MONOPOLY

Definition
Monopoly is the exclusive possession or control of the supply of or
trade in a commodity or service according to Oxford dictionaries. Market
situation where one producer (or a group of producers acting in concert)
controls supply of a good or service, and where the entry of new producers
is prevented or highly restricted. Monopolist firms (in their attempt to
maximize profits) keep the price high and restrict the output, and show little
or no responsiveness to the needs of their customers. Most governments
therefore try to control monopolies by (1) imposing price controls, (2)
taking over their ownership (called 'nationalization'), or (3) by breaking
them up into two or more competing firms. Sometimes governments
facilitate the creation of monopolies for reasons of national security, to
realize economies of scale for competing internationally, or where two or
more producers would be wasteful or pointless (as in the case of utilities).

Literature Review
Wang and Tan on their “The Influence of Product Market
Externality on Dynamic Decisions of Monopoly” done some research about
The externality of the goods in the market affects the diffusion process of
the product, and also affects the price strategy and advertising strategy that
manufacturer makes in the diffusion process of the product. Positive
externality can accelerate the speed of the product diffusion, increase
product sales, and save the cost of advertising in order to increase
enterprise’s profit; Strong negative externality reduces product sales,
increases enterprise’s advertising costs and makes losses. Under the market
of the monopoly structure, considering the effect of products’ externality,
product price and advertising investment on the product’s demand, builds
the dynamic decision model of the product and uses the control theory to
get the manufacturer’s optimal price strategy and optimal controlling
strategy of the advertisement expenditure, and relatively analysis the
changing trend of optimal controlling strategy, the product’s diffusion
process and manufacturer’s profit on the different condition of positive and
negative externality, and obtains some conclusions which are provides
theory support for the decision enterprise makes. They made conclusion
that The manufacturer could use advertising to accelerate product diffusion
and increase product sales in the early stage of the product entering the
market. When consumers buy and use the products, products will have
externality in the market that affects product diffusion and firm decision. So
it is much valuable to study the effect of externality on dynamic decision
making for monopoly. The dynamic model is built including price,
advertising level and externality in this paper, using the control theory to
calculate the optimal price, advertising level control strategy and the actual
product total demand, and also analyzes the change trend of relevant
parameters in different conditions. The main conclusions are: when the
product has different market externalities, the optimal advertising
investment level and the optimal price have different trends with the
increasing of external strength; especially, whether the product has positive
market externality or negative market externality, the ratio of the optimal
advertising investment level to the optimal price decreases with the
increasing of external strength. Under different conditions, the effect of
market externality on product sales is different. Research on the influence
of product monopoly externality on dynamic decision can provide a
theoretical basis for monopoly that makes dynamic decision and control in
different sales periods. The monopoly should make full use of the products’
positive externality to save costs and increase revenue.
Ágoston, KC on his “Pricing of a Risk Averse Monopoly in the Presence

of Stochastic Demand” investigated the pricing behavior of a risk averse

monopoly. Since the focus is on the risk averse attitude of the firm, he ignore cost
in his model. Demand is considered to be stochastic demand: as price decreases,
the expected number of customers increases, but it has a variation. Although
demand is uncertain, it relates to the aggregation method of individual demands
and the individual demand has the usual form. In his framework a risk neutral (or
profit maximizer) monopoly does not change the product’s price as the number of
clients increases. On product markets the risk averse monopoly with DARA utility
function always increases the price as the number of clients grows, but in
insurance markets the implication can be the opposite: the price of insurance may
decrease as the number of clients increases. He also make a conclusion that he
presented a microeconomic framework, in which a risk averse monopoly’s
behavior can be investigated. He proved that in a product market a risk averse
monopoly applies a lower price than a risk neutral (profit maximizer). If the risk
aversion decreases with wealth (DARA), the market price will increase with the
market size. In the insurance market the price can decrease or increase with the
market size even for utility function with DARA property.

Hosoya, Y and Kaneko S on their “Welfare Improvement and the

Extension of the Income Gap under Monopoly” done a research which constructs a

model of a monopoly where investors are also actors, and shows that, in contrast to
traditional models, this model admits the welfare improvement caused by
monopoly. This study also reveals that if a huge income gap exists in the initial
stage, then monopoly exacerbates the expansion of the income gap caused by
market trades. Moreover, we show that this exacerbation occurs in general
situations under some additional (but natural) assumptions. As a conclusion, They
constructed a model of a monopoly with investors, and showed that monopoly did
not necessarily decrease total welfare. Meanwhile, under mild assumptions
monopoly exacerbated the expansion of the income gap. Therefore, we revealed a
new aspect of the negative influence of monopoly.

Kirsanov S, Safonov E and Ramirez S on their “Natural Monopoly in

Russia : State Regulation Problems” made an article that has a purpose to reveal

some aspects state regulation of natural monopoly in Russia, which are of

paramount importance in economic and social life of the country. The optimal path
to reforming the monopolized industries is currently a very topical question for
Russia. The Russian government requires studying the foreign experience in this
field and adapting it to the Russian conditions. Almost complete lack of
transparency in the pricing of natural monopolies is one of the most important
problems in Russia. In this connection, against the background of almost
uncontrolled corruption in the country, the decision to increase tariffs for
practically all services provided by monopolists, irrespective of the world prices
for energy resources, causes distrust and just censures. The inefficient
management of the state corporation Gazprom, a significant reduction in taxes
transferred to the state budget, has not, until now, been the subject of thorough
audit and critical analysis by the relevant government agencies. The Ministry of
Energy does not attempt to reform the gas industry, for example, in the likeness of
Scandinavian countries, where surprising results have been achieved in the
operation of numerous energy suppliers. The increase of tax revenues to the
country’s budget and the improvement of the quality of life of the population
depend on to the scope of reforms of the industry the state will carry out based on
a combination of administrative and economic control measures. Methods of
investigation used: analysis, synthesis, comparative analysis. They conclude that
Despite the image of a successful company, PJSC Gazprom is losing its
markets and revenues with adverse effects on the state budget. The deficit
of the state budget of Russia in 2017 amounted to about 3 trillion rubles.
Nevertheless, the management of the state corporation continues to pay
huge dividends to itself, which, under the conditions of the economic crisis
in Russia, causes social tension. Many economists believe that a high
degree of integrity of the Russian gas industry is objectively necessary and
that Gazprom should stay a natural monopoly. In our opinion, this point of
view is erroneous, comprehensive reform of the gas industry is required,
which should be aimed at real competition. According to the world
experience, gradual decentralization of regulation, emergence of new
energy suppliers will lead to the emergence of a civilized market, increasing
business efficiency and, as a result, revenues to the country’s budget.