Sulyaeva Yulianna

PhD in Philosophy, Petrova Yulia Andreevna

Rostov State University of Economics (RIPE)

The economic behavior of firms in the conditions of perfect competitiveness and pure monopoly.

Monopoly – is an exclusive right on production, trade or other activity owned by one person, group of people or state [1]. By its nature, monopoly – is a “power”, which undermines the competitiveness of the natural market. Absolute monopoly spreads through the world economy, which means a complete exclusion of free market competition. The problems of monopolization of the commodity markets call too much attention today as among professionals and as among general population. The success of economic reforms largely depends on the weighed regulatory system of the state of monopolistic processes and competitive relations. There are different kinds of monopoly: natural, legal and artificial; those exist in different countries and in different historical periods of the economy [1].

It can be said that a monopoly – is a union of entrepreneurs, who "throw off money into the general basket", forming a solid authorized capital. Monopolists actually make out "copyrights" on manufacture and sale of their products, in violation of which follows serious sanctions. Organizing the general management of their factories and department stores, the monopolists are the most powerful company with a high turnover of finance and goods at high prices, allowing them to control the market of the country, while small firms do not stand the competition and go bankrupt. [2].

Analyzing the economic behavior of the firm in the conditions of perfect competitiveness and pure monopoly, has allowed us to identify some major economic impact of monopoly power.

1. In terms of pure monopoly, the firm sells at a better prize less products at the same expenses and demand, then in pure competitiveness. This can be shown graphically (Fig. 1). Assume that we are talking about the same industry, which produces certain and similar products.

In the first case, a large amount of small firms operate in this industry, which are independent from each other, i.e. industry is quite competitive. Then the equilibrium price will be determined by Pc at the point of intersection of the graphs of market value and sectoral offers – the point Mc.

Fig.1. The definition of price and the volume of output in industry competitive dynamics in the conditions of pure monopoly.

The curve of market supply in the industry will be determined, as we have established in the preceding paragraph, by adding the horizontal segments schedules of marginal expenses MC separate competitive companies (above the minimum A YC).

Consequently, when the monopolists select optimal output, ensuring their maximum gross profit, not enough effective allocation of economic resources occurs, from the point of view of society (P < MC). It is profitable for the monopolists to restrict sales by implementing fewer products, but at a higher price, that is, they can use fewer resources for the production of these products than necessary to society.

2. Pure monopoly promote increases inequality in the distribution of income in society as a result of the monopolistic market power and the establishment of higher prices for the same cost than under perfect competitiveness for getting monopoly profits.

3. Price discrimination can be used by monopolists in terms of market power when different prices are assigned to different buyers. Such a possibility is connected with the situation when buyers are able to purchase monopolists’ goods at a higher price than P,", it is called – “solvent demand”. At the same time there are buyers who aren’t able to pay the price P, " for products, but can purchase for a lower price. [3].

Of course, the best example of price discrimination is not in industries that are not working on the production of goods but on rendering of services. It is because of realization of goods for lower prices could lead to following resale for higher prices [4]. Anyhow, products of human services are less suitable or even unsuitable for resale, for example, provided transport service or generated electricity.

Price discrimination is widely spread in Russia and is used in a number of industries in the sale of products of various types: electricity, transport services, telecommunication services, utilities, etc. All this contributes to the profit mark-up of the monopolist that allows him to sell the part of his products at a higher price for buyers, who are able to pay. All this leads to the growth of product release, because of sales at lower prices and less solvent customers by expanding the market.

Literature

1. Savchenko V.E. “State business in a market economy” JSC “NPO "Economy"”, 2000.

2. Atkinson, Scott E., and Robert Halvorsen. “The Relative Efficiency of Public and Private Firms in a Regulated Environment. Journal of Public Economics 29 (April 1986): 281-294.

3. Robert Philips, Pricing and Revenue Optimization. Stanford University Press, (2005): 74

4. http://web.mit.edu/14.271/www/hio-pdic.pdf