Pure monopoly: types and features

The word "monopoly" comes from two words of the Greek language. One of them is monos, which means "one", and the second - poleo - "sell."

The concept of pure or absolute monopoly is considered by economic science. In this discipline, this term refers to the market in which a certain product is offered by only one company, and due to the lack of substitutes for the product it sells, it directly affects its price.

In the real economic conditions of any country, it is impossible to find a pure monopoly. However, this concept in various combinations takes place in all market models. The same can be said of pure competition. It is also typical of market models. Economists distinguish four of their main types. Among them are pure monopoly and pure competition, oligopoly and monopolistic competition. Let us dwell on them in more detail. First of all, consider a pure monopoly. We also pay attention to its connection with other types of market structures.

The knowledge that there is a market for pure competition, pure monopoly, monopolistic competition and oligopoly will allow entrepreneurs to properly build their economic policies, successfully adapting to a specific situation. Indeed, depending on the market model, the same actions can lead to different results.

The main features of pure monopoly

This concept is the most striking manifestation of an imperfect type of competition. Moreover, this term refers not only to the market, but also to the company, which is the only one in the industry. The features of pure monopoly are manifested under conditions that are worth considering in more detail. Among them:

1. The presence on the market of only one manufacturer or seller. In this case, the terms “industry” and “company” are synonymous. The fact is that the entire volume of the product offered by a certain area of ​​the economy is produced by only one company. Pure monopoly sometimes has a geographical dimension. So, in a small village only one company can work, which provides the population with a particular service, for example, a notary's office.
2. The goods produced by the enterprise have no analogues or substitutes close in their characteristics. This forces the buyer to purchase the proposed product from only one company or to do without it at all. Based on the previous example, a consumer who wants to make notarization of documents will need to go to another city. However, this option is unacceptable to him, as it will require large costs.
3. The price is set by the monopoly company at its sole discretion in connection with full control of the entire volume of goods available on the market. According to this trait, pure monopoly is fundamentally different from a system of perfect competition. Here, a single company is not capable of influencing the cost of a product, assuming its already established level. Based on the fact that the demand for goods offered by the monopolist coincides with the demand for the industry, the company has the opportunity to raise or lower prices based solely on changes in the quantity of goods.
4. There are barriers to entry of new firms into the industry. The monopolist is able to act on the market without restrictions due to restrictions of a natural, technical, legal and economic nature. They do not give the opportunity to enter the market to other firms in order to engage in the same type of production.
5. Examples of pure monopoly clearly indicate that the only enterprise on the market does not have to engage in advertising. After all, it is already known to consumers and is necessary for them.

Currently, economists have several types of pure monopoly. Let's consider some of them in more detail.

Natural monopoly

This term refers to a company that has such a production model that, for certain reasons, is more effective than other market players. Natural monopolists are, for example, companies that have access to a cheap source of electricity or raw materials. In this case, they will produce products or offer their services at low cost. The result of such activities will be a product with a low cost, or the work will be carried out with great profit and with dynamic development.

An example of a pure natural monopoly are enterprises included in the public utilities system, engaged in gas, water, electricity and some others. As a rule, the state gives these firms the right to exclusive privileges. At the same time, the government constantly regulates the activities of such enterprises in order to prevent abuse on their part. Natural monopolies also include corporations with a dominant position in the industry.

Such enterprises in the Russian Federation include Gazprom, Inter RAO, Rosatom, Russian Railways, as well as Russian Post.

It is worth noting that recently, many countries have significantly reduced the scope and scope of state control of natural monopolies. This became possible due to the emergence of new approaches to regulation and the formation of relevant markets.

Administrative monopoly

Similar structures arise as a result of various actions of various state bodies. They represent, on the one hand, the endowment of individual firms with the exclusive right to conduct a certain type of activity. From a different point of view, such organizational structures are part of state-owned enterprises, uniting among themselves and subordinating to various heads, associations, ministries, etc. In such a monopoly, a grouping of firms within the same industry takes place. Together, they act on the market as one business entity. Thanks to this, there will be no competition between such enterprises.

The most monopolized economy in the world was the economy of the former USSR. Dominant positions in the country were occupied by omnipotent departments and ministries. In addition, there was also a pure state monopoly on the management of the economy and its organization.

Economic monopoly

This is the most common type of economic model of the market. The emergence of this type of monopoly is due to the laws of economic development. In this case, we are talking about those entrepreneurs who have won dominant market positions. Two ways can lead to this.

The first of them lies in the successful development of the company, as well as in a constant increase in its size due to the concentration of capital. The second direction is faster. It is based on a voluntary business combination or takeover of bankruptcy by the winners. Choosing one way or the other or both at once, the enterprise becomes dominant in the market.

Closed monopoly

A similar economic structure exists when the dominant position of the company is protected by legal rights or the state, which allows it to work in the absence of competitors. This type of monopoly is the most sustainable. However, in this case, the company is not able to receive high profits due to state restrictions on its prices and profit margins.

Open monopoly

A similar economic model occurs when the company dominates the market as a result of its own copyright achievements. They may be a new product, development in marketing, new technology, etc.

The characteristic of a pure monopoly of this kind is based on its temporary nature. The fact is that the benefits associated with the innovation can always be copied or surpassed by competitors. But it is precisely with an open monopoly that the company is able to fully realize the market power it has gained. This will allow you to get the maximum possible income.

International monopolies

These include a special type of economic market model. The emergence of international monopolies contributes to a high level of socialization of production.

An important role is played by the internationalization of the economic sphere. International monopolies are:

1. Transnational. They are national in their capital and international in scope. An example of this is the Standard Oil of New Jersey concern (USA). It has enterprises in almost 40 countries and foreign assets.
2. Actually international. Such companies disperse their share capital and have a multinational leadership of the group or trust. An example of this is the chemical-food Anglo-Dutch concern Unilever. The number of such monopolists is small, since the unification of capital of different countries causes great difficulties due to the different laws of the states.

Pure competition

From the Latin language the word concurentia came to us. Translated, it means competition or collision. If we consider the concept of "competition" from the perspective of economic science, then it represents a struggle between firms on the market for a profitable transaction.

Victory in such a competition allows them to get the maximum profit. Consider the main features of perfect competition. Among them:

1. A large number of firms that independently operate in the market. At the same time, they all work separately and fragmented.
2. The products offered by firms are standardized and uniform. Such a product does not have significant differences in the level of quality offered. Products sold by firms are similar to each other. In this case, the buyer does not care which seller to come for the purchase to.
3. Each company produces only a small part of the total product volume. This leads to little control over the price level. With their growth, the goods will not be sold, and with a decrease, the company's income will decrease.
4. There are no serious technological, financial, organizational or legal restrictions for entering a market in a particular industry or leaving it.
5. The predominant position is occupied by standardized products. This fact does not allow the development of non-price competition.

The market model described above exists in conditions of small farms, stock exchanges and foreign exchange sales.

As we can see from the above characteristics, the markets of pure competition and pure monopoly are clear antipodes to each other.

Oligopoly

We will consider this concept after studying pure competition and monopoly. Oligopoly is a market structure dominated by several large companies. This word, like the term "monopoly", consists of two words of Greek origin. The first of them is "oligo", which means "few" in translation, and the second - "poleo", that is, "sell".

Unlike pure competition and monopoly, oligopoly is such a market structure in which only a few sellers offer their products to many buyers. Moreover, there is no clear number of such firms in the oligopoly criteria. But in the economy, it is believed that there may be from 3 to 10.

Oligopoly is of several types. Among them:

• clean, in which companies produce a homogeneous product (mineral fertilizers, cement, steel products, etc.);
• with differentiated goods (cars, cigarettes, electrical household appliances).

Companies included in the oligopolistic model, as in the case of the market of pure monopoly, are able to earn high profits. Indeed, in this case too, the entry of outsider firms into the industry is hindered by the barriers that take place.

Unlike the pure monopoly market, oligopolistic enterprises are required to take certain actions based on the behavior of their competitors. The sales volumes of the offered goods will depend on this. As you can see, pure monopoly and oligopoly share some common features. At the same time, they have significant differences.

Monopolistic competition

This term means a market structure with the participation of a large number of firms producing the same type, but at the same time, differentiated goods (shoes, perfumes, jeans, etc.) competing with each other. Each of the sellers behaves in the same way as under the model of pure monopoly. He sets the price of his goods on his own. However, there are many sellers of similar things on the market, that is, buyers can find for themselves a large number of substitutes. This leads to limited control of the company over prices and to small sales. Unlike oligopoly and pure monopoly, monopolistic competition uses non-price methods to promote goods. Among them are advertising and assignment of trademarks, which will highlight the distinctive features of the proposed product for customers.

As for entering the market, where the model of monopolistic competition is applied, it is practically free. Indeed, in this case, in order to start a business, you do not need an impressive initial capital, and there are no special barriers to this for the entrepreneur.

In its external features, monopolistic competition is very similar to pure competition. However, in the first case, there is still a presence, albeit limited, but still of power over prices. At the same time, companies located in such a market offer customers a wide selection of a wide variety of products, satisfying almost all the needs of their customers.

Monopolization Factors

What will be the market model? Will it represent monopoly, pure competition, oligopoly or monopolistic competition? Everything will depend on the existence of barriers that are an obstacle to the entry of new companies into the industry. They are the factors of monopolization. Among them:

1. Economies of scale. There are some industries, such as the automotive industry, as well as the production of aluminum and steel, in which, based on existing technology, the minimum average costs can be obtained only in the long term, as well as with large volumes of production. If small firms try to enter such an industry, they will not be able to stay on the market, because they will not be able to realize the economies of scale. That is, to produce products with the same or lower average costs than the monopolist. Most likely, the industry can be considered effective if the entire volume of its products will be produced by only one enterprise. Only this will minimize costs.
2. Financial obstacles. To start production in some sectors, large investments are required. This is the main barrier for many firms.
3. Patents Legislative acts of many countries of the world for some period provide legal protection for a new invention. Large firms have the ability to finance their own development and research and development, or are able to acquire patents from other companies. All this allows them to strengthen their own market positions, crowd out competitors and become elements of a pure monopoly model. Examples of such firms are Xerox, General Motors, and Polaroid. They became monopolists thanks to the possession of patents.
4. Licenses A barrier to the entry of a company into the industry is also the issuance by the state of a special permit to engage in one or another activity. This leads to restrictions on the supply of goods and monopolization of the industry. An example of this is the production of veterinary and medical products.
5. Private ownership of rare and non-renewable natural resources. An example of this is companies engaged in the production of aluminum (Aluminum Company of America), diamonds (De Beers, South Africa), nickel (Inco, Canada). These firms avoided monopoly and pure perfect competition. They achieved a pure monopoly thanks to control over raw materials.
6. Dishonest competition. There have been cases in history when a company used illegal methods of struggle against rivals. This is the enticement of personnel, and the deprivation of raw materials, as well as sales, a boycott, etc. To date, such methods are prohibited by law.

So, among the objects of our attention was the market - pure competition, monopolistic competition and pure monopoly are often found there.