The Theory of Monopoly - Essay Example

Abstract The purpose of the work is to analyze the main economic theories, among which the theory of monopoly takes important place, with defining the role of monopolies and competition in the modern conditions. There should be evaluated the present market situation with the application of the monopoly theories of economics. The theory of monopoly Market conditions in the 20th century, especially in its second half, have drastically changed. However, in market theories these changes have not for long received adequate reflection. Thus, at the beginning of the 30s, the unique revolution in relation to economic theory has taken place – the revolution, which finished the age of the perfect competition dogma. Professor of Cambridge University Joan Robinson (1933) made a report with decisive critics of the newly conservative competition conception. In her work ‘Economic theory of imperfect competition’ she claimed, that the research of various objective laws of the economic theory was usually started with the consideration of the perfect competition’ conditions, treating monopoly as the corresponding peculiar case, while it was more correct to start any similar research with the monopoly consideration, treating the perfect competition’ conditions as a special case. (Mandler, 2002) In the modern market conditions there is no special classification of monopolies, though in the most general sense they may be divided into the four main classes. The first class is the simple monopoly for these or those products; it can be private or state. The second class is the natural monopoly, when competition is impossible for technical reasons, for example, in the case with railroads, when it is not profitable for the second company to create parallel railways, or with underground, when another company would not build another tunnel next to the already existing one. The third class can be called the network monopoly, when Microsoft creates such programs as Microsoft Word and Microsoft Excel, and people use them voluntarily, and very actively. In such case it is rather difficult for the competitor to enter the market, because everyone is already used to work with one program; this is, so to say, voluntary, accepted by the buyer, monopoly, and there is also the acting consumers’ network. The fourth type of monopoly is, probably, the most important. It is the monopoly on ideas, that is, on the intellectual products; when this or that discovery is made, it is necessary to compensate the expenses and to have the patent, because otherwise the owner of the idea would not be able to compensate his expenses and to continue his experiments, thus temporary (at times, very durable) monopoly is created for the idea, which is the basis of the product. Antimonopoly laws in the USA have appeared at the end of the 19th century and have brought huge benefits, as they fostered competition, and competition in its turn favors not only the low prices of products, but also stimulates the manufacturer to decrease his expenses; to decrease the expenses he is obliged to carry out technological and technical innovations, - that is why the division of the usual monopolies led to the technical progress. After the World War II several large monopolies in Germany have been divided – the best example is in the chemical giant ‘IG-Farben’, which has been divided into several parts, now represented by the chemical companies ‘BASF’, ‘Bayer’ and ‘Hoechst’. However, in general, such division in Europe was not usual. On the contrary, the process of statism, as it has happened with Renault Company in France, with their simultaneous enlargement, was widely spread in the European countries. European markets are formed according to the oligopoly principle, - automobile market is the bright example of such situation – several large companies constantly compete with each other; the same situation is in the sphere of pharmaceuticals and chemical products. There are several features, which are peculiar to the development of monopolies and competition at present time. The first tendency is the growing monopolization of the market; the scientific and technical revolution has caused the transition to the higher level of business enlargement (the uniting of organizations into various business complexes). The production centralization has led to the formation of powerful natural monopolies, covering the national economic space (long-haul pipelines for transporting oil and gas, the lines for transmitting electrical and heat energy, etc.). The monopolistic by nature state (public) sector has appeared in macroeconomics. The second tendency is the sharpening of competition. The scientific and technical revolution has unusually increased the speed of improvement of production technical basis. In connection with this, the competition has drastically increased, especially in the area of implementing the newest achievements of technique and technology. Such competition has become literally global, scoping all countries with open economy. Thus, at the beginning of 21st century paradoxical situation took place – two opposite types of business interrelation simultaneously strengthened their position on the market. The question is: to what consequences does the collision of the two abovementioned tendencies lead? First of all, the economic role of many monopolies is changed in its roots. For the beginning of the 20th century it has been usual for the monopolies to stop the application of the scientific and technical novelties not to allow market prices decreasing, but now large business unions become legal monopolies, using their right for renewing the technologies during the term of their patent validity. Second, the scientific and technical achievements’ implementation needs huge material expenses; as a rule, small enterprises are not able to perform such expenses, typical for the free competition. In distinction from such situation, monopolies, using high incomes, may achieve leading positions in their branches, thus strengthening these positions at the market. Third, the participation of the large business unions in the global competition has acquired important meaning in the recent years, which is aimed at conquering the world market space. State authorities in many countries provide national monopolies with assistance in assimilation of the newest scientific and technical achievements, in the teaching of engineer and scientific personnel, as well as providing them with other economic advantages. (Mandler, 2002) On the one hand, the monopoly on products leads to bad results and competition here leads to technical progress. On the other hand, monopoly on intellectual products, invested into physical products, also leads to the technical progress. That is, there are the two absolutely different things – products and ideas, and the approach to them is also different. Principally, states are not interested in keeping private monopolies; these are the private monopolies themselves which through lobbing or other political means strive for keeping their privileged monopolistic position. In such cases the state is ready to divide such monopolies but does not have enough power for that. The correct question in relation to the current conditions will be – are there any monopolies which are doomed, and are there any others, which are inevitable? The best example here is the telecommunications sector, which has for long been supposed to be the natural monopoly, but several years ago this branch has been privatized and there are new competing market participants in many of its sectors, so there is almost nothing remained from the definition of the ‘natural’ monopoly. On the other hand, in several branches – energetic, for example, - natural monopolies still take place, however, even in these natural monopolies there are serious changes, though many of them will still remain natural for many years with the active participation of the state. At the summarizing and concluding the process of competition and monopolies development at the end of the 20th – the beginning of the 21st, the modern panorama of the economic relations appears, including the following elements: comparatively small remains of the free competition; sharp opposition of monopolies and outsiders (independent small and medium businesses); competition between large monopolies at national and world markets; monopolistic competition and competition between the oligopoly participants; state limitations of monopolistic activity and the defense of competition in its civilized forms. (Mandler, 2002) It is necessary to point out, that western countries don't possess extreme market states: no free competition and no pure unlimited monopoly, covering the whole national economy. However, states often voluntarily keep monopoly on this or that product, which is usually done in fiscal aims. As soon as more effective or new taxation system is created, these monopolies will also leave the market. The question of state monopoly on postal services is now being discussed in details – this monopoly was important at the times when the money has been transported through post and there was always a threat of losing this money through robberies; as far as the money now is transferred through Internet and other wireless means, state monopoly on post has lost its sense. As for the intellectual monopolies (copyrights and patents), it is the necessary process and these monopolies have existed since the 17-18th centuries in England. Intellectual ownership rights have now expanded and create temporary monopoly, causing progress. The most vivid conclusion is that the present market age is characterized by the unusual synthesis of competition and monopoly; it is clear that monopolies would not leave the market so easily, leaving free space for the competitive market conditions. However, the modern market would never be characterized by perfect conditions of this or that monopoly type, as it is described in textbooks on Micro- and Macroeconomics. It should be remembered that any market state or position is a mix of several market types, and starting from this point, all traits of such market should be taken into account, with possible consequences of their interaction. Simultaneously, it may be predicted, that in the light of this peculiar union of monopolies and competition a new form of the market may appear in the nearest time, which will create absolutely new conditions for the existing businesses all over the world. Works cited Mandler, Michael. (2002) Dilemmas in economic theory. Oxford: Oxford University Press. Read More