In the economies of many modern states, including Russia, a significant share of GDP falls on natural monopolies. As a rule, these include the largest enterprises in terms of turnover, infrastructure, financial capabilities, and advanced enterprises in terms of technology. The activities of relevant business entities plays a crucial role in the development of the national economy of the country, and this is due to regular government intervention in legal relations with their participation. How are natural monopolies formed? How do they interact with government agencies?
What is the essence of the subjects of natural monopolies?
By a monopoly it is customary to understand the state of the market for goods or services in which one or another business entity has the opportunity to conduct business in the most comfortable conditions - from the point of view of pricing, access to suppliers, markets, personnel, technologies. Modern economists classify monopolies into 3 main varieties: closed, natural, open. We are interested in the specifics of the monopoly of the second type.
It is understood as the state of the market in which an enterprise, for reasons not directly dependent on it and often not having a market nature, has a predominant position in the market and all the resources in order to become a leader in its segment. Thus, the subjects of natural monopolies are enterprises that, due to reasons beyond their control, are leaders in the market, and therefore can set their own prices, use the opportunities to search for profitable suppliers, and distribution channels for goods.
The natural monopoly is practically protected from competition. This circumstance can affect the prospects for business development both positively and negatively. The positive aspect of low competition is the possibility, first of all, of long-term business planning. An enterprise that is confident that it will conduct business with high turnover, with a stable profit, can successfully invest in the modernization of funds, attract investors, creditors.
At the same time, the subjects of natural monopolies are enterprises that, due to competition, may not always pay much attention to the quality of manufactured goods, as well as the level of their manufacturability. It may well be that a company operating in a certain national market without competition will lose significantly in the pace of modernization of the production of a company that operates in another country in a highly competitive environment. As a result, as soon as the national market is mastered, it will be very difficult for the company to get accustomed abroad.
Monopolies that initially have no competitors can prevent them from appearing in the future - by limiting price cuts or, for example, loading the production capacities of suppliers - so that they cannot satisfy the orders of third-party firms even if there is demand. Therefore, the state, realizing the positive and negative sides of the market situation, in which certain enterprises receive advantages in their segment, regulates the activities of natural monopolies. For this, the authorities issue special legal acts.
For what areas is the appearance of natural monopolies characteristic?
The subjects of natural monopolies are enterprises that most often acquire appropriate status in such areas of the economy as:
- rail transportation;
- commodity sector;
- electric energy production;
- Atomic industry;
- Defense industry;
- aircraft industry.
The emergence of natural monopolies in the relevant segments of the economy is due to the limited access of third-party enterprises to the necessary technologies, a very high threshold for entering the market, stringent requirements for financial indicators, technological equipment, and qualifications of employees of organizations applying for work in these sectors of the economy.
Many natural monopoly entities in the Russian Federation are the successors of Soviet enterprises that were formed in a non-market economy: the establishment of similar firms in the modern market environment would be extremely difficult due to the need for huge investments in production, logistics infrastructure, and training.
In Russia, in practice, the largest joint-stock companies are most often the subjects of a natural monopoly. But theoretically, they can be individual entrepreneurs, sometimes even non-profit organizations. Often the formation of a monopoly position of foreign companies. This may be due, again, to a technological factor, financial - due to the presence of a foreign enterprise with great investment opportunities and resources for obtaining loans, which are necessary for business development.
We noted above that the state regulates the activities of firms with the status of natural monopolies. We will study this aspect in more detail.
Regulation of firms in the status of natural monopolies
The control of subjects of natural monopolies in Russia is carried out by 2 main government agencies - the Federal Tariff Service, as well as the Federal Antimonopoly Service.
The FTS performs such functions as:
- setting prices or tariffs in certain market segments;
- control over legal relations related to the determination and application of prices or tariffs by natural monopolies.
FAS performs such functions as:
- development of normative acts regulating the activities of natural monopolies;
- control and supervision in the field of compliance by enterprises with antitrust provisions;
- assistance in the formation of competitive conditions for the activities of commercial enterprises.
It can be noted that the FTS and the FAS report directly to the Government of the Russian Federation. Both departments regularly report to the supreme executive authority on performance results.
It can also be noted that the competence of one regulator may include participation in legal relations in several areas of activity of enterprises classified as natural monopolies. But the general areas of activity of all bodies that exercise control over legal relations with the participation of business entities in question include:
- formation of registers of enterprises with a monopoly position in the market;
- determination of methods of legal regulation of firms in various segments;
- monitoring compliance with antitrust laws;
- implementation of legislative initiative;
- interaction with natural monopolies on various issues.
Monopoly Registers
There is an official source that records the necessary information about the enterprises of this category - a register of natural monopolies. Authorities competent in exercising control over the activities of the respective companies may include firms in the corresponding register or exclude them from it. Only those firms that are present in it can be subject to state regulation.
The law on the subjects of natural monopolies defines a number of methods that government agencies are required to apply when solving problems associated with the development of enterprises with an appropriate status. We will study this aspect in more detail.
Monopoly regulation methods
The authorities are entitled to apply the following basic methods of regulating the activities of businesses in the status of natural monopolies:
- price regulation;
- subsidizing;
- definition of target groups of consumers.
Let's consider their essence in more detail.
Price Regulation of Natural Monopolies
As we noted above, the subjects of natural monopolies are businesses that, due to the lack of clear competition, can set prices that are comfortable for themselves. However, the state may intervene in the process of determining them. This direction of regulation of the activity of monopolies has a nuance: if we are talking about price formation in a market economy, then the state in the general case is not entitled to directly intervene in pricing in certain sectors of the economy.
But the competent authorities are able to establish certain requirements for the financial characteristics of transactions, if this is expressly provided for by law. Those areas in which natural monopolies are developing, for example, railway transportation, the legislator can classify as those that are subject to regulation in the aspect of prices. How can the state realize this privilege?
Price regulation in the legal relations of the company, which are included in the register of subjects of natural monopolies, can be carried out by:
- establishing the specific cost of certain goods or services;
- approving price caps;
- establishing acceptable indicators of cost volatility of goods or services sold by a monopoly entity.
At the same time, competent government agencies can apply methods such as:
- determination of marginal costs;
- calculating average costs.
In the first case, the state sends the company in monopoly status the requirement that the prices of goods correlate with the marginal costs of the enterprise. In the second case, the firm’s profit that exceeds the established norms is subject to withdrawal by the state.
Monopoly subsidies
The next way to regulate business in the format of natural monopolies is through subsidies. Its specificity lies in the fact that some of the consumers of goods or services produced by the natural monopoly may receive it at more favorable prices. So, many industrial firms are obliged to supply the population with a certain resource - for example, those producing thermal energy - at prices lower than cost.
Identification of target consumer groups
The state in the process of regulating the activities of firms included in the official list of subjects of natural monopolies can apply the method under consideration if there is a question of the need to obtain certain goods and services by certain categories of consumers. In this case, we are talking about protecting the interests of certain categories of citizens.
Regulatory competencies
It will be useful to consider what competencies are actually vested in government agencies that regulate firms that have the status of natural monopolies. They can be divided into 2 varieties.
Firstly, these are competencies related to the interaction of the state body regulating monopolies with other government agencies on various issues.
So, for example, the relevant departments are endowed with legislative initiative and can send proposals on improving the legal regulation of their own activities to the Government of the Russian Federation.
Secondly, these are competencies related to the interaction of regulatory bodies and firms that have the status of natural monopolies.
So, relevant government agencies can:
- send companies instructions on the need to bring work in line with antitrust provisions;
- Fine companies for business misconduct;
- hold organizations accountable under administrative law;
- file lawsuits against monopoly businesses that violate antitrust laws.
