by one company. However, it is necessary to distinguish between an artificial monopoly, which is the result of an agreement between manufacturers and a combination of companies, and a natural one, arising for objective reasons. Not only will it not hinder the development of the economy, but it is also a more profitable and efficient form of existence for it. A natural monopoly situation is formed for several reasons: One firm produces a product or service at a lower average cost due to increased production volumes. This allows you to reduce the price of the final product, and for the end user, this situation is much more profitable. An example is the city subway system or railways: if two carriers operate in the same direction, the income of each of them will be half as much, and because of this, the fare will have to be doubled. The difficulty of entering the market of a new enterprise with a similar offer. For example, in order to introduce one more enterprise dealing with the water supply of the city, it will be necessary to lay an additional water supply network. This is not only extremely costly, but also useless, since the profit received, even in the distant future, will not pay off the investment. Limited market demand. The product of some suppliers is so specific that more than one manufacturer is enough for it. If there are more of them, the total profit will remain the same. An example is the production of military equipment or nuclear icebreakers: the demand for such products is completely dependent on the state, and in this industry a larger number of manufacturers simply will not survive. A natural monopoly is as stable as possible: if an artificial monopoly association can eventually break up into several competing firms, then the natural monopoly industry will remain unchanged for a very long time. A turning point in its work can only occur when new technological solutions appear or a sharp change in market demand.

A monopoly in the economy is an industry in which, for some reason, there is no competition. It may be limited by law through a legal act or a patent, competition may be absent in a new industry with only one manufacturer.

However, there is a very special kind: a natural monopoly is an industry that needs the maximum number of consumers and that uses unique natural resources. If a conventional monopoly limits the creation of a free market, then a natural one is the most profitable option for the existence of this industry.

Types of monopolies: schematically

Speaking in the language of economic science, a natural monopoly is a state of the market when its maximum efficiency is possible only in the absence of competition. which are produced in these industries, cannot be replaced by any analogues, and the demand for them is maximally inelastic.

Even if the price of products of natural monopolies is significantly increased, demand will remain the same, and buyers will start saving on the purchase of goods from other groups. A natural monopoly in an industry is possible only if the costs of producing goods by one firm are lower than if two organizations were involved in this business. If the number of producers increases, the volume of production for each of them will become less, and the costs will only increase.

In Russia, as in other countries, today there are several industries in which a situation of natural monopoly has formed:

• Transportation of oil and oil products, as well as natural gas through main pipelines. The operation of such a transport network will be as efficient and profitable as possible if only one company is involved in this.
• Rail transportation. An example of a natural monopoly in Russia is the Russian Railways company - this is the only enterprise engaged in rail transportation, it also owns the entire transport network throughout Russia.
• Electricity and heat energy transportation services. Similarly, in this industry, no organization can become a serious competitor to monopolists.
• Operation of transport terminals: airports, sea and river ports, etc.
• Services of water supply of cities, maintenance of work of municipal networks. The appointment of payment for utilities is under the constant control of the state, tariffs are formed taking into account a number of factors. At the same time, the end consumer has no alternative, he has to pay for water supply, sewerage, heat supply and other services at prescribed rates, and he cannot switch to another supplier.
• . In Russia, the FSUE Russian Post is a natural monopoly in the postal service and mail forwarding industry. Although there are several regional operators operating in the country, their share in the total number of services provided has been less than 1% for more than 10 years, and no changes are expected in the near future.

All industries listed are exclusive and not subject to antitrust laws. This is due to the fact that they are designed to protect the industry from low-quality competition, and in all cases their activities are regulated and controlled by the state.

The main features of a monopoly in the economy

Natural monopoly goods are indispensable

Any monopoly in the economy has a number of specific features that distinguish it from all types of competition and explain its special position in the market. Monopoly can be natural or artificial, but in any case it must meet several special criteria:

• The existence of only one company supplying goods or services to the market. This company can be formed with large investments of capital over a long period of time, such as, for example, the railway network in Russia. Naturally, no new organization will be able to invest as much to become stronger than a monopolist and quickly cover all costs.
• The product or service is so specific that there are no analogues for it. The consumer can only agree to the conditions set by the monopolist or even refuse the good he offers. The monopolist has the ability to set its own price.
• In a competitive environment, the price is formed by matching supply and demand, so it changes quickly. A monopoly company can dictate its terms at any time; in natural monopolies, the state plays an important role in pricing. The monopolist himself controls the entire volume of services or goods provided in this industry. That is, he forms not only the price, but also the offer, adjusting their ratio at his own discretion.

Reasons for the formation of artificial and natural monopoly

The concept of natural monopoly appeared in ancient times.

Such a form of industry organization as a monopoly has existed for a very long time, the term itself appeared in ancient times. The very first organizations arose as a result of the combined efforts of several manufacturers who captured the entire market and could independently set prices at their discretion.

Almost all civilized countries today have antimonopoly laws that regulate the situation on the market and prevent the capture of an entire industry by one company. However, it is necessary to distinguish between an artificial monopoly, which is the result of an agreement between manufacturers and a combination of companies, and a natural one, arising for objective reasons.

Not only will it not hinder the development of the economy, but it is also a more profitable and efficient form of existence for it. The situation of natural monopoly is formed for several reasons:

• One firm produces a product or service at a lower average cost due to increased output. This allows you to reduce the price of the final product, and for the end user, this situation is much more profitable. An example is the city subway system or railways: if two carriers operate in the same direction, the income of each of them will be half as much, and because of this, the fare will have to be doubled.
• The difficulty of entering the market of a new enterprise with a similar offer. For example, in order to introduce one more enterprise dealing with the water supply of the city, it will be necessary to lay an additional water supply network. This is not only extremely costly, but also useless, since the profit received, even in the distant future, will not pay off the investment.
• Limited market demand. The product of some suppliers is so specific that more than one manufacturer is enough for it. If there are more of them, the total profit will remain the same. An example is the production of military equipment or nuclear icebreakers: the demand for such products is completely dependent on the state, and in this industry a larger number of manufacturers simply will not survive.
• A natural monopoly is as stable as possible: if an artificial monopoly association can eventually break up into several competing firms, then the natural monopoly industry will remain unchanged for a very long time. A turning point in its work can only occur when new technological solutions appear or a sharp change in market demand.

An example of how a natural monopoly works

Natural monopoly is protected by the state

Consider the principle of operation of the Russian Railways company, one of the largest monopoly organizations in Russia. Today it is the only seller that provides the possibility of transporting goods and passengers by rail.

Even if another company acquires its own locomotives, it will be forced to use the existing transport network and coordinate its every action with Russian Railways.

The organization itself includes numerous subsidiaries, making it completely independent. These are their own design institutes, repair plants, trade organizations and much more, which should ensure the life of a giant company. Due to the sheer scale of competition in this industry, there is not and is not expected.

At the same time, the uniqueness of the services offered today remains controversial, since in addition to the railway one can use road, air and water transport. However, rail transportation is the most reliable and safest, in addition, it makes it possible to transport large consignments, which means that they also do not have a full-fledged alternative. Other companies are closed to this market due to the huge costs of building their own transport network.

The position of monopoly is protected by the state, which is the sole shareholder of the company and fully controls its management.

The Russian Railways organization independently forms prices, and they are little dependent on fluctuations in demand. Based on all these signs, it can be confidently stated that the Russian Railways company is a natural monopoly in its field, and at the moment this is the most profitable option for the consumer in this industry.

A natural monopoly is a position in the market that does not hinder the development of an industry, but, on the contrary, makes it more profitable and efficient. The existence of such monopolies depends on a number of factors, and their appearance is due to natural objective reasons.

Natural monopolies: nationalization cannot be privatized - the topic of the video: