In the economic sphere, monopolization is a unique and interesting market structure. Today, lidos will lead to an in-depth understanding of the relevant knowledge of monopolistic markets, their causes, characteristics, impact and responses。
Definition of monopolization
Monopolies refer to market organizations that have only one or very few producers in the entire industry. Under this market structure, an enterprise has exclusive or joint control over the production and marketing of a product, which is a rival and companion to competition and a restriction and impediment to the competitive process. Monopolies in the market are able to regulate prices and production at will (but not simultaneously). For example, in some areas, there may be only one water or electricity company, which is in a monopolistic position to provide exclusive water and electricity services to local residents and enterprises。
Reasons for monopolies
(i) natural monopolies
Production costs in certain industries make a producer more efficient than a large number of producers, which leads to the creation of natural monopolies. Infrastructure such as railway construction and the national electricity grid. In the case of railways, for example, large investments are required for rail railing, site construction, the purchase of locomotives, etc., and the fixed costs of railway networks are high once they are established. The establishment and operation of separate railway lines, where there is competition among multiple railway companies, can result in a great waste of resources, as different companies may have duplicated railway lines and are unable to take full advantage of transport capacity. Thus, the monopolization of railway transport by an enterprise can minimize costs and maximize operational efficiency. Similarly, the national grid, in terms of transmission and distribution of electricity, also creates a natural monopoly, owing to the need for large-scale power grids, with significant economies of scale and better integration of resources and lower costs for the provision of services by an enterprise。
(ii) resource monopolies
When the key resources are owned by an enterprise, a resource monopoly is created. For example, the audio-visualization industry may make it difficult for other enterprises to enter the market and compete with it because of its monopoly on key resources, such as professional voice-producing talent and unique audio devices. Moreover, some parts of the country have abundant mineral resources, which are monopolized by the acquisition by some businesses, through legal means, of rare-earth mining rights in specific areas. The rare soil of the north occupies an important place in the area of the extraction and smelting of our rare soil and has a certain monopoly on the scarce land resources of the country, because it controls vital rare earth resources and other enterprises cannot easily access the same resources to compete。
(iii) administrative monopolies
The government grants an exclusive right to an enterprise to produce a product or service, thereby creating an administrative monopoly. For example, in order to strictly regulate the tobacco industry, to safeguard fiscal revenues and consumer health, the state has adopted legal provisions granting exclusive rights to specific enterprises to produce and sell tobacco. Our tobacco monopoly has placed china tobacco general in a completely monopolistic position in the domestic tobacco market, and other enterprises are not allowed to enter the production and marketing chain without permission. In addition, some local governments may have policies that restrict access to local markets, including for the protection of local enterprises, as an expression of administrative monopolies。
(iv) technology monopoly
By developing and mastering advanced technologies, which are difficult to imitate or transcend, enterprises are unable to compete with them in the short term, thus creating technological monopolies. For example, a number of high-technology enterprises have invested heavily in technological innovation in areas such as chip manufacturing and biomedical research and development, and once key technological breakthroughs have been made and patent protection has been granted, it has been difficult for others to produce similar products to compete with during the patent period. Like intel, which has long been a leader in computer chip manufacturing technology, with its advanced technology and extensive patents, has gained an important monopoly on the chip market, and other firms need to invest enormous research and development costs and time to counterbalance them technically。
(v) mergers and acquisitions
Enterprises achieve monopolies by merging competitors and reducing the number of players in the market. In the course of competition in the market, more powerful firms may include other competitors through acquisitions, mergers, etc. For example, following the merger of the first two firms in an industry, their market share has increased significantly and may represent a larger share of the market share of the entire industry, thus creating a monopoly in the industry. This monopoly, achieved through mergers and acquisitions, has led to a significant shift in the pattern of competition in the market, with many competing firms becoming one or a few dominant firms。
Iii. Characteristics of monopolistic markets
(i) single seller
Only one firm in the monopoly market produces and sells specific products, and the enterprise is the sole supplier of the entire industry and has no rivals. In some remote areas, for example, there may be only one local small cement plant, which monopolizes the supply of local cement products, from which consumers can only purchase if they need to buy cement。
(ii) no alternatives for products
Monopolies offer products that are unique and do not have alternative products in the market. This leaves consumers with no alternative but to purchase the product of the monopoly. For example, certain patented medicines, because of their unique formulations and therapeutic effects, are not available on the market during the patent protection period to replace those that have exactly the same effect, and if they are needed, the patient can purchase only the products of the patented pharmaceutical producer。
(iii) extreme barriers to entry
Other producers have difficulty entering the industry to compete. This is due to multiple barriers to entry, such as the huge fixed-cost inputs in the natural monopolies mentioned earlier, which make it difficult for new firms to absorb large initial investments; the monopolization of critical resources and the inability of new firms to access resources for production; government policies in administrative monopolies that restrict the entry of other firms; and the difficulty of breaking through and imitating advanced technologies in technology monopolies. In the telecommunications sector, for example, new enterprises need to have access to the telecommunications market through the construction of a broad base of communications, the laying of lines of communication, etc., which requires significant investment and the acquisition of relevant business licences, all of which constitute extremely high barriers to entry, making it difficult for new enterprises to enter the industry in competition with existing monopolies。
Iv. Impact of multilateral markets
(i) impact on consumers
Price aspects: monopolies are often able to control prices and consumers may face high prices for goods or services. Owing to a lack of competition, monopolies do not have the incentive to reduce prices and may increase product prices in order to maximize profits. For example, if there was only one broadband operator in a region, the operator might increase the price of the broadband package at random, and consumers could only accept higher costs in order to access broadband services. On the selection side: consumer choices are reduced, as only one or very few enterprises in the market provide products or services and consumers are unable to choose between competing brands and products. In some remote rural areas, for example, only one postal service point provides mail and distribution services, and consumers have no alternative but to use the services of the service. Quality aspects: while monopolies may invest some resources to maintain product quality, their incentives to improve product quality may not be sufficient due to lack of competitive pressure, or even decline in product quality. For example, the lack of competition in the provision of water services by a monopolistic utility may lead to problems such as the lack of stability in water quality as a result of less active maintenance and upgrading of water facilities。
(ii) impact on the enterprise itself
(b) profit side: monopolies can obtain higher than normal profits (monopolistic profits) by controlling production to raise prices (i. E. “limit prices”). For example, some monopolistic resource-based enterprises have reaped huge monopoly profits by limiting resource extraction and increasing the price of resource products. Innovation aspects: lack of competition may result in insufficient incentives for innovation by monopolies. Innovation requires significant financial and human investment and risks, and monopolies, if not innovation, can generate high profits by maintaining existing products and services. For example, the monopolization of certain technological giants may reduce investment in research and development of new technologies, while maintaining their monopolistic position by acquiring potential competitors, among other things, hindering innovation in the industry。
(iii) social impact
Resource allocation: from a resource allocation perspective, monopolization of markets can lead to efficiency losses. In pursuit of maximizing profits, monopolies often produce below the best levels of society, and some consumers ' needs cannot be met, causing waste of social resources. For example, in a monopolistic electricity market, firms may limit the generation of electricity in order to raise prices, preventing enterprises or residents with electricity needs from having adequate access to electricity, affecting social production and the normal conduct of life. Social equity: monopolies can exacerbate social inequities, as the high profits obtained by monopolies may not be based solely on their productive efficiency and innovation capacity, but rather on the loss of the interests of consumers and other enterprises through monopolistic positions. At the same time, the pressure of monopolies on upstream and downstream enterprises may also affect the survival and development of many smes in the relevant industrial chains, undermining the level playing field in the market. For example, some large monopolistic retailers may impose harsh conditions on suppliers, press down procurement prices and result in low profits for suppliers, affecting the development of supplier enterprises and the welfare of employees。
Measures to address monopoly markets
(i) antimonopoly laws
The antimonopoly act (or the antitrust act) to regulate monopolistic behaviour is widely enacted. The core objectives of the antimonopoly law are to preserve fair competition in the market, protect consumer rights and the overall welfare of society. For example, the united states had split the telecommunications giant at&t to stop it from monopolizing the communications market. At that time, at&t had assumed absolute dominance in the telecommunications industry, limiting market competition through a series of monopolistic practices and impeding industrial innovation and consumer protection. The united states government had divided them under antimonopoly laws, promoted competition in the telecommunications market and promoted the development of communication technologies and the improvement of the quality of services. In china, penalties have also been imposed for acts such as the “two or one” of the platform economy and the monopoly agreements in the pharmaceutical industry. The “two-or-one” behaviour of some electric power platforms, which require merchants to sell their goods only on these platforms, limits their autonomy to choose, undermines fair competition in the market, and china's relevant authorities investigate and penalize these platforms under anti-monopoly laws and maintain a fair competitive order in the market。
(ii) government regulation
The government regulates the price and quality of services in natural monopolies such as water, electricity and railways. Through price regulation, it is ensured that the prices set by the monopolies are reasonable, guaranteeing both the proper operation and reasonable profitability of the enterprises and the interests of consumers. For example, governments will account for and adjust water prices in water supply enterprises, taking into account the cost of water supply, the reasonable profits of the enterprise and the affordability of the population. At the same time, the government regulates the quality of services provided by monopolies, requiring them to provide stable and reliable services. In the case of railway transport enterprises, the government supervises the speed of their trains, the level of service improvements, etc., to ensure passenger travel experience。
(iii) promoting competition
Governments can encourage new firms to enter the market, increase the number of players in the market and break monopoly situations, including through policy orientation and lowering industry entry thresholds. For example, in a number of emerging areas of science and technology, governments have introduced preferential policies to encourage innovative enterprises to enter the market, grant tax relief, financial support, etc. To eligible enterprises and promote market competition. At the same time, governments have improved the viability and efficiency of markets by simplifying business start-up procedures, lowering industry entry thresholds, reducing administrative approvals and allowing more powerful firms to enter markets and compete, and reducing the degree of control of monopolies over markets。
Monopolistic markets, as a particular market structure, have multiple economic and social implications. We need to deepen our understanding of the formation, characteristics and effects of monopolistic markets and to limit the negative effects of monopolies through sound policy measures, such as strengthening the enforcement of antimonopoly laws, strengthening government regulation and promoting market competition, preserving fair competition in markets and the interests of consumers, and promoting healthy economic development。
