LECTURE 10. THE THEORIES OF MONOPOLY AND MONOPOLY PRICING

1. Analysis of the process of monopolization of the economy by representatives of the historical school and Marxism

Representatives of the German historical school were the first to pay attention to the process of strengthening the monopolization of the economy in the last third of the nineteenth century, and this is not accidental, since it was they who in their studies focused on describing individual economic processes and collecting factual material. They called this stage in the development of capitalism imperialism by analogy with the process of formation of the empires of the past - Roman, Persian, etc. Since the seizure of colonies became the most striking manifestation of imperialism, at first it was considered as a purely political phenomenon. It is curious that J. Schumpeter did not agree with this interpretation, arguing in his book "Sociology of Imperialism" that capitalism and aggression are incompatible, since commodity relations form a type of person who strives to solve problems peacefully; in other words, to obtain the necessary benefits through a fair deal, and not through violence. According to Schumpeter, imperialist policy cannot be deduced from the economic relations of capitalism, but one must appeal to the irrationality of man, to the habits, customs, psychology inherited from feudalism. Here Schumpeter acts as a representative of the institutional direction.

Many studies by representatives of the German Social Democratic movement were devoted to the analysis of imperialism; the most famous is the work of R. Hilferding (1877-1941) “Financial Capital” (1910), in which he made one of the first attempts to give a scientific explanation of the new phenomena of capitalism. Hilferding accepts the position of both the classical school and Marxism that the desire for the highest possible profit has the objective result of a tendency to establish an equal average rate of profit for capital of equal size. This result is achieved by the competition of capital over areas of application, the constant influx of capital into areas where the rate of profit is above average and the constant outflow from areas where it is below average. However, Hilferding draws attention to the fact that these constant “ebbs and flows” encounter obstacles that increase with the level of capitalist development, which, first of all, should include the colossal increase in fixed capital. On this basis, industrial monopolies arise. Tendencies towards monopolization of industry are stimulated, according to Hilferding, by the interest of banking capital, which strives for the absolute elimination of competition between those enterprises in which it takes part. This is how financial capital arises, which, as Hilferding puts it, “... wants not freedom, but domination. It does not see the point in the independence of the individual capitalist and demands restrictions on the latter. It is disgusted by the anarchy of competition and strives for organization... It "needs a politically strong state. It needs a state that can intervene everywhere in the world in order to turn the whole world into the sphere of application of its financial capital." Here Hilferding acts as a follower of Marxism, but later he becomes a supporter of the theory of “organized capitalism”, which considers the beneficial role of industrial and banking monopolies as factors in streamlining production and eliminating crises of overproduction. According to the later views of R. Hilferding, the dominance of large banks over industry and the concentration of financial power makes it possible to plan production and opens up the possibility of crisis-free development.

Considerable attention to the consideration of the phenomenon of imperialism was given in Marxist economic literature. The most famous is the work of V. I. Ulyanov (Lenin) (1870-1924) “Imperialism, as the highest stage of capitalism” (1916), which is largely based on materials from the work of R. Hilferding. Using the position of Marxism that the basis for the development of society (both the base and the superstructure) is the development of productive forces, Lenin showed that the basis for the process of monopolization was a series of major discoveries in the last third of the nineteenth century, which led to a change in the structure of the national economy. The basis of the economy was heavy industry, in which the concentration of production and capital was incomparably higher than in light industry. Production is concentrated on several large enterprises and the possibility of an agreement arises between them, first of all, an agreement to maintain a high price level. It is no coincidence that the first form of monopoly that arose on the basis of concentration of production is the “ring” - an agreement between legally and actually independent companies on a uniform price level for their products. The process of concentration is also underway in the banking sector, also accompanied by the emergence of banking monopolies. Further development of the process of monopolization in the national economy leads to the formation of financial capital and financial oligarchy. The latter strives for world economic dominance and the result of this is the struggle for the economic (the most important means is the export of capital) and political division of the world. In other words, the changes that occurred in the economic and political sphere and to which representatives of the historical school were the first to draw attention. Lenin withdraws from the process of monopolization of the economy. And he views the monopoly itself as a result of the concentration of production, which allows companies to receive monopoly-high profits by maintaining monopoly-high prices. However, Lenin does not even hint at the mechanism for forming monopoly prices. And this is natural, since he was interested in a completely different problem - the analysis of monopolies through the prism of the possibilities of implementing a social revolution in one particular country.

To understand the mechanism of formation of monopoly prices, we need to turn not to Marxism, but to the neoclassical direction in economic theory. To be fair, it should be noted that a deep analysis of pricing processes under conditions of monopolization of the economy dates back to a fairly late period - the thirties of the twentieth century. This can be understood if we remember that models of economic functioning within the classical, and even more so neoclassical, trends were built on the assumption of perfect competition, free flow of capital, full awareness of all participants in the economic process, etc. Of course, it has never been denied that There is a monopoly in economics, but in most cases the monopoly was explained by non-economic factors. It was assumed that it arises only on a natural or legal basis. The first is the result of non-reproducible conditions of production, the second is the result of the “granting of privileges.” This interpretation is typical of A. Smith, who writes that “... A monopoly granted to an individual or a trading company has the same effect as a secret in trade or manufacturing. And monopolists, maintaining a constant shortage of products on the market.. . sell their goods much more than the natural price." Smith views the monopoly price as the highest price that can be obtained, as opposed to the natural price (or free market price), which is the lowest price that can be accepted. Here we see the interpretation of the monopoly price as the demand price, and the interpretation of the natural price as the supply price.

The study of pricing processes in conditions of monopolization of the economy was initiated by two works, published almost simultaneously, “The Theory of Monopolistic Competition” (1933) by E. Chamberlin and “The Economic Theory of Imperfect Competition” (1933) by J. Robinson.

2. The theory of monopolistic competition by E. Chamberlain

The contribution of the American economist E. Chamberlin (1899-1967) lies, among other things, in the fact that he was the first to introduce the concept of “monopolistic competition” into economic theory. This was a challenge to traditional economics, according to which competition and monopoly are mutually exclusive concepts, and which proposed to explain individual prices either in terms of competition or in terms of monopoly. According to Chamberlin's view, most economic situations are phenomena that include both competition and monopoly. The Chamberlinian model assumes a market structure that combines elements of competition (a large number of firms, their independence from each other, free access to the market) with elements of monopoly (buyers give a clear preference to a number of products for which they are willing to pay a premium price). But how is such a structure formed? Based on the concept of “economic man,” it is logical to assume that an entrepreneur, in his quest for maximum profit, seeks to seize control over the supply of goods, which will allow him to dictate the price on the market. Therefore, he strives to create a product that is at least somewhat different from the competitor’s product. Each company, having achieved some differentiation of its product, becomes a monopolist in its sales market. A monopoly on product differentiation arises (E. Chamberlin's term - author's note), which presupposes a situation where, by producing a certain product that is different from the products of other companies, the company has partial market power. This means that increasing the price of its products will not necessarily lead to the loss of all customers (which would be true, at least theoretically, in conditions of perfect competition, complete homogeneity of the product, and, as a consequence, infinite price elasticity of demand).

At the same time, product differentiation, according to Chamberlin, is interpreted quite broadly - it includes not only the various properties of the product, but all the conditions of sale and services accompanying the sale, as well as spatial location. As Chamberlin himself writes, “...Differentiation can be based on certain features of the product itself, such as special patented properties - brand names, brand names, unique packaging... or such as individual characteristics related to quality, shape, color or style. Differentiation may also exist with respect to the conditions attending the sale of goods. In retail trade (to confine ourselves to just one example), these conditions include such factors as the convenience of the seller's location, the general atmosphere or general style of his establishment, his manner of doing business, his reputation as an honest businessman, courtesy, business skill and all the personal ties that bind his clients either to himself or to those who work for him.For these and all other intangible factors vary from seller to seller , then the “product” appears different in each case, because buyers take these things into account to a greater or lesser extent, and we can say that they buy them on a par with the product itself. If we keep in mind the two indicated aspects of differentiation, then it becomes obvious that all products are essentially different from each other - at least slightly different - and that in a wide area of ​​\u200b\u200beconomic activity differentiation plays an important role." If monopoly is interpreted in this way, then it is necessary to recognize , that it exists in the entire system of market prices. In other words, where the product is differentiated, the seller is both a competitor and a monopolist. The limits of the power of this group of monopolists are limited, since control over the supply of goods is partial: due to the existence of substitute goods (substitutes) and possible high price elasticity of demand. Monopolism due to product differentiation means that commercial success depends not only on the price and consumer qualities of the product, but also on whether the seller is able to put himself in a privileged position in the market. In other words, under monopoly conditions by product differentiation, monopoly profit can arise where, with certain protection from the invasion of competitors, the existing demand for a certain product can be created and increased.

And Chamberlin poses the problem of demand in a new way. Unlike the neoclassical model, where the volume of demand and its elasticity act as something initially given, in the Chamberlin model they act as parameters that the monopolist can influence through the formation of our tastes and preferences. Here the thesis is confirmed that practically all our needs are social, that is, they are generated by public opinion. In this regard, Chamberlin concluded that prices are not a decisive instrument of competition, since in creating demand the main emphasis is on advertising, product quality, and customer service. This means that under conditions of monopolistic competition, the price elasticity of demand decreases as the quality elasticity of demand increases.

A new approach characterizes Chamberlin in matters of price and value. If in the neoclassical model there was no question of regulating the price of a given product, since the prices were set from outside, and regulating the volume of the product at a given price, then the Chamberlin model implies the search for the optimal volume of production and, accordingly, the price level that provides the company with maximum profit. Chamberlin assumes that under conditions of monopolistic competition, a firm maximizes profits at a volume of production less than that which would provide the highest technological efficiency. In other words, on the scale of the whole society, the transition to a state of monopolistic competition leads to the fact that consumers pay more for goods, the output of goods is less than potentially possible, and as a result, there is an underutilization of production capacities and unemployment. Is it then possible to say that monopoly entrepreneurs are responsible for the given state of the economy? Chamberlin answers this question generally in the negative, believing that monopolists are liable only if the differentiation of their product is artificial and does not lead to a real change in quality. However, in general, the process of product differentiation is generated by the diversity of public tastes and the desire for monopoly is explained by the tendency to differentiation of demand, where differences in tastes, desires and incomes of buyers themselves indicate a need for diversity.

Explaining the situation that arises under a monopoly on product differentiation, when a firm produces less than its potential output, Chamberlin points out that in order to sell additional products, the firm will either have to lower the price or increase sales promotion costs. It is no accident, therefore, that Chamberlin introduces the concept of "sales costs" into his theory of price, which he considers as the costs of adapting demand to the product, in contrast to the traditional costs of production, which he considers as the costs of adapting the product to demand. Chamberlin himself defines the differences between these types of costs as follows: "Production costs include all costs necessary to create a product (or service), deliver it to the consumer and hand him this product in a condition suitable for satisfying needs. Marketing costs include themselves all costs that have the purpose of creating a market or demand for a product. Costs of the first type create utilities that serve to satisfy requests; costs of the latter type create and change the requests themselves. In his opinion, with an increase in output, production costs are reduced, but the costs of selling additional products increase. This became the rationale for the assertion that there is no excess profit in the conditions of a monopoly on product differentiation, since. in the long run, according to Chamberlin, the price only covers the full costs (total costs of production and marketing).

Summing up, we can say that, according to Chamberlin's views, the market of any single producer in conditions of monopolistic competition is determined and limited by three main factors: the price of the product, the characteristics of the product itself, and the marketing costs. Noting that a differentiated product has a high price (which is a consequence of supply restrictions), he considers it an inevitable price for differentiated consumption. In Chamberlin's theory, monopoly and competition are interrelated phenomena, monopoly is present in the entire system of market pricing. Let me remind you that the conditions that give rise to a monopoly, according to Chamberlin, are: patent rights, the reputation of the company, the irreproducible features of the enterprise, the natural limitation of supply. As we can see, outside of Chamberlin's analysis remains a monopoly that arose on the basis of a high level of concentration of industries and capital. This type of monopoly became the subject of analysis by the English economist J. Robinson.

3. The theory of imperfect competition J. Robinson

J. Robinson (1903-1983), English economist, representative of the Cambridge school in political economy. Like Chamberlin, J. Robinson, in his most famous work, "The Economic Theory of Imperfect Competition" (1933), explored the same problems: shifts in the mechanism of market competition, problems of market monopolization, and the mechanism of monopolistic pricing. Robinson also considered product differentiation, that is, such changes that cannot be fully compensated by substitute goods, to be the decisive condition for the monopoly possession of a product. However, product differentiation is not, according to Robinson, the only condition for monopoly. She devoted considerable attention in her research to the issue of the behavior of large companies, embodying a high level of concentration of production. For Robinson, monopoly is not only a phenomenon of the market, but also of concentrated production. She associated the concentration of production with the firm's economies of scale, since the share of fixed costs per unit of output decreases with an increase in production volumes. Comparing the behavior of companies in conditions of perfect and imperfect competition, J. Robinson showed that large companies are able to maintain a higher price than they could have in conditions of perfect competition. Graphical analysis of these situations is reproduced in textbooks on the course "Microeconomics" in topics that consider the behavior of a firm in conditions of perfect competition, imperfect competition and pure monopoly.

Special attention to J. Robinson paid attention to such a characteristic feature of the market behavior of large companies as price maneuvering. The key issue in her research was the study of the possibilities of using price as a tool for influencing demand and regulating sales. It is J. Robinson introduced the concept of "price discrimination" into economic theory, which meant market segmentation by a monopoly based on taking into account different price elasticity of demand for different categories of consumers, price maneuvering for different groups, in different geographical markets. She drew attention to the problems of pricing policy formation, which was completely absent in conditions of perfect competition. J. Robinson showed that the monopolist is able to divide the market of his product into separate segments and assign a special price for each of them, so that the total profit is maximized. However, the question arises - why does not the monopolist set the same high price in all markets? It turns out that this is impractical, because in conditions of imperfect competition, different groups of buyers have different price elasticity of demand, and if a high price is set everywhere, demand can drop sharply. Therefore, in order to maximize profits, it is advisable to act differently: when releasing a new "differentiated" product, first set a very high price, serving the wealthiest part of the buyers (a market with low price elasticity of demand, the so-called "strong market"), then lower the price, attracting less affluent buyers and continue to do so until markets with high price elasticity of demand ("weak markets") are covered. This "cream skimming" tactic is based on price discrimination based on income groups. But spatial discrimination is also possible, as, for example, when setting monopoly high prices in the domestic market and dumping prices in foreign trade. Be that as it may, the "golden rule" of the policy of price discrimination is that the highest price is set where the elasticity of demand is the least, and the lowest - where the elasticity of demand is the highest. Comparing a simple monopoly and a monopoly practicing a plurality of prices, J. Robinson showed that in the latter case, the firm achieves both an increase in output and an increase in gross income. Analyzing the behavior of monopolies, J. Robinson attempts to assess the desirability of price discrimination from the point of view of society as a whole. In her opinion, on the one hand, a monopoly that uses price discrimination (compared to a simple monopoly that does not practice such behavior) increases the volume of output. On the other hand, price discrimination, while maintaining monopoly high prices, leads to an incorrect distribution of resources and to their general underutilization. In addition, the monopolization of production, according to J.

A negative attitude towards monopolization is also manifested in the teachings of J. Robinson on monopsony. J. Robinson analyzes the consequences of monopsony using the labor market as an example, when a large firm (monopsonist) acquires the labor services of unorganized workers. In this case, the monopsonist company imposes on the workers terms of the transaction, under which real wages may be lower than the marginal product of the worker's labor. According to J. Robinson, this would mean the exploitation of labor. Robinson cited minimum wage legislation and trade union policies as anti-exploitation factors.

As a result of his research, J. Robinson comes to the conclusion that the possibility of price maneuvering undermines the basic postulates of the classical theory: the independence of the pricing process, the identification of the balance of supply and demand with the optimal use of resources and the optimization of social welfare. This is its fundamental difference from Chamberlin, who believed that it was the mechanism of monopolistic competition that best served the interests of economic well-being.

Author: Agapova I. I.

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