Monopoly

As a monopoly ( composition of ancient Greek μόνος monos "alone" and πωλεῖν pōlein "sell" ) is called in economics a market situation ( market structure ), in which only one provider exists for an economic good. Equal importance is also called a pure monopoly to differ from market forms in which, for example, only in a smaller portion monopoly structures predominate ( as in the case of monopolistic competition, see also below the section # quasi- monopoly).

It is sometimes also, contrary to the etymological meaning ( pōlein "sell" ) and in this article the definition used a market situation as a monopoly called, in which only a demand occurs. One then speaks in this form of a monopsony in differentiation from outlined above offer monopoly; common, however, is for the monopsony (even etymologically consistent ) Title monopsony.

• 2.2.1 Collective monopoly
• 2.2.2 Legal monopoly

• 3.1 Price -setting behavior of the monopolist
• 3.2 Inefficiency of monopoly case 3.2.1 incidence
• 3.2.2 Quantification of the welfare loss
• 3.2.3 increase in welfare due to price discrimination

• 4.1 monopoly backup
• 4.2 vulnerability of monopolies

• 5.1 Offer monopolies
• 5.2 Nachfragemonopole
• 5.3 Bilateral monopolies

Demarcation of the structurally related market situations

In a bilateral monopoly, a supplier and a demander are facing. These are just a few market participants present, it is called an oligopoly. If two players on, it is a duopoly.

Depending on the context, the term monopoly is often applied for a context with imperfect competition, in which, although there are on the supply side, several market participants, but one of them occupies such a dominant position due to significant competitive advantages that it is largely independent in the pricing of competition is ( quasi- monopoly).

A special form of monopoly is the state monopoly; here comes the state as the sole provider of a good.

The counterpart of the monopoly is the Polypol.

Types of monopolies according to their reasoning

Natural monopolies

Pure natural monopolies

The monopoly exists ideally without market- regulating effect, eg because a provider alone has access to certain raw materials or sole has significant technologies (eg through market advantage ). Often, the natural monopoly results from natural barriers to entry, particularly when a complex nationwide infrastructure is required, such as railway networks or supply of electricity, water or gas. A natural monopoly in the strict sense is a market form in which a company can satisfy with decreasing average costs with increasing production volume demand; in this case produces a single company permanently cheaper and can displace competitors from the market.

Quasi- monopoly

If there is indeed more than one provider are in a market, one of which, however due to a very strong natural competitive advantage has a dominant position, it is called a quasi- monopoly. This is not a real monopoly, this comes in its effects but close.

Quasi- monopolies are found particularly often in information technology: the design of software and data often depends on certain quasi- standards, where only a provider has the rights or where it would be too costly for competitors, compliant products to a to develop competitive price (the latter, as the cost of digital reproduction makes it easy especially the leader, a competitor to undercut in price and thus difficult for him to enter the market ). Who wants to use for such a quasi-standard working software or data, or talk to others, is dependent on the products of this vendor. The most prominent example is Microsoft, which is a quasi- monopoly on PC operating systems and Microsoft Office holds a virtual monopoly for office suites with Microsoft Windows. Quasi- monopolies in the field of information technology can be prevented under certain circumstances by the consistent use of open standards.

Another example of a quasi- monopoly Lego was on the market for plug-in components made ​​of plastic.

Artificial monopolies

Collective monopoly

Collective monopoly (also Contractual monopoly): The monopoly exists, as set all the supply and demand of common services and prices (such as in a cartel ), and so the competition is eliminated. In most countries, such agreements are generally illegal ( in Germany: Act against Restraints of Competition ).

Legal monopoly

As a legal monopoly is called a monopoly that exists because of a statutory provision. This form can be found today in the State (such as foreign trade monopoly in Article 14h of the Soviet Constitution of 1936) and in (even former ) state-owned enterprises (eg postal monopoly ); the few exceptions like the Zündwarenmonopol, alcohol monopoly or the salt shelf are largely abolished in modern economic systems. In the past there in fire insurance a monopoly by the compulsory insurance at the regional public insurers. Also, due to monopolies of patents and other intangible monopoly rights such as copyright are included in this category.

Microeconomic theory of monopoly

Pricing behavior of the monopolist

Taking as classically the case that the monopoly situation is exogenously given ( for example, by governmental and technological barriers to entry ), a monopolist needs to take competitors in pricing no consideration (if any). The monopolist know the given market demand function or its inverse ( price-demand function). He maximizes assuming its revenue function; it is reasonable to imagine that either he chooses the quantity offered or that he chooses the price. It should be noted only that the other dimension follows directly from his decision: he chooses a price that follows from the demand function that it can sell more than just units; he chooses the quantity, it follows from the ( inverse ) demand function, in turn, that there is on the market the price. Following maximization problems accordingly provide the same price-quantity pair:

For practical reasons, the latter problem is usually considered. Loosen and rearranging yields the first-order condition for the profit optimum

Q the quantity of goods with the price elasticity of demand. It is assumed to be negative ( law of demand ), so that

The optimum of the monopolist that is, the Lerner index is the reciprocal of the amount- demand elasticity. For the elasticity of demand applies to this condition because, and according to assumption.

At this condition is thus also directly read that the monopoly price is above marginal cost. This is followed, the difference to the case of perfect competition, it is clear where the optimum price equals marginal cost. In addition, it is apparent that the potential may be higher in relation to the marginal cost, the inelastic is the demand for goods.

Inefficiency of the monopoly case

Incidence

From the outlined price-setting process, the inefficiency of a monopoly follows. Intuitively, this is directly visible on the pricing, because if the price is above the marginal cost, there is - a sufficient number of buyers required - even those buyers whose willingness to pay is between the marginal cost and the monopoly price. But that there is a mutually profitable renegotiation in which the monopolist these customers sold one unit of the good at a price that is between its own marginal cost and the willingness to pay of customers. Consequently, the result of a monopoly resource allocation is not Pareto- efficient. The fact that the monopolist still a price selects (or a lot of that has this price result ) is, because he has no way in the standard model to discriminate between different groups of buyers - rather it sets a price that is valid for all buyers. The fact that the monopoly price upwards from Kompetitivpreis differs, therefore, is that the loss he would have to bear with a marginal decrease in the prices of the relatively affluent buyers segment, greater than would be the profit he generated by the effected thereby increasing the purchasers which could.

The price effect has a corresponding effect also in terms of the quantity offered. A monopolist offers in profit optimum to a lower quantity of goods, as he did so in a competitive environment.

In addition, of course, there are also other, non-modeled potentially welfare- reducing effects of a monopoly. Thus one is therefore faced as a result of the dominant position and the lack of competitive pressure with a worse power supplies on the market. Furthermore, monopolists are often little more open to innovation (dynamic inefficiency ).

Quantification of the welfare loss

If you want to quantify the welfare loss can be made to the chart of supply and demand curves ( see Figure 1). In full competition ( Polypol ), supply and demand meet; the quantity traded is XPol, the associated price Ppol. However, as shown above is the price in a monopoly higher ( here: PMON ) and the quantity correspondingly low ( here: XMON ). This results in the analysis of consumer and producer surplus significant shifts. In Figure 1, the consumer surplus corresponds to only the gray-shaded triangle. Because consumers, who are willing to pay less than the monopoly price, purchase the good not only; producer surplus equals the total light blue surface. Compared to Polypol you can see that the rectangular part of the blue area is now also attributable to the producer surplus - in Polypol she was still part of the consumer surplus. The reason for this turn in the higher price and the fact that this is now further up the next in the supply function expressed marginal cost.

However, since the amount is only XMON, you can see overall that the sum of consumer and producer surplus in the case of monopoly is lower than in Polypol: The red colored areas are no longer cause they are to a certain extent as a result of inefficient small provision of the good " lost "; they are known in English as complying deadweightloss. The entire red area is the so-called Harberger triangle.

Increase in welfare due to price discrimination

Through various forms of price discrimination the monopoly outcome can be influenced. Can a monopolist, for example, perfectly discriminate ( price discrimination first degree), he can by any consumers whose reservation price (that is the highest price that is willing to pay this ) demand and sell the property to those who demand that have the highest esteem. There is then no welfare loss one because it deposits the same amount as would result in competition case: the perfect preisdiskiminierende monopolist sells all his property, which has a marginal willingness to pay at least equal to the marginal cost of production, and he asks for an amount which corresponds exactly to the individual willingness to pay.

This result is therefore also Pareto efficient because any change in the resulting allocation would have the consequence that the monopolist ( the just it receives the full pension) will be worse off.

Multi-product monopoly

The previously considered monopolies are all single-product monopolies, that is a supplier is a monopolist with respect to a commodity. The situation changes if the provider is a monopolist for several goods, because between the two goods interdependencies may exist ( substitution or complementary relationship ) - thus also the price-setting behavior of a monopoly provider changes.

Let ( ), the demand for good i as a function of the prices of all goods; is the additive separable cost function, depending on the amount of all the offered goods. The maximization problem ( here formulated for simplicity and usability of the result in terms of price ) is

And leads to the first-order conditions

In which

That means, profit optimum of the multi-product monopolist (also: a multi-product monopolist ) is valid for each offered a good thing that the Lerner index for this material ( left side of the condition ) corresponds to the so-called Ramsey - index for the Good (right side). Note that this implies that in the presence of substitutes (), the Lerner index is greater than the reciprocal of the ( own-price ) elasticity, thus so that a higher price is set as in the case of single-product monopolist ( see above). The opposite is true for the case of complementary goods () - here the set price is even below the price that the monopolist would seek if he does not innehätte a monopoly on both goods markets.

Stability of monopolies

Monopoly backup

Many products are replaced by other ( ie they can be substituted). Still you get to individual properties under certain circumstances. However, often this plays a minor role, if thereby a lower price is obtained and a greater choice of providers is available. This limits the practical effect of supply monopolies.

To mitigate this situation, at least, there are different strategies:

• The monopolist can diversify his product. The product is provided with features that other similar products are missing ( exclusivity ). Or from any product will be made ​​several different properties ( product range ). The risk lies in the question of whether the new property that is at all what interested customers.
• The monopolist can try his product to give an "image". The product is to be anchored so his reputation in the buyer's consciousness, so that it is indispensable for this. However, this is difficult. For one, it often requires expensive advertising campaigns, on the other hand is a positive image (eg youth ) often copied after some time of competitors.
• Potential competitors are pushed or bought from the market. This works but not always. Firstly, this requires appropriate economic power. A small business would, for example, against a global corporation only bad cards, even if it would still be so innovative. The merger may also fail due to government regulations (antitrust).
• Legal requirements may also help to keep annoying competition at bay. Thus, the monopolist trying to influence the state legislature, to secure a certain monopoly. Often such monopolies follow state self-interest ( secure source of income ). Private companies to avail themselves of lobbying, but also criminal methods, such as corruption, extortion and the like. , Can be used. The transitions between national self-interest, legal advocacy and criminal methods can be fluent. Conversely, however, in recent decades, large-scale state-owned enterprises have been privatized ( post, rail, etc.). Here had lobbied be operated to maintain the existing monopoly as long as possible.

Since a monopoly promises highest possible profit, a monopolist will aim to continue to shield the market from potential competitors. To achieve this, it is also unfair to repeatedly or used market-distorting means. Example of such practice is the dumping: Products are offered long a period of time not to price below cost until the competitor was forced out of the market, in order to subsequently raise prices again. This situation can also arise by a cartel, or by an oligopoly. Again, there are sometimes legal restrictions (see banning the sale on losses in France).

If monopolies are not broken, for natural reasons, attacks occasionally the state is a competitive reasons. Most often in these cases lies a violation of the respective national legislation before ( in Germany, these are the Law against Unfair Competition and the Law against Restraints of Competition ).

For example, the Microsoft Corporation, a quasi- monopolist, was sentenced for abusing its market power.

According to the theory of contestable markets is often enough the contestability of the monopoly: these must be threatened credible that the monopoly may be lost if certain requirements are not met. The credibility increases especially if the market exit costs are low.

Vulnerability of monopolies

Following William J. Baumol's theory of contestable markets, the view is taken that the existence of a monopoly would require no action by competition authorities because the competition was not visible in the form of multiple vendors, but he acted in a latent manner. Depending on the conditions that justify its monopoly, could be subject to when making decisions regarding the pricing or the services it offers (quantity, quality), certain restrictions a monopolist. This decreasing its monopoly rent.

A contestable market can discipline a monopolist. If the offer price above the market entry costs, there is a danger that offer competitors enter the market. If the offer price above the price of substitute goods buyers can upgrade to comparable products. The offer price then drops in extreme cases up to the reserve price, which is determined as in the oligopoly or in Polypol by either the average cost or marginal cost. An anytime unassailable monopoly is referred to as morphological monopoly. It is often kept at least for a short time to be desirable to provide for technical progress.

However, ordo-liberal as Walter Eucken reject this argument because every monopoly in principle contrary to the economic objective of optimal allocation equilibrium.

Examples of monopolies

Offer monopolies

Examples of monopolies offer are:

• The postal monopoly ( the monopoly of Deutsche Post AG was abolished on 1 January 2008, the monopoly of the Austrian Post AG was abolished as of 1 January 2011);
• The German Telekom, still dominant market position, especially in the local network and in the analog domain outside urban areas; it is not here, however, a monopoly in the strict sense, because the Telekom is indeed the greatest, but not the only provider in the telecommunications market; part is also already spoken in the media by an ex - monopolists;
• The state lottery monopoly;
• The spirits monopoly;
• The Zündwarenmonopol ( abolished in 1983 );
• The sweeping monopoly ( special legal rights of chimney sweeps );
• The gambling monopoly (state control over publicly accessible games to assets ), the concrete set in Germany, however, judged to be illegal by the European Court of Justice in September 2010, and was thus canceled.
• The Austrian tobacco monopoly, which allows the sale of tobacco products only through tobacconists.

Nachfragemonopole

Under a monopsony (also monopsony ) refers to a market situation with several suppliers, but only a buyer. One example is the arms market in a closed economy. In reality, a monopsony is very limited before. With few suppliers and a buyer is also called a limited monopsony. This market structure is often found in tendering procedures in rail transport; there occur a national transportation company on as customers and the railway companies, who apply for the offered traffic contract as a provider.

Examples of Nachfragemonopole (mostly limited Nachfragemonopole ) are:

• Common in military products
• Products for holders of Offer monopolies
• Products and services for federal agencies
• Niche products in the aerospace industry (eg European space program )

Bilateral monopolies

Standing a monopolist only few customers / vendors measure against, it is a limited monopoly. Stepping on both sides only one vendor and a purchaser in, it is called a bilateral monopoly. This is to be distinguished from a situation with two providers, the so-called duopoly. Is there a market, although more than one supply and demand, but very few, it is called an oligopoly.