Monopoly Power, Public Spending, and Market Regulation
Bases of Monopoly Power
The bases of monopoly power are related to why monopolies are born. Knowing the cause that motivated the birth of a monopoly, that same cause is the source, the force that maintains its existence. So, then, knowing the reason for their appearance can determine the basis of its power. The causes for the occurrence of a monopoly are:
A- By the particular conditions of production of a good that make it uneconomical to have more than one manufacturer of a product in the same region. When the conditions of production of goods require a specialized technique, this causes an increase in production costs, making it uneconomical to produce more goods and services than demanded. However, when there is more than one manufacturer in a market, the more consolidated company will, through competition, try to lower the price to match the cost of production, so that less consolidated companies cannot make profits. These companies then leave the market or are absorbed by the consolidated company. A company is less established when it has a greater financial burden, such as increased debt from recent or past investments. The more consolidated company, with a lower financial burden, has better competitiveness and thus becomes a natural monopoly.
B- By the limitations of market size. Sometimes, in a smaller market, one company is enough to supply all the demand. If this company is consolidated, it will be able to compete effectively. It is not logical to install another company to produce the same good, as it would not sell anything, or it would be in the same situation as before: the more consolidated company would eventually absorb the less consolidated one.
C- Based on the costs of producing the good. If a company in a market dominates or owns the patent on essential equipment for production, it will have lower production costs than other companies. A patent is an intellectual property right of the creator or inventor. This right can be transferred and allows charging a fee for the use of the good or service. The company with the patent does not have to bear this cost in production.
D- When a company dominates or owns the essential raw material for producing a good or service. This operates under the same system as above.
E- When all available workers in a region form labor associations and a local company contracts with the labor association, absorbing the entire workforce in return for remuneration. If other companies enter this market, they will find no employees. Bringing workers from other regions means additional transportation costs. The first company will have lower production costs if the salary supplement is less than the additional transport costs of the second company.
F- Because of the law. Tax law can create a monopoly, which would be the basis of its power.
Public Expenditure
It can be defined as expenditure incurred by the Government to perform a public service, meet a public need, and fulfill the obligations of the State and other public bodies. Public spending by the State is increasing, meaning that the state increasingly covers more areas of social life and is more involved in the economy. The state takes on more social responsibilities. The areas of intervention include: A- Each of the ministries. B- Autonomous regions. Public spending is composed of four major headings:
1- Current expenditure. This includes purchases of goods and services by the State to ensure the functioning of public services, pay interest on public debt, and current transfers. With current expenditure, the Government acts as a consumer of goods and services.
2- Transfer expenditure. This part of public expenditure finances current operations or capital in other sectors of the economy without consideration to the State by the recipient. This includes: A- Generated expenses B- Social Security pensions C- Unemployment benefits D- Production subsidies E- Compensation for disasters, such as flooding.
3- Capital public expenditure. This is the part of public money the Government uses for real investments, capital transfers, and changes in financial assets and liabilities. Real investment is public expenditure to acquire capital goods as economic resources (e.g., machinery, plants, land) to generate wealth. Capital transfers are grants to finance all or part of actual capital investments. Current transfers are subsidies to producers of goods and services to influence consumer prices. Financial assets are owned money, and liabilities are monetary debts of the State. Like any legal person, the balance sheet consists of assets and liabilities. Assets are rights owned by the company, and liabilities are obligations or debts. Assets must equal liabilities in any financial year. If this equality does not exist, this item of public expenditure can be used to achieve it.
4- Multi-year expenditure. This is expenditure by the State spanning several years (never exceeding four), beginning in the budget period when the destination is approved, and financing large public investments.
State Adjustment
Consists of intervention by the State during the production and distribution of goods and services to control how they are produced and distributed, ensuring they meet guidelines. This function is performed by the Government through regulatory agencies (e.g., the environmental agency). Its mission is to control the production and distribution system to prevent adverse effects on other vital social areas, ensuring a better quality of life. It aims to avoid biological contamination and noise. Consumer and user agencies prevent abuse. Agencies for the conservation of flora, fauna, and the continental shelf also exist. The cost of these agencies is insignificant compared to the cost for private enterprises to comply with regulations or the benefits to society from regulated production and distribution. These agencies seek to prevent private enterprise abuse, monopolies, pollution, noise, unsafe medical devices and food, and abuses in financial and labor markets. The problem with state regulations is that private companies react aggressively with political force. During regulation development, affected companies exert pressure for minimal disruption to their systems. Citizens have less influence during this period because they are more dispersed, making state regulation less effective in achieving its goals.
Scarcity and Choice
:We assume that the human needs of man are unlimited and that the factors of production that we are limited. Based on this, you face an economic problem: scarcity. We can not produce everything we want, we must necessarily make a choice about what goods and services we produce. The problem of shortages and having to make a choice resolved by the curve of production possibilities. The curve of production possibilities can be defined as one that tells us we can produce with the amount of land, capital and labor that we have. We assume that we are in a simple economy, where have all the factors of production. Simple economics is one where all factors of production to produce those for x amount of specific products, products that are consumed in its entirety.THEORY SUPPLY AND DEMAND: The demand theory analyzes the behavior that keeps consumers in the market so that consumers will be willing to increase the quantity demanded of a good or service when the unit price of that good or service decreases and conversely, are willing to reduce the quantity demanded as the price per unit increases. This is provided they remain constant all those other factors that influence the determination of the quantity demanded. The theory of the Offer. While the theory of demand shows the behavior that keep consumers in the market, the theory of supply shows the behavior shown by the sellers, producers in the market. The supply curve shows the amount you are willing to sell the producers to the various prices that exist in the market. In the theory of supply, from the point of view, if the price per unit of a product increases, the producer will be willing to increase the amount to produce the product and vice versa, if you decrease the unit price of a product decrease the amount the producer to produce the product, provided that some factors remain constant, ceteris paribus. The supply function shows the relationship between the quantity supplied of a good or service and its price, knowing that by passing the supply curve will remain constant these other factors also influence the determination of the quantity offered. COSTS SHORT TERM: The issue is how much we have to produce to maximize profits. In the short term means that the capital and the earth is constant, we only have the worker as a productive factor variable. A-Fixed costs are those that occur in a company whether or not occurring. These are costs that are generated by having the constant capital and land. B-Variable costs are those that occur when making the decision to launch the production system to obtain goods and services. C-Total costs were equal to the sum of fixed cost plus variable cost. D-marginal cost equals the increase experienced by the total cost when we decide to increase production by one more unit of product. It is also equal to the increase experienced by the total cost when we decided to increase by one more unit variable production factor. E-Average cost is the total cost corresponding to each unit of variable factor of production employed. F-average variable cost is the amount of variable cost for each worker. G-average fixed cost is the amount of fixed cost corresponding to each variable factor of production. CONSEQUENCES MARKETS CP: positive consequences. The market encourages producers to produce goods that consumers want and to stop producing those other assets consumers do not want. The market economy encourages people to acquire more professional skills that may, in order to obtain in the future market and greater financial reward all based on the principle of maximum freedom of production factors have to come and out in different production systems. The market encourages people to carefully use those financial resources, goods and services which are more scarce. The price system provides the market economy leads producers to exploit more intensively those scarce commodities. The market economy requires a high degree of economic freedom to buy what you want, with the savings to what you want …Negative consequences. For the poor, the only freedom you have is the freedom to starve. Producers produce goods and services that claim to those who have financial backing, but without such financial support can not demand anything. Private enterprise is a volatile business, is a company that suffers severe crisis of inflation and strong economic económicas.La market crisis if it is controlled by the government can become an imperfectly competitive market. The government is not entitled to intervene in the market, except to produce goods that private enterprise does not occur. The government intervenes to resolve all these negative consequences. The production system in the market economy, if not government-controlled production system can produce adverse negative effects on other sectors that are necessary to meet human needs. If the production system is not controlled by the government can cause damage to the environment. TYPES OF MONOPOLY: From the standpoint of economic and social, there are five kinds of monopoly: a monopoly tax “is one that is created by the State . The purpose is none other than you try to use to collect taxes. The State shall have exclusive jurisdiction in the production and distribution of products and the sale of the same comes to raising taxes. An example is the petroleum products: up to Spain’s entry into the EEC, Spain was the only one that had the capacity and the only one who was entitled to sell oil products in Spain. Use these products as a means of collecting taxes. The treaty establishing the EEC prohibits activities that mean restrict, distort competition. Demands full freedom of movement and strongly condemns monopoly. 2-social monopoly is one that is created by municipalities, by deputations and aims to provide a service to the community service that is highly demanded by it. And this service at the lowest price possible, even at a price below production cost. This will seek two things: A-safety, traffic safety, mobility industry. B-stop service is provided by private enterprise. The example is the urban transport service. 3-The monopoly profit is the typical normal and natural monopoly. It aims to achieve maximum benefits. This monopoly is prohibited by the treaty of the EEC Treaty Article 85 says it will be incompatible in the common market and prohibited all agreements between employers those which may affect trade between member states and aimed at restricting or distorting free play of competition within the common market. 4-larval forms of monopoly profit. The monopoly profit is prohibited by law. The only way to exercise a monopoly activity is trying to mislead the State inspected. It is said that lucrative monopoly is when one company dominates over 30% of the market in the country. Then you can dominate 30% or more of the market of a country with many companies adopting the legal form of companies. When this happens, it says that we are in the presence of a 5-holden lucrative monopolies operated by the state. They are lucrative monopolies that produce or provide services to public and social interest and that the State is interested in producing the product or service is performed by one or several companies while exercising monopoly, because in this way better control. The state allows the existence of these monopolies, but with the condition that they are operated by the state. State intervention is that: controls the production thereof, and is the only one who has the capacity to determine the price of the product.