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The theory of monopoly. Monopolistic competition.

The essence of monopoly is characterized by three features: concentration of considerable proportion of production, which provides preponderant position in the sphere of market and the market in all of the monopoly; the opportunity to dictate the prices to the market; getting high monopoly profits as a result of economic rule of the monopoly in the market.

The forms of monopoly are improving with the development of process of monopolization. The easiest forms are: conventions, rings, pools, corners. Then cartels, syndicates, trusts, concerns, conglomerates appeared.

Unfair methods of competition:

1. Dumping is selling products at cost price or lower with thepurpose to defeat the competitors and later to increase the prices in order to cover the losses.

2. Cartel is an agreement by competitors to fix the price atthe level which is usually higher than the equilibrium price. Hence the other name of this method, namely, a price-fixing agreement.

The consequences are obviously that under these conditions the market forces – supply and demand – do not produce an equilibrium price and the consumers pay more. Therefore, dumping and cartels are considered illegal practices in many countries. Anti-dumping and anti-monopoly laws prevent such practices, in particular in the USA.


Antimonopoly legislation and antimonopoly policy.

Antimonopoly legislation places the forms of warning, responsibility and compensation in case of the forbidden actions.

The control after the fulfillment of antimonopoly legislation is realized by the organs of antimonopoly Committee, created by The Supreme Soviet of Ukraine.

The needed terms of the passage from command-administrative to market economy is the demonopolization of economy. The main directions of demonopolization of economy are:

1. the control after following antimonopoly demands within the creation, reorganization and liquidation of economy subjects;

2. Keeping control after big selling and buying of actions, which can bring to dominant conditions of those subjects.

3. The accordance of lax credits and also decreasing of taxes;

4. Financing of events of the issue of deficit goods in order to eliminate the dominant position of separate economic subjects;

5. Attraction of foreign investments, creation of combined undertakings;

In all the countries having market system the arrangements of demonopolization are realized, which are directed against monopoly. Antitrust laws are being created. Antimonopoly politics of state has to assist in reaching the goals of market economy and realization of interests of all the members of society.

  1. Infrastructure of the market. Basic elements of the infrastructure of the

Modern market. Functions of market infrastructure.

Market economy is a generalized form of economy organization, based on commodity production that ensures the interaction between production and consumption.

Market infrastructure.

1) Meaning of market infrastructure for economic relations.

a) The formation of market infrastructure is necessary for any model of economy. For countries with transitive economy it is of great importance. I command economy separate branches of infrastructure were of secondary importance while others were not considered to be important at all.

Major elements of modern market infrastructure are:

- credit system, including banks;

- exchanges (commodity, stock exchange, currency and real estate market);

- auctions, fairs and other forms of organized outer-exchange mediation (brokers, dealers);

- the system of regulation of population employment (state and private structures), labour markets;

- issuing system;

- depository system (national depository, independent owners and securities registrators);

- consulting agencies;

- clearing banks or firms;

- trust companies;

- innovative-informational centers, technoparks;

- advertising business;

- means of business communication;

- rating agencies;

- real estate business;

- auditing companies;

- civil firms and sponsor funds meant for the support of entrepreneurial activity.

“Ideal “ marketing model includes such elements:

1. freedom of enterprise and full responsibility of the economic activity results. But “ strict budget limit “ functions, that is, each of the market subject operates only with own or borrowed funds (credit);

2. competition, absence of any kind of monopoly, which limits the ability of producers to influence on market price, and in that way distort the conditions of market competition;

3. absolute mobility of all kinds of the economic resources (material, financial, labour), that is, their transference from less effective to more effective branches, but for this reason developed market infrastructure is necessary (banks, exchange, distribution centers etc.);

4. autonomous activity of all market subjects;

5. freedom of price formation. Price – is the core of market mechanism (demand – price – supply). L. fon Chajek (German economist) wrote, that any deviation of free price formation (even with good intentions) led to the establishment of dictatorship;

6. full awareness of all market subjects about market condition (market conjecture, profit rate, the situation on labour market, financial market etc.);

7. stability of state financial system, openness to the foreign market, political stability of the country.

Market function.

The essence of market is revealed in the functions it fulfills. The most important ones are:

1. Self-regulation of production, which presupposes the sequence of production and consumption in the assortment structure as well as the maintenance of demand and supply equilibrium with respect to volume and price; The market answers on questions: what to make? For whom? How to make? The market is inconceivable without a competition (intrabranch and interbranch).

2. Stimulating function consisting in making the producers manufacture new production with the lowest costs per item and maximum profit.

3. Information. Through varying prices, rates the market gives participants of manufacture the information on socially necessary quantity, assortment and quality of the goods and services.

4. Intermediary. The market allows the seller and the buyer to find each other.

5. Definition of the price. The market recognizes only socially necessary expenses, only they will be paid by the buyer.

6. Sanifying. By means of a competition the market clears a social production of economically unstable, impractical facilities.


Theme № 6. The mechanism of functioning of the market system. Lecture 6. 1. Law of demand and demand curve. Non-price factors affecting the change in demand. Factors affecting demand.

2. Law of supply and the supply curve. Non-price factors influencing to changes in supply. Factors affecting supply.
3. The concept of market equilibrium and equilibrium prices. The pricing mechanism in the market economy.

Key words

theory of demand – теория спроса quantity demanded – величина спроса income – доход

preference – предпочтение law of demand – закон спроса

consumer demand – потребительский спрос

market demand – рыночный спрос

slope down / up – иметь отрицательный / положительный уклон

determinant – детерминанта, решающий фактор

expectation – ожидание

shift – смещаться, перемещаться, сдвигаться

change in quantity demanded – изменение величины спроса change in demand – изменение спроса

forecast – прогноз

theory of supply – теория предложения

quantity supplied – величина предложения

output – объем произведенной продукции, выпуск продукции

profit – прибыль

revenue – доход, выручка

costs – издержки, расходы

marginal costs – предельные издержки

marginal revenue – предельный доход market supply – рыночное предложение

shortage – дефицит, нехватка

surplus – избыток

substitute good – товар-заменитель

complementary good – товар-дополнение normal good – качественный товар inferior good – товар низкого качества

signal – сигнал

incentive – стимул

respond – реагировать, отвечать

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