In the economy, there are a fairly large number of different processes that affect its development and course. One of them is monopolization. This phenomenon has both positive and negative features, and must be monitored and regulated in order to avoid significant negative consequences. So what is monopolization, what is its essence and what is its influence?
Definition of a 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 goods offered, a large number of manufacturers, free trade and information. This situation is theoretically ideal and is taken as a model, but in reality does not occur. Its complete opposite is the establishment of 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 usually covers one sector of the economy. For example, in the countries of the post-Soviet space almost everywhere there is a monopoly in housing and communal services. In this case, the monopolization of the industry is characterized by the fact that only one company provides gas supply services to the population and enterprises, gas - the second, water - the third, etc. The consumer does not have the opportunity to choose a supplier, there is no price competition, etc.
Negative facts
The problems of monopolization of the market directly follow from the definition of the concept itself. These include the following:
- Low level or complete lack of competition inhibits the development process, significantly reduces the need for improvement and modernization of products.
- The monopolist can independently set the price for his product, regardless of the consumer’s capabilities, which violates the price balance.
- Difficulty in entering the market of new enterprises with similar products.
Positive sides
What is monopolization in terms of impact on the economy? It cannot be said that this process has an extremely negative influence, since there are several arguments in its favor. For instance:
- A large manufacturer (or a combination of several) has sufficiently broad financial and technical capabilities for research, development and implementation of new technologies to reduce production costs.
- Monopoly companies, due to their scale, are more resistant to opportunistic fluctuations in the industry or the entire market, to financial and economic crises, etc.
Effects
In the presence of monopolization, net losses of society usually take place. This is expressed in the fact that manufacturers can almost infinitely increase prices for goods and services regardless of changes in costs, and the consumer is forced to purchase them on established conditions. Since the buyer’s income does not increase, the volume of purchased products decreases, which means that the level of productivity of the entire industry decreases. Despite the fact that the monopolist receives unreasonably high profits, the whole society as a whole 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 differs significantly. It is theoretically believed that if a third of the industry is occupied by products of one manufacturer, half by three companies (manufacturers or service providers), and five cover more than 60%, then there is a low level of competition. A market is recognized as monopolized if the total number of enterprises is no more than ten. For calculation, the Harfindel-Hirschman index is usually used, based on indicators of the total number of firms and their share in the industry in percentage terms. The task of determining the level of monopolization and the degree of competition usually lies with the state, since this process significantly affects the economy and the development of not only a single industry, but the whole country as a whole, as well as the result, on the standard of living of the population.
