In a situation of strong monopolization of the economy, the state is forced to exercise control over the activities of natural monopolies. Natural monopoly industries have high economic efficiency, which is main reason the need to regulate their activities.
State control consists of ownership of a controlling stake and special antimonopoly legislation that determines methods of regulation and control of natural monopoly industries and consumers subject to preferential or compulsory services.
State regulation is applied primarily in public sectors: communications, gas, electricity, and water supply. Enterprises that are subject to regulation are:
Most of their business consists of services aimed at a wide range of consumers;
Funding occurs using huge amounts of money;
Business development affects the improvement of public welfare and industrial development in a particular territory.
There are three ways to regulate natural monopolies:
1. Direct government regulation.
The essence of such regulation is determined, as a rule, by special legislative acts. For example, the Federal Law “On Natural Monopolies” of August 17, 1995. It defines industries that are classified as natural monopolies and the provisions for their regulation.
There are several problems with such regulation. Firstly, there is a need to create a body of state control over the activities of a natural monopoly. In this case, there is a danger that not public interests will be taken into account, but, first of all, the interests of the ruling groups. Secondly, it is difficult to accurately determine the production costs of the producer of goods in natural monopoly industries. And this is a necessary part of regulation.
2. Bidding for usability and effectiveness in different conditions.
This method of regulating a natural monopoly is associated with the use of the mechanism of economic organization. This is bidding for a franchise, that is, bidding for the right to conduct such activities. In this case, the shortcomings of not the economic, but the administrative system appear. With this method of regulation, a contract is concluded with the manufacturer who offers Better conditions.
3. Price discrimination.
This method is used both by natural monopolies themselves in order to increase net income, and by the entities regulating them in order to reduce the negative effect of the activities of monopolies. This is the sale of goods at different prices to different buyers. The main condition for price discrimination is the impossibility of reselling the good. Price discrimination is divided into three categories depending on the method of implementation:
1. First degree.
This is the sale of each unit of a good at the price of its demand. In this case, the demand curve for the monopolist becomes the marginal revenue curve. Discrimination of this degree is extremely rare.
2. Second degree.
The monopolist does not sell every unit of the good, but certain quantities of it at different prices.
3. Third degree.
Only if industry demand appears in the form of separate groups of consumers with different demand functions.
Natural monopolies very often use price discrimination in regulation.
According to the Law “On Natural Monopolies”, there are two methods for regulating natural monopolies:
1. Price regulation.
Its essence is to determine and establish fixed prices for goods and services, or their maximum level, or maximum coefficients for changes in prices for goods in natural monopoly industries. This procedure is fixed by special regulations.
There are several methods of price regulation:
· Marginal cost method.
The government ensures that the price set by the monopolist is equal to marginal cost. This ensures efficient production and consumption of products.
· Average cost method.
Price must be equal to average cost. With this method, fewer goods may be produced than needed for an efficient economy as a whole. On the other hand, the monopolist knows in advance that all his expenses will be compensated, that is, there is no need to minimize costs.
· Price Ceiling Method.
This method usually results in product shortages.
· Subsidizing natural monopolies.
This is a method of price discrimination in which some consumers receive products at lower prices at the expense of others who pay more.
It turns out that industrial enterprises subsidize tariffs for the population.
2. Non-price regulation.
The essence is to identify consumers who need service, establishing the level of their provision, taking into account the need to protect the rights and interests of citizens, ensure state security, protect nature and cultural values. The resources needed to produce any product are limited and sometimes completely exhausted. This allows you to selectively sell products to different consumers. The government intervenes to protect the interests of all consumers.
The body regulating natural monopolies determines which method to use for regulation. This decision is made after careful analysis of the specific regulated entity.
In order for state policy in the areas of activity of natural monopolies to be most effective, state control is necessary:
1. Preliminary control.
This is a mandatory submission of an application for consent to carry out any transactions, as well as the submission of other necessary information to the relevant authorities.
2. Follow-up control.
This is a mandatory notification to the natural monopoly regulatory body about actions performed on the subject of the monopoly.
Subjects of natural monopolies are in a special position. Hence the need arose to limit their economic activities. Subjects of natural monopolies do not have the right to refuse to enter into contracts with individual consumers for the production of goods if they have the opportunity to produce such goods. Subjects of natural monopolies are obliged to provide access to markets for goods and services, to produce goods and services regulated by the Law “On Natural Monopolies”. They are also required to provide reports on their work and draft investment plans.
Monopoly- this is such a market situation when there is a single manufacturer of a product, and this product does not have close substitutes produced in other industries. In a pure monopoly, the boundaries of the industry and the boundaries of the firm coincide.
A special structure of the industry market is a natural monopoly. Natural monopoly is an industry in which economies of scale are so great that a product can be produced by one firm at a lower average cost than if it were produced by more than one firm. A natural monopoly is a structure of an industry market that has either been nationalized or is subject to government regulation.
The condition for the emergence of a natural monopoly: a large firm, relying on the low level of its costs, may consider it profitable for itself to exclude other firms from the industry by temporarily reducing prices, and then will remain a monopolist and can raise the price to the monopoly level, reducing output. Once a monopoly has been established in such an industry, entry into it becomes practically impossible, since a firm seeking entry will have to produce a relatively small volume of output, which is therefore associated with relatively high average costs.
With a natural monopoly:
– satisfying demand more efficiently than in a competitive market;
– lack of competition due to production technology;
– reduction in unit costs as production volume increases.
Features of a natural monopoly:
– technological exceptional advantages in this market;
– FC (fixed costs) are high, and VC (variable) are insignificant;
– AC (average cost) is higher than MC (marginal cost).
The most typical examples of this type of monopoly are energy networks, railways, pipeline transport, utilities, where there is a steady decrease in average long-term production costs with the expansion of production capacity. There are global (railway transportation, communications) and local natural monopolies. Since the reason for the emergence of natural monopolies is a strict relationship between the volume of market demand and the effective size of the enterprise, such monopolies are under strict control of the state that regulates their activities. Regulation of the activities of monopolies is aimed at limiting their market power and is carried out with the aim of increasing the volume of supply and reducing the market price.
The main instruments for regulating natural monopolies:
– taxes;
– price control;
– eliminating barriers to entry into the industry;
– establishment of public ownership (or nationalization) to control a natural monopoly.
Taxes breaks into two parts. The first is income taxes related to direct taxes. Such taxes reduce excess profits (profits after taxes) and have no (or little) effect on price and output, which maximize the monopolist's profits.
Sales taxes are also used to regulate natural monopolies. Unlike the previous ones, they are indirect and lead to an increase in marginal production costs. The production volume will decrease and the price will increase.
Price control in order to reduce monopoly profits, it is carried out by establishing the so-called maximum price. For this price to be efficient, it must lie between the profit-maximizing price and average cost, which corresponds to the profit-maximizing output.
Removing barriers to entry into an industry aims to encourage new firms to enter the industry, which in turn will result in the monopoly being replaced by a competing structure. However, this method is not effective for regulating a natural monopoly.
In addition, other methods of regulating natural monopolies are used. Notable among them are Ramsey pricing and quality control.
In Ramsey pricing, the price is determined by the value of average costs P = AC. At this price, the company does not make a profit, but does not incur losses. However, due to the fact that dead weight losses remain, this control option is called the “second best solution”.
In conditions of regulated prices, the company has no incentive to improve the quality of the product. At a government-set price, a firm can increase profits by reducing production costs by reducing the quality of the product. Additional profit from the sale of goods of worse quality at prices corresponding to higher quality is appropriated by the company, and in the absence of competition in the market, a decrease in product quality does not have a significant impact on its position. Theoretically, to control the level of quality of goods produced by a regulated natural monopoly, the state can use two levers: the inclusion of quality indicators in the list of regulated standards and the practice of compensating consumers for losses at the expense of the manufacturer if the quality of the product decreases below an acceptable level.
State University - Graduate School Economics
Institute of Professional Retraining of Specialists
Department of Economic Theory
ABSTRACT
On the topic of: Goals and methods of regulating natural monopolies
Student: Seliverstova Lyudmila Sergeevna
Group No. 18EUP-1
Moscow, 2009
Introduction 3
1. Existing methods of regulation in a natural monopoly; 4
2. Goals of regulation of natural monopoly; 5
3. Methods of state regulation of activities are natural monopolies 6
3.1 Identification of market boundaries as a methodology for state regulation of natural monopolies; 9
3.2 Methodology for identifying market boundaries. 9
Conclusion; 12
Bibliography. 13
Introduction
The problem of monopoly in economics has been of interest to economists for almost the entire twentieth century. This topic has been and will remain relevant as long as there are global economic giants that firmly occupy a monopoly position in production.
Reducing the level of monopolization of the economy, creating and maintaining a competitive environment, and high-quality implementation of antimonopoly policy remain the key objectives of economic policy in the modern stage. Of particular relevance is the problem of ensuring an acceptable combination of competition and monopoly for society, which determines the conditions and efficiency of business, the motivation of business entities, the formation and distribution of income, and, ultimately, the pace and level of socio-economic development.
In conditions modern Russia development and support of competition have become one of the key directions of economic policy. However, there are sectors in the economy where competition for objective reasons is impossible or ineffective (areas of natural monopoly). Meanwhile, the lack of effective competitive mechanisms and the threat of abuse of economic power by subjects of such monopolies forces the state to create a special regulatory system in the field of natural monopolies, aimed at achieving a balance of interests of consumers and subjects of natural monopolies, ensuring the availability of the goods they sell to consumers and the effective functioning of subjects of natural monopolies.
The work is written on the basis scientific works and articles in the field of economic theory.
Purpose: To consider existing methods of regulation in a natural monopoly.
The subject of the study is the goals and methods of regulating natural monopolies using the example of Russia, the USA, Great Britain and other countries.
The abstract discusses:
· application Federal Law“On Natural Monopolies”, outlines some methods of state regulation of the activities of natural monopolies;
· methods for identifying and highlighting market boundaries, as well as the goals of state regulation of natural monopolies.
1. Existing methods of regulation in a natural monopoly
There are cases in an economic system when a monopoly becomes more effective than competition. This case is called a natural monopoly, i.e. when one firm can produce enough of a product to supply an entire market at a lower cost than two or more firms could. This concept contains a contradiction, the resolution of which is the task of state socio-economic policy. Indeed, on the one hand, the existence of such goods is recognized, the production of which is most efficient in a monopoly market, and, on the other hand, in the absence of competition, a single producer can abuse his position in the market in order to maximize his profits. Moreover, as shown in theory, the selling price of products chosen by the monopoly to maximize its profits is always higher than the competitive price, and society as a whole suffers losses. In this situation, the state must regulate the activities of a natural monopoly in such a way as to, without allowing the monopolist to dictate its terms to consumers, at the same time give it the opportunity to successfully function and develop.
In a broad sense, regulation can be defined as the intervention of government bodies in the operation of market mechanisms in order to adjust the behavior of market agents, and therefore the results of the market.
Ideally, the state regulates only in cases where the functioning of the market as such produces unsatisfactory results. It is assumed that the benefits of government intervention outweigh all associated costs, that is, the benefit/cost ratio from regulation exceeds one where:
· A competitive resolution of the issue is impossible - this is a situation of natural monopoly;
· Competition exists and produces relatively effective results, but due to certain problems with market participants and types of activities, effective results may be undesirable (subject to government regulation);
For example, competition may “decide” that providing transport services to remote, sparsely populated areas is unprofitable and cancel these routes. Efficiency will be achieved, but equality and justice will be violated. And efficiency is not the only goal. Economists are sometimes shy about the goals of “fairness” and “equity,” believing that if transfers are to be made, it can be done through tax levers or lump-sum payments. But since such events themselves require certain costs, the decision cannot be so simple and unambiguous. Transaction costs play a significant role.
· A competitive solution is possible, but ineffective due to externalities or information asymmetries (subject to government regulation).
One of the developed forms of regulation is regulation that corrects external effects (externalities), which are the cause of the breakdown of the normal “competition-efficiency” relationship. Many industrial activities generate externalities that are negative for the wider community. For example, power plants running on fossil fuels emit harmful emissions into the atmosphere, followed by oxide rain. It turns out that the marginal social costs of such production exceed the marginal costs of a particular firm. In many cases, the producers of harmful externalities themselves are ready to adjust their activities in order to minimize externalities. Companies don't often show this level of awareness.
The government does not seek to make all markets perfectly competitive, but rather attempts to eliminate serious market imperfections. It creates an environment where competition is encouraged rather than monopolism, where the first behavior is more profitable than the second. Thus, antimonopoly policy is a tool administrative regulation economy, in order to prevent economic imbalances or socially undesirable changes, its main points are:
· Protection and promotion of competition;
· Control over firms that have a dominant position in the market;
· Control over prices;
· Protecting the interests and promoting the development of small and medium-sized businesses.
Regulation can take many forms. The key distinction is between direct and indirect regulation. Direct regulation includes any measure or action directly aimed at a market agent (or group of agents), while indirect regulation covers everything that affects economic and market conditions common to all actual and potential participants.
2. Goals of regulation of natural monopoly
The primary goal of regulation is to eliminate inefficiencies without creating new distortions. Regulation exists to help achieve goals public policy, among which in the natural monopoly industries under consideration are of paramount importance:
· Economic efficiency;
· Reliability of supplies;
· Social goals (social justice, equality);
· Environmental protection objectives.
The goal of government regulation is to achieve desired results for consumers when competition cannot be relied upon. If the regulatory body had enough information about the regulated company, then disputes about methods of setting prices for the products of a natural monopoly would disappear by themselves (it would be possible to easily force the monopolist company to produce the desired quantity of products at optimal prices, using the best combination of factors production). But since it is often impossible to establish the firm's marginal cost function due to opposition from the regulated, the task of officials becomes to encourage it to produce the socially necessary volume of output without denying the opportunity to obtain the much desired profit. And this is not at all easy. The theory of regulation aims to create a mechanism for influencing a natural monopoly that would allow it to achieve optimality. But to do this, you first need to find the best combination of price and output, and then propose a plan of action that will allow you to achieve this combination. The purpose of state legal regulation is to maintain or establish a balance between the interests of consumers and the interests of subjects of natural monopolies, to streamline their activities by introducing rules of conduct.
3. Methods of state regulation of the activities of natural monopolies
The problem of the need to regulate natural monopolies was recognized by the state only in 1994, when rising prices for the products they produced had already had a significant impact on undermining the economy. Therefore in Russian Federation The Federal Law “On Natural Monopolies” was adopted on August 17, 1995, which defined the industries related to natural monopolies and the scope of their regulation. Currently, three largest natural monopolies have formed in Russia: RAO Gazprom, OAO Russian Railways and OAO RAO UES of Russia. According to the Law "On Natural Monopolies", the scope of regulation includes the transportation of oil and petroleum products through main pipelines, gas transportation through pipelines, services for the transmission of electrical and thermal energy, rail transportation, services of transport terminals, ports and airports, public and postal services
communications. An analysis of the results of the application of the Federal Law “On Natural Monopolies” allows us to highlight some methods of state regulation of the activities of natural monopolies.
The most common three methods of regulation in a natural monopoly are:
· Direct government regulation (opportunities and boundaries);
· Bidding for a franchise (possibility of use and effectiveness in various conditions);
· Price discrimination (organizational and economic aspects).
Let's consider direct government regulation: Most often, the mechanism and boundaries of such regulation are determined by national legislative acts. Direct government regulation by determining tariffs or having a decisive influence on them for natural monopolists is a fairly simple and understandable way to reduce the role of negative factors existing in their activities. In Russian legislation this method is given top priority. However, when implementing this approach, a number of problems arise:
· the need to create a body of state control over the activities of a natural monopolist or to assign such functions to an already existing anti-monopoly structure. This carries the threat of replacing public interests with the interests of ruling groups, not to mention the corresponding costs of maintaining government officials;
· the difficulty of accurately determining the real costs of a natural monopoly service provider.
Speaking of bidding for a franchise, we will deal with contract system as a form of economic organization. The contract is concluded with the manufacturer (economic entity) who offers the best conditions (lower price, greater range of services, etc.). Should we expect that contract system will it solve the problem of natural monopoly once and for all? Of course not.
In the first case, the prerequisites are created for the emergence of a private unregulated monopoly with the establishment of a high monopoly price, which has to be paid by society as a whole (we are dealing with the direct social harm of the monopoly. In the second case, all the shortcomings of the administrative, and not economic system, where processes of politicization of solutions to problems of natural monopolies take place (in the interests of the state and the ruling elites, but not in the interests of society as a whole).
The phenomenon of natural monopoly is no exception, therefore bidding for a franchise in the regulation of natural monopolies acts as one of the equally probable options for action. The authors generally agree with the conclusions of O. Williamson, made on the basis of studying the American experience of using bidding for a franchise (for Russia this is most likely “exotic”). Franchise bidding allowed the United States to solve problems with some natural monopolies, and the best way compared to other methods of their regulation. This applies to the deregulation of trucking, to the organization of local airlines, the postal service, to the work of cable television networks, in some cases to the work of public utilities, to the problem of deregulation of railways.
Speaking about natural monopolies, we cannot ignore another way to regulate them - price discrimination .
Natural monopolies often resort to price discrimination to maximize their net income. To do this, they segment the market. An example of such an approach would be the practice of establishing
higher tariffs for electricity, gas, communication services, utilities for enterprises and organizations and, accordingly, lower tariffs for citizens.
It is also possible to apply multiple tariffs depending on the time of provision of services (communications, electricity, railway and air tickets, etc.). However, this same mechanism can be used not only by a natural monopolist, but also by the state, which seeks to alleviate the burden associated with the monopoly. It can set lower tariffs for social
specifically vulnerable groups of the population (pensioners, disabled people, etc.). For example, the practice of preferential tariffs for different kinds services provided by natural monopolists. What is important here is the source of coverage of these benefits. However, very often in Russia it is either not determined, or without appropriate calculations, without reason, it is shifted to the manufacturer. The most common example is benefits for utilities. By now, the number of “beneficiaries” is already comparable to the number of people, there are no benefits
having. This contributes neither to the stabilization of the social situation nor to the normal reproduction of the capital of a natural monopolist enterprise.
The practice of using price discrimination can be applied by the state not only in the case of direct state regulation of a natural monopoly, but also in the case of bidding for a franchise. Thus, price discrimination becomes a “double-edged sword” that can be successfully used by both a natural monopoly and the state to achieve their goals. As a result, a certain “balance of interests” arises, and the severity of the problem
on the part of the natural monopoly it is softened (smoothed out, removed).
In reality, state control over natural monopolies consists both in state ownership of a controlling stake and in the existence of special antimonopoly legislation regulating methods of tariff regulation and control over the activities of natural monopoly entities, as well as determining the list of consumers subject to preferential or mandatory services. Russian legislation aimed at regulating natural monopolies provides not only for state tariff regulation, but also for limiting their disposal of property (primarily, which they received as a result of privatization). At the same time, if the enterprise is not state-owned, then its regulation comes down to the following: either prices are set at the level of the average costs of the monopoly, or two-component tariffs are applied, providing for a separate and fixed fee for access to receiving services, as well as payment for each unit of paid services.
3.1 Identification of market boundaries as a methodology for state regulation of natural monopolies
Let's try to formulate the basic methodological principles of state regulation of natural monopolies.
As a result of identifying the boundaries of the market, the following definition can be given.
A natural monopoly as an object of state regulation is a sphere of economic activity where competition either economically ineffective or impossible due to the specifics technological process production of goods (services), or contrary to the interests of society (state).
Such a definition clearly reflects the objectivity of state regulation of natural monopoly.
Moreover, how to distinguish a natural monopoly from a monopoly in general?
Main sign The natural monopoly is the indivisibility of the infrastructure, from which its other characteristics follow:
· subadditivity of costs;
· homogeneity and irreplaceability of products;
· endogeneity of the structure of industry companies as vertically integrated;
· social (public) significance.
A natural monopoly as an object of government regulation is divided into a natural monopoly core, identified on the basis of the economic and technological boundaries of the market, and an adjacent natural monopoly segment, allocated based on the social and strategic boundaries of the market chosen by society. It is fundamentally important that natural monopoly also includes areas that are potentially competitive, but limited by society.
3.2 Methodology for identifying market boundaries
The following analysis of the Russian legislative framework illustrates the imperfection of the definition of natural monopolies, which leads to the ineffectiveness of the choice of government regulation instruments. In our opinion, the methodology for identifying natural monopolies should be based on the identification of such sectors within a multi-product industry where competition is impossible and/or ineffective. Let's call it market boundaries, among which we highlight:
- economic;
- technological;
- social (public);
- strategic.
Economic the theory assumes that an industry is a natural monopoly if, at all levels of output, the cost function C(q) is subadditive, i.e. inequality holds. This means that if n firms collectively produce output q, then their total costs of producing the entire output will always be higher than the costs of one single firm producing the entire output q.
In a strictly theoretical approach, the economic boundaries of the market outline only the infrastructure segment, which became the basis for a liberal approach to natural monopolies and their reform. A purely economic approach without taking into account the specifics of the industry, in our opinion, does not fully reflect the essence of a natural monopoly and its role in the development of society. Such total liberalization is as extreme as a planned economy. The purely economic principle of identifying the natural monopoly sector is the main drawback of the modern theoretical paradigm in the study and regulation of natural monopolies.
Technological frontiers determined by the impossibility of competition due to the technical and production characteristics of the industry . In each infrastructure industry, the technological boundaries of the market are distinguished differently due to the technological characteristics of the industries. But it is precisely the identification of the technological boundaries of the market that allows us to say whether direct government regulation should be limited to the infrastructure segment, as a natural monopoly core, or whether the boundaries of the free market should be narrowed.
Social (public) boundaries must be allocated based on the principle of social utility (significance). Products of the natural monopoly sector are present in the cost of almost all goods and services. Low prices for products from infrastructure industries are one of the most significant competitive advantages Russian economy. Moreover, the goods (services) of natural monopolies are directly consumed by the population. This determines the special role of the natural monopoly segment for the state and the life of society. Recognition of the social (public) function of natural monopolies will make it possible to identify those areas in which, due to social significance, competition may be impossible and even dangerous, and prices should be regulated, and in some cases subsidized by the state. This mainly concerns areas serving the population. For example, in no country in the world, except Japan, has rail passenger transportation become profitable, and all developed countries subsidize it. The regional gasification project is also impossible either without the participation of the state or without the existence of the monopoly of OJSC Gazprom, since in a competitive environment it is unlikely that any of the companies will take on these functions. In the electricity industry, competition in the retail market can generally be dangerous. Energy supply stability is an issue national security. And any “imperfection” of the market in the electricity industry due to the impossibility of storing electricity can have much more serious consequences for society than in any other.
Strategic boundaries are close to social and also outline areas where competition should be limited due to strategic (political or geopolitical) reasons. This delineation is by no means the creation of a monopoly market in traditionally competitive industries, as representatives of ultra-liberal ideas are trying to prove. For industries in the natural monopoly sector, a vertically integrated organization of economic relations in the industry is more “natural.” The principle of endogeneity of the structure of natural monopoly industries is expressed in the fact that the division of a natural monopoly industry into competitive and natural monopoly activities is an artificial process, as a result of which a vertically integrated company is again formed.
For example, after the electricity reforms carried out in the UK (one of the most liberal electricity reforms was carried out in the UK), it was necessary to “return to the point of departure” - generating companies were allowed to participate in the privatization of distribution companies. As a result, vertically integrated companies emerged that not only produced electricity, but also distributed it. Creation of vertically integrated companies, incl. mergers with fuel companies are a key trend in all liberalized energy markets. It follows that hasty and artificial division of energy companies, not determined by the market, ultimately only leads to “reverse” consolidation.
Taking into account the above, we can conclude that the division of the natural monopoly industry by separating the monopoly core itself is premature. Practice shows that in many cases, after the actual division of a natural monopoly into areas of activity, a reverse process was subsequently planned.
CONCLUSION
Without a doubt, it is the efficiency of the functioning of natural monopolies that can determine the competitiveness of the Russian economy in international markets, not to mention the infrastructure support for the entire life of the country. And it was precisely the discrepancy between the structures of natural monopolies and the system of their state regulation with the achieved degree of development of market relations, as well as the conditions for integration into the world economic space, that determined the need for their reform.
Antimonopoly legislation should be reasonable and thoughtful, and its application by employees of regulatory agencies should be a regulatory mechanism of the market, but nothing more, since an overly strict implementation of antimonopoly policy can lead to a large imbalance in the existing market relations and cause dissatisfaction on the part of employees of large firms.
LITERATURE
1. Federal Law of the Russian Federation “On Natural Monopolies” dated August 17, 1995 No. 147-FZ;
2. Akulov V.B, Rudakov M.N. "Organization Theory" tutorial. Petrozavodsk: PetrSU, 2002;
3. Korolkova E.I. HSE Economic Journal No. 2 2000 Lectures and teaching materials“Natural monopoly: regulation and competition” p. 235-236, 242-243;
4. Ivanov I.D. Modern monopolies and competition. - M.: Mysl, 1990, p. 89.
5. Fischer S., Dornbusch R., Schmalenzi R. Economics. M. - 1993. - S. 28-29:
6. Encyclopedia of interesting articles from the Excelion.ru portal.
7. http://articles.excelion.ru/science/em/47067409.html
8. FINANCIAL ANALYTICAL CENTER http://lib.mabico.ru/589.html
Most pure monopolies are natural monopolies and are therefore subject to public regulation. Natural monopoly occurs in the gas, water and electricity supply sectors (a similar situation arises in the markets of certain agricultural products that are produced on plots of land of exceptional quality - Czech beer, French champagne, etc. Here we can also talk about natural monopolies, because the amount of such land is limited). Most often, in public consumption sectors (utilities), there is the possibility of abuse by natural monopolies, which can negatively affect the standard of living of the population. First of all, we are talking about increasing tariffs and prices by monopolistic enterprises. This leads to an increase in production costs in other industries, and therefore to an increase in prices for other goods. (This is exactly the picture that can be observed in the case of an increase in prices by the main natural monopolists in Russia - RAO Gazprom, RAO UES of Russia, the Ministry of Railways and Communications.) These facts necessitate state regulation of such firms by special administrative bodies. There are two possible options for government action in this case:
1. Establishment of state ownership of enterprises - natural monopolies, and, consequently, state prices for their products.
2. State regulation of natural monopolies by establishing a maximum level of profitability or by directly limiting the price level for the products of natural monopolies. In developed countries, this is the main way to combat the negative aspects of the activities of natural monopolies.
When analyzing the issues of regulating the activities of natural monopolies through control over pricing of natural monopoly goods, it will be interesting to consider the theoretical model of a regulated monopoly. Let's consider this problem using a specific example of a hypothetical natural monopoly, the main parameters of which will be characterized by the position of the graphs presented in the figure. The monopoly maximizes profit at point E (MR = MC) with production volume Q opt and price P A. In this case, as can be seen in the graphs, the price is not equal to marginal costs, i.e., the requirement for efficient allocation of resources in the economy is not met. From the point of view of society, this is a significant shortcoming, and it is desirable to correct it. The optimal situation would be equality of price and marginal cost.
In our case, the demand schedule and the marginal cost schedule intersect at point B, respectively, the price for this product, which would suit society, is P in. If the government sets a maximum price level of P in the amount of P in a monopoly product, then the demand schedule will look like a broken line P in B D x. Thus, the state artificially introduces into the economy an element similar to pure competition, and therefore, at point B, under these conditions, the monopolist firm will maximize profits or minimize losses (which happens more often). This situation suits the state, and the price P in is called the socially optimal price. However, in most cases, this price does not cover the firm's average gross costs, and it incurs losses. Since P B is below the minimum ATC value, the company incurs losses at any volume of production, which in the long term is fraught with bankruptcy.
The way out of this situation could be as follows:
Providing government subsidies to regulated natural monopolies;
Consent to price discrimination that these firms may carry out against consumers; in this case, the marginal revenue schedule will coincide with the demand schedule for the monopoly product;
More often than not, in reality, these firms are given the opportunity to earn normal profits at the expense of efficient use of resources; i.e. the price will correspond to the value of ATC - P c (projection of the point of intersection of the ATC and D x graphs on the ordinate axis).
In most cases, the state is faced with the problem of what to prefer: inefficient allocation of resources or ineffective functioning of individual firms.
The legislation provides for two main methods of regulating the activities of natural monopolies:
- Ш price method, which is carried out by setting prices (tariffs) or their maximum level.
- Ш non-price method - through determining consumers subject to mandatory service; establishing a minimum level of provision for consumers in the event that it is impossible to fully satisfy the needs for a product produced (sold) by a natural monopoly entity.
In addition, subjects of natural monopolies do not have the right to refuse to conclude an agreement with individual consumers for the production (sale) of goods if there is an opportunity to produce (sell) such goods. The subject may be sent an order to conclude an agreement. If the order is not fulfilled, a claim may be filed with the arbitration court to compel the conclusion of an agreement.
The body regulating natural monopolies determines the method of regulation in relation to a specific subject and reports through the media about decisions made, in particular regarding the introduction, change, termination of regulation of the activities of entities; on inclusion in the register of subjects of natural monopolies or on exclusion from it; on the applied methods of regulation in relation to a specific subject. In turn, subjects of natural monopolies, executive authorities and local government are obliged to provide the necessary information to the regulatory authorities for natural monopolies.
There are several options for state regulation of prices and tariffs of natural monopolies. For example, let's highlight two options.
- 1. In Russia and the USA, special bodies have been established to regulate electricity tariffs. The level of tariffs is set according to the principle: “costs plus profits”.
- 2. Authorities initiate competition for the market where competition within the market is either impossible or costly due to significant economies of scale. In this case, an auction is held and the right to serve the market is granted for a certain time to the enterprise that undertakes to contribute the largest amount to budget revenue. The greater the number of competing firms that have this right, the larger part of the profit can go to the budget.
Since natural monopolies have average costs higher than marginal costs, pricing at marginal costs leads them to unprofitability. This necessitates abandoning the principle of marginal cost pricing, but subject to minimizing the efficiency losses caused by such abandonment.
The most common methods of state regulation of the activities of natural monopolies in economics include:
- 1) establishment by state antimonopoly authorities of prices and tariffs for goods and services of natural monopolies or price restrictions in the form of upper price limits;
- 2) mandatory servicing of a limited contingent of consumers at an established minimum level of provision in the event that it is impossible to fully satisfy consumer requests for goods and services of natural monopolies;
- 3) differentiation of prices and tariffs for goods and services of natural monopolies depending on the category, social status of consumers, provision of price benefits to certain categories at the expense of funds state budget or through cross-financing, where the “rich” pay for the “poor”.
In those areas of production and economic activity where a monopoly is inevitable, the state resorts not only to supervision and regulation, but also to direct management of natural monopolies, sometimes keeping them in state ownership, acquiring controlling stakes in monopoly companies.
A special part of natural or, more precisely, close to natural monopolies are formed by state monopolies that function in the field of formation of economic policy, regulation of monetary circulation, ensuring national (economic, military, social) security, production of goods and services for special purposes. Typical examples of state monopolies are money emission, exchange rate regulation, export and import of goods strictly controlled by the state, production and sale of alcoholic beverages, individual species weapons.
In relation to these types of monopolies, the state rarely pursues an antimonopoly policy or does not pursue it at all. State regulation is carried out on a legislative basis or by granting licenses (most often government organizations) to carry out state-monopoly activities.
Thus, state regulation of natural monopolies is one of the main factors ensuring the normal functioning of the economy. If the enterprise is not state-owned, then its regulation boils down to the following: either prices are set at the level of the average costs of the monopoly, or two-component tariffs are applied, providing for a separate and fixed fee for access to receiving services, as well as payment for each unit of paid services.