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THE INTERACTION OF COMPETITION AND MONOPOLY
Bekzod Kh, Ummatov
1
1
Diplomat University, Tashkent, Uzbekistan
https://doi.org/10.5281/zenodo.13888851
Keywords:
business activity, antimonopoly regulation, competition, monopolies,
business law, business law.
In the context of the desire of each market entity to maximize profits and, consequently,
to expand the scale of economic activity, firms act as competitors in relation to each other.
Economic competition refers to the competition of economic agents in the consumer market.
The emergence of monopolies is a historically inevitable economic process caused by
the development of centralization, concentration of production and scientific and
technological progress. Despite the negative phenomena, monopolies have firmly entered the
economy of most countries.
Until about the middle of the 19th century, the economies of developed countries were
characterized by perfect competition, which was determined by the small size of enterprises
and the large number of manufacturers. But since the second half of the century, the picture
has begun to change significantly: large enterprises are gradually capturing an increasing
share of markets. The rapid development of production, associated with the rapid growth of
capital-intensive heavy industries, railway construction, and the transition to the use of
electric energy, led to the formation of large and super-large enterprises. The following data
indicate the increased concentration of production at the turn of the XIX -XX centuries. In
Germany, large enterprises (with more than 50 workers) accounted for 0.3% of all
enterprises in 1882, and 22% of all workers in the country were concentrated on them; in
1925, large enterprises accounted for 1.2% of the total number of enterprises and 48% of the
total number of workers. In 1904, American industry had the largest enterprises with a
production volume of $1 million. They accounted for 9.9% of the total number, and employed
25.6% of workers.
In 1909, such enterprises already accounted for 1.1% of the total number, and they
employed 30.5% of all workers who produced 43.8% of the country's total industrial
output.These processes have led to a significant change in the nature of competition in the
markets.
The most in-depth and complete analysis of radically new moments in the behavior of
economic agents in markets and new market conditions was given in the fundamental works
"The Economic Theory of Imperfect Competition" by Joan Robinson and "The Theory of
Monopolistic Competition" by Edward Chamberlin.
The conditions under which economic competition takes place are usually referred to as
a market structure. It is characterized by a number of features: the number and size of firms,
the type of product offered, the degree of price control, the conditions for entering and exiting
the industry, and the reliability of information.
Despite the variety of market structures, the following four market models are usually
distinguished: perfect and imperfect competition, including monopolistic competition,
oligopoly and monopoly. Each of these structures differs in the degree of market
competitiveness, that is, the ability of firms to influence the market structure. The less
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influence this has from the company's branches, the more competitive the market is
considered to be.
The presented characteristics of the types of market structures, when compared with
reality, show that such market models as perfect competition and monopoly are actually
extremely rare, while monopolistic competition and oligopoly are actually present in all
existing markets of the world. With perfect competition, there are a large number of sellers
competing in the market. The volume of production and supply from individual
manufacturers account for a small proportion of total output, so one firm cannot have a
noticeable impact on market prices.
Participants in a competitive market have equal access to information, that is, all sellers
have an idea of the price and possible profit. In turn, buyers are aware of the prices. There is
freedom to enter and enter the market.
In practice, perfect competition in its pure form is a rare phenomenon. But there are a
number of industry markets that have exactly this structure. For example, markets for
agricultural products, markets for a number of services. These markets include a large
number of independent sellers offering standardized goods, the price of which is determined
by the ratio of supply and demand.
Imperfect competition is understood as a market in which at least one of the conditions
of perfect competition is not fulfilled. In most real markets, the vast majority of products are
offered by a limited number of firms. Large corporations, which have concentrated a
significant part of the market supply in their hands, find themselves in a special relationship
with the market environment. Firstly, by occupying a dominant position in the market, they
can significantly influence the conditions of sale of products. Secondly, the relationship
between market participants is also changing.
Imperfect competition is divided into three main types: monopolistic competition,
oligopoly, and monopoly.
An example is the markets for clothing, shoes, washing powders, soaps, and soft drinks.
Firms producing goods for this purpose, as a rule, operate in conditions of monopolistic
competition. Goods of the same purpose are close substitutes, one may differ from the other in
the quality of performance, packaging, design, and after-sales service. Thus, firms compete by
selling differentiated products. Product differentiation allows the manufacturer to set the
price independently, regardless of the actions of competitors. Each company is the only
manufacturer and, in this sense, a monopolist. But since the sales volume of each seller is
relatively small, each of the firms has limited control over the market price.
Entry into the market of monopolistic competition is quite free and is determined
mainly by the size of each participant's capital. However, entering the market is difficult
compared to free competition.
An oligopoly is a market dominated by several large firms. It is difficult to determine the
exact number of firms, since the oligopolistic market covers a fairly large part of the national
market.
Firms make high profits because access to the oligopoly market is significantly difficult.
Penetration into the industry is hindered by almost the same barriers as in the conditions of a
monopoly. Among the most important are the amount of capital required for a new company
to enter the industry, as well as the control of existing manufacturers over the latest
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technology and production technology.The oligopolistic market is characterized by the
interdependence of several rivals. Since only a few firms compete in the market, each market
participant must carefully monitor the behavior of rivals, weigh their actions in relation to
pricing policy, and assess the economic consequences of their decisions.
Depending on the type of product, a pure oligopoly and a differentiated one are
distinguished.Enterprises of a pure oligopoly produce a homogeneous standardized product:
aluminum, cement, chemical or steel industry products. The identity of these goods
determines the single price for them.An oligopoly that produces a variety of products of the
same functional purpose is called differentiated. Usually differentiated oligopolies specialize
in the production of consumer goods, such as cars, tires, cameras, household appliances,
cigarettes.An oligopoly as a market structure includes a cartel, which is a collusion of several
firms over prices and output volumes in order to maximize joint profits. If all the enterprises
of the industry unite into a cartel, then it behaves like a monopolist firm.
A monopoly is a large corporation that occupies a leading positionin a certain area of the
national economy, which determines the economic behavior of the firm. There may be a
situation in the market when buyers are confronted by a monopolist entrepreneur who
produces the bulk of a certain type of product. In this case, a small company may turn out to
be a monopolist. Conversely, a large firm may not be a monopolist if its market share is small.
Monopoly assumes that there is only one manufacturer in the industry that fully
controls the volume of product supply. This allows him to fully set the price that brings
maximum profit. The extent to which monopoly power is used in setting prices will depend on
the availability of close substitutes for the product. If the product is unique, the buyer is
forced to pay the assigned price or refuse to purchase. The number of products that have no
analogues is usually limited. A pure monopoly can include the provision of public utilities,
cable television companies, telephone companies, or the monopoly of book publishing on the
sale of textbooks, etc.
A monopolist firm usually has a higher profit, which naturally attracts other
manufacturers to the industry. In the case of a pure monopoly, the barriers to entry into the
industry are quite large, and this practically blocks the penetration of competitors intothe
monopolized market. The real barriers to entry into the industry are as follows.
First, there is the scale effect. Highly efficient production with low costs is achieved in
conditions of large-scale production due to market monopolization. Such a monopoly is often
called a "natural monopoly", that is, an industry in which average costs are minimal if only
one firm serves the entire market. It is extremely difficult for new competitors to enter such
an industry, since it requires large investments, and a monopolist firm, having lower
production costs, is able to temporarily reduce the price of products and destroy a competitor.
'Secondly, the presentation of exceptional laws?. In a number of European, American
and Russian countries, the government grants firms the status of sole seller for transport
services, communications services, gas supply, etc. But in return for these privileges, the
government reserves the right to regulate the actions of such monopolies in order to exclude
abuse of monopoly power, protect the interests of non-monopolized industries and the
population.
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Thirdly, patents and licenses. The government guarantees patent protection for new
products and manufacturing technologies, which provides manufacturers with a monopoly
position in the market.
Fourth, ownership of the most important types of raw materials. Some companies are
monopolists due to the undivided ownership of the sources of the production resource.
Sometimes, in order to generate additional income, a monopoly, using its market
position, sells the same product at different prices in different markets. The practice of
applying different prices on the part of the firm is called price discrimination. The use of such
prices is not only possible due to the isolation of markets from each other by geographical or
tariff barriers, but also becomes real due to the different response of demand to price changes
(elasticity of demand) in these isolated markets, and, consequently, the willingness of
individual consumers to purchase the necessary amount of goods at a price above the market.
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