What is monopolization and how does it affect the economy?

In the economy there is a sufficiently large number of different processes that affect its development and current. One of them is monopolization. This phenomenon has both positive and negative features, and must be controlled and regulated in order to avoid significant negative consequences. So what is monopolization, what is its essence and what is the impact?

Definition of concept

To understand the question "what is monopolization", it is necessary to understand that the market of perfect competition is characterized by the homogeneity of the products offered, a large number of producers, freedom of trade and information. This situation is theoretically ideal and is taken as a model, but in reality it does not occur. Its complete opposite is the establishment of a monopoly. That is, the market (or its separate direction) is occupied by one or several large companies that establish a pricing policy, regulate production volumes, etc. This is the process of monopolization. It covers, as a rule, one branch of the economy. For example, in the post-Soviet countries almost everywhere there is a monopoly in the housing and communal services. Monopolization of the industry in this case is characterized by the fact that only one company provides services to provide electricity to the population and enterprises, gas - the second, water - the third, etc. The consumer has no choice of supplier, no competition for prices, etc.

Negative facts

The problems of monopolization of the market follow directly from the definition of the concept itself. These include the following:

• Low level or complete absence of competition hinders the development process, significantly reduces the need for improvement and modernization of products.
• A monopolist can independently set the price for his goods regardless of the capabilities of the consumer, which violates the price equilibrium.
• The difficulty of entering the market for new enterprises with similar products.

Positive sides

What is monopolization in terms of influence on the economy? It can not be said that this process has an exceptionally negative influence, since there are several arguments in its favor. For example:

• A large producer (or a combination of several) has enough broad financial and technical capabilities to conduct research, develop and introduce new technologies to reduce production costs.
• Companies-monopolists due to their scale are more resistant to the conjuncture fluctuations of the industry or the whole market, to financial and economic crises, etc.

Effects

In the presence of monopolization, there are usually pure losses of society. This is expressed in the fact that manufacturers can almost unlimitedly raise prices for goods and services regardless of cost changes, and the consumer is forced to purchase them on established terms. Since the incomes of the buyer do not increase, the volume of the purchased products also decreases, which means that the productivity level of the whole industry also falls. Despite the fact that the monopolist receives unreasonably high profits, the whole society loses from this process. In addition, the consequences follow from the negative sides listed above.

How to recognize?

What is monopolization from a practical point of view? In different countries and industries, the importance by which the level of competition is determined is significantly different. Theoretically it is considered that if one third of the industry occupies the products of one manufacturer, half - three companies (producers or service providers), and five cover more than 60%, then there is a low level of competition. A monopolized market is recognized if the total number of enterprises is not more than ten. For the calculation, the Harfindel-Hirschman index is usually used, based on the total number of firms and their shares in the industry as a percentage. The task of determining the level of monopolization and the degree of competition usually falls on the state, since this process significantly affects the economy and development of not only a single industry, but the whole country as a whole, and as a result, at the level of life of the population.

Intervention by the state

The presence and level of monopolization in the country's economy is regulated at the legislative level. Economic measures used to maintain competition, prevent monopoly and its negative impact include:

• Support, financing or provision of benefits to producers of substitute goods, scarce products, etc.
• Involvement of investments in monopolized industries, including foreign ones, as well as assistance in their entering the market
• Initiation and funding of research activities for the development of an industry with a low level of competition.

Administrative state measures assume:

• Control of the creation, mergers, acquisitions, etc. of manufacturing companies.
• Forced demonopolization (separation, fragmentation).
• Penalties, administrative and criminal liability for attempts to monopolize the industry.

The most complex and elaborate control system is considered to be introduced in the United States. However, in recent years Russia has also taken up the issue of monopolizing markets, including the Law on Competition, and a special committee has been set up to work in this direction.