Another approach to determining the degree of market power of a firm is based on the assumption that under conditions perfect competition the price coincides with the marginal cost, i.e. P=MS. Therefore, a significant part of researchers proceed from the fact that a firm has market power only when it has the ability to influence the establishment of a market price above marginal costs, i.e. above competitive market prices. This is the case where there is a monopoly. It is known that the monopoly chooses the volume of output (Q) that maximizes profit.

The Lerner coefficient (30s of the 20th century), used to determine the degree of market competitiveness, is free from the problems associated with calculating the rate of return. This indicator reflects how much the market price deviates from marginal cost:

L = –––––––– = –––– ,

where MC - marginal costs;

Ed is the direct price elasticity of demand.

The Lerner coefficient varies from zero (under perfect competition) to one (under perfect monopoly and zero marginal cost). Monopoly power is higher the higher the value of the Lerner coefficient, that is, the more prices exceed marginal costs.

By itself, monopoly power does not guarantee a high rate of profit, since profit depends on the ratio of price and average (rather than marginal) costs. A firm may have more monopoly power but earn less profit if its average cost is sufficiently higher.

In an oligopoly market, there is a complicated relationship between the Lerner index, the price elasticity of demand, and the degree of monopoly power. When considering a Cournot oligopoly, each oligopolist solves the problem of profit maximization, perceiving the output level of any competitor as constant.

Equating marginal revenue with marginal cost and substituting the corresponding value into the Lerner index formula, we obtain that for oligopoly markets, where n firms interact according to Cournot, the Lerner index for the firm will be in direct proportion to the firm's market share (the ratio of market sales to industry volume sales) and inversely from the elasticity of demand.

L = –––––––– = –––– , where Si is the firm's market share

Thus, the market power of an individual oligopolist depends not only on the level price elasticity demand, but also on its market share. A large market share in an industry provides a firm with greater bargaining power.

The average Lerner index for the industry (when the weights are the shares of firms in the market) will be calculated by the formula L = HHI / Ed, where HHI is the Herfindahl-Hirschman concentration index.

In an oligopoly market, there is an exogenous relationship between concentration and monopoly power.

Clarke, Davis, and Waterson proposed the following interpretation of the Lerner index's dependence on the level of concentration, taking into account the consistency of the pricing policy of firms:

for a single company

for the industry

where β is an indicator of the consistency of the pricing policy of firms, which takes a value from 0 (which corresponds to the interaction of firms according to Cournot) to 1 (which corresponds to the conclusion of a cartel agreement).

Tobin coefficient (q-Tobin)

Lerner index

The Lerner index (L) is defined as

the difference in prices between the competitive and non-competitive markets in relation to the non-competitive price:

where L is the Lerner index; is the price of the non-competitive market; is the price of the competitive market.

If the firm has no market power (in a perfectly competitive market), then the Lerner index takes on a value equal to zero. The maximum value of the index in case of monopoly is assumed to be equal to one. Thus, we get the bounds of the index:

Because in long term competitive price is equal to marginal and average variable costs, the Lerner index is defined as the difference between the price this market(of a given firm) and its marginal (average variable) costs in relation to price:

where R- the price of this firm; AVC is the average cost of the firm.

If there is one monopoly firm in the market, the Lerner index will be equal to:

where E is the price elasticity of demand.

When there are quite a lot of firms (with an oligopoly), two index values ​​are calculated.

The Lerner index can characterize the market power of an individual firm or concentration in the market as a whole. For an individual firm, the indicator will be equal to:

The weighted average Lerner index for the industry is expressed as follows:

where is the market i-th share firms, is the coefficient of pricing consistency in the industry, is the elasticity market demand by price, HHI is the Herfindahl–Hirschman index.

The coefficient β shows how consistent (coordinated) is price policy firms. When β = 0, firms make decisions on their own, without prior consultation with each other. This is a situation of competition between Cournot and Bertrand. With β = 1, we observe a cartel - a secret or overt collusion of firms that fully coordinate their actions in the market.

This shows that the monopoly power of the company increases in the presence of consistency in pricing (collusion), an increase in the level of market concentration, and a decrease in the elasticity of demand.

In table. 7.5 shows the values ​​of the Lerner index for some US industries.

Table 7.5. Lerner index values ​​for a number of sectors of the US economy

As can be seen from the table, the Lerner index takes various meanings depending on the structure of the industry, which indicates different levels of competition. Note that the regulation of the banking sector made it possible to reduce the degree of monopolization and increase the level of competition between large banks.

Tobin index

The Tobin index is calculated as the ratio of the market (external, exchange) value of a firm's assets to the intrinsic value of its assets (replacement value):

where q is the Tobin index.

The intrinsic value of a firm's assets shows the opportunity cost of replacing factors of production at a given moment for a given use of resources. For a competitive market, opportunity costs are equalized across all directions of resource use, so that the market (external) cost coincides with the replacement (internal) and q = 1.

If the firm's external value exceeds its internal value, and q > 1, this means that the level of profitability for the firm (or in this industry) is higher than necessary to keep the firm in the industry, that is, in the long run, the firm receives a positive profit, therefore, has a certain market power. The more q, the stronger the firm's power. If a q < 1, это означает неблагоприятные времена для фирмы, возможно, фирма находится на грани банкротства и близка к вытеснению с рынка.

It should be noted that for Russia the definition of this indicator is associated with a number of difficulties, because due to the insufficient development of the market valuable papers it is practically impossible to obtain reliable values ​​for the valuation of a firm's assets by external investors, which, consequently, does not allow one to adequately express the market value of Russian firms.

The measure of monopoly is the share in the price of the amount by which the selling price exceeds marginal cost.

Calculated:

where P - price; MC - marginal cost.

Also, the coefficient can be calculated through the elasticity of demand, as an inversely proportional value:

where is the elasticity of demand for the firm's product

The Lerner coefficient has a numerical value from zero to one. The larger it is, the greater the monopoly power of this firm in its market sector. It is believed that in conditions of perfect competition, the price is equal to marginal cost and the coefficient becomes equal to zero. By itself, monopoly power does not guarantee high profits, since profits depend on the ratio of average cost to price. A firm may have more monopoly power than another firm but earn less profit.

As an example, let's compare an average supermarket and a convenience store operating in the same area. In supermarkets, the markup is usually 15-20%, and in convenience stores 25-30%. This is explained by the fact that supermarkets operate in a more competitive environment - during their operation, other outlets also work simultaneously to ensure a significant number of customers, it is necessary to offer attractive prices. Convenience stores charge a higher price than supermarkets because some of their customers come at a time when there is not much choice. outlets or for the sake of a minor purchase, it makes no sense to look for other options. The number of visitors to such stores is generally less dependent on prices than in supermarkets (less elastic demand). According to the Lerner coefficient, small stores gain more monopoly power because they charge a higher markup for the same product. But at the same time, such stores usually receive a significantly smaller amount of profit than a supermarket, since they have significantly less amount sales, and average unit costs are higher.

see also

Literature

• Lerner, A. P. (1934), ""The Concept of Monopoly and the Measurement of Monopoly Power"", The Review of Economic Studies Vol. 1 (3): 157–175 , .

Wikimedia Foundation. 2010 .

See what the "Lerner Coefficient" is in other dictionaries:

LERNER COEFFICIENT- an indicator of monopoly power, proposed by the economist A. Lerner in 1934. It is based on the fact that the measure of monopoly power is the amount by which the profit-maximizing price exceeds marginal costs. Calculated: L = (P… … Big Economic Dictionary

Lerner coefficient- an indicator of monopoly power proposed by the economist A. Lerner in 1934. It proceeds from the fact that the measure of monopoly power is the amount by which the profit-maximizing price exceeds marginal costs. ... ... Economic and Mathematical Dictionary

Lerner coefficient- an indicator of monopoly power, proposed by the economist A. Lerner in 1934. It proceeds from the fact that the measure of monopoly power is the amount by which the profit-maximizing price exceeds marginal costs. Calculated: where P is the price ... Technical Translator's Handbook

Market- (Market) The market is a system of relations between the seller (producer of services / goods) and the buyer (consumer of services / goods) The history of the emergence of the market, the functions of the market, market laws, types of markets, free market, state regulation… … Encyclopedia of the investor

Another approach to determining the degree of a firm's market power is based on the assumption that under conditions of perfect competition, price coincides with marginal cost, ᴛ.ᴇ. P=MS. For this reason, a significant part of researchers proceed from the fact that a firm has market power only when it has the ability to influence the establishment of a market price above marginal cost, ᴛ.ᴇ. above competitive market prices. This is the case where there is a monopoly. It is known that the monopoly chooses the volume of output (Q) that maximizes profit.

The Lerner coefficient (30s of the twentieth century), used to determine the degree of market competitiveness, is free from the problems associated with calculating the rate of return. This indicator reflects how much the market price deviates from marginal cost:

L = –––––––– = –––– ,

where MS - marginal costs;

Ed is the direct price elasticity of demand.

The Lerner coefficient varies from zero (under perfect competition) to one (under perfect monopoly and zero marginal cost). Monopoly power is higher the higher the value of the Lerner coefficient, that is, the more prices exceed marginal costs.

By itself, monopoly power does not guarantee a high rate of profit, since profit depends on the ratio of price and average (rather than marginal) costs. A firm can have more monopoly power but earn less profit if its average cost is sufficiently higher.

In an oligopoly market, there is a complicated relationship between the Lerner index, the price elasticity of demand, and the degree of monopoly power. When considering a Cournot oligopoly, each oligopolist solves the problem of profit maximization, perceiving the output level of any competitor as constant.

Equating marginal revenue to marginal cost and substituting the corresponding value into the Lerner index formula, we obtain that for oligopoly markets, where n firms interact according to Cournot, the Lerner index for the firm will be directly dependent on the firm's market share (the ratio of market sales to industry volume sales) and inversely from the elasticity of demand.

L = –––––––– = –––– , where Si is the firm's market share

Τᴀᴋᴎᴍ ᴏϬᴩᴀᴈᴏᴍ, the market power of an individual oligopolist depends not only on the level of price elasticity of demand, but also on its market share. A large market share in an industry provides a firm with greater bargaining power.

The average Lerner index for the industry (when the weights are the shares of firms in the market) will be calculated by the formula L = HHI / Ed, where HHI is the Herfindahl-Hirschman concentration index.

In the oligopoly market, there is an exogenous relationship between concentration and monopoly power.

Clarke, Davis, and Waterson proposed the following interpretation of the Lerner index's dependence on the level of concentration, taking into account the consistency of the pricing policy of firms:

for a single company

for the industry

where β is an indicator of the consistency of the pricing policy of firms, which takes a value from 0 (which corresponds to the interaction of firms according to Cournot) to 1 (which corresponds to the conclusion of a cartel agreement).

Tobin coefficient (q-Tobin)

The Tobin ratio, also known as the q-ratio, relates the market value of a firm, measured by the market price of its shares, to the replacement value of its assets:

where P is the market value of the firm's assets (market capitalization);

C - the replacement cost of the company's assets, equal to the amount of expenses required to acquire all the assets of the company at current prices.

The idea of ​​the Tobin coefficient is based on the fact that if market valuation the value of the firm exceeds its replacement value (q-ratio > 1), then this means that the firm receives, or is expected to receive, economic profit. Τᴀᴋᴎᴍ ᴏϬᴩᴀᴈᴏᴍ, the Tobin coefficient is based on the assumption of the efficiency of the financial market.

Although the Tobin coefficient indirectly assesses the monopoly power of a firm, it is widely used because it avoids the problems associated with estimating the rate of return or marginal cost. Numerous studies have found that the Tobin coefficient is, on average, quite stable over time, and firms with a high value of it usually have unique factors of production or produce unique products, that is, these firms are characterized by the presence of monopoly rent. Firms with a low index value operate in competitive or regulated industries.

Papandreou coefficient (penetration coefficient)

The Papandreou monopoly power coefficient is based on the concept of cross-elasticity of the residual demand for a firm's product. At the same time, the very indicator of cross elasticity of residual demand for the company's products may not always indicate the presence of monopoly power, to overcome this problem, Papandreou in 1949 proposed the so-called penetration coefficient, showing how many percent the company's sales will change when competitors' prices change by one percent:

Q d j is the volume of demand for the firm's product;

P j - the price of a competitor (competitors);

λ j is the coefficient of limited capacity of competitors, measured as the ratio of the potential increase in output to the increase in the volume of demand for their product, caused by a decrease in price (0< λ j < 1):

.

The lower the value of the Papandreou coefficient, that is, the lower either the cross elasticity or the coefficient of limited capacity of competitors, the less monopoly power the firm has.

The Papandreou coefficient takes into account the limited capacity of competitors when assessing the degree of monopoly power. Indeed, the degree of interchangeability of products in the market should be high, and accordingly, the cross elasticity indicator will also be of great importance, but if the capacities of competitors are maximally loaded, then competing firms will in no way be able to influence the position of the firm in question.

It should be noted that the Papandreou coefficient is practically not used in applied research. At the same time, this indicator is interesting in that it affects two aspects of monopoly power: the availability of substitute goods and the limited production capacity competitors (or the possibility of their penetration into the industry).

The indicator of monopoly power, the Lerner index, is calculated by the formula:

• P - monopoly price;
• MC - marginal cost.

Since, under perfect competition, the ability of an individual firm to influence prices is zero (P = MC), then the relative excess of price over marginal cost characterizes the presence of market power.

Rice. 5.11. Ratio of P and MC under monopoly and perfect competition

At pure monopoly in the hypothetical model, the Lerner coefficient is equal to the maximum value L=1. The higher the value of this indicator, the higher the level of monopoly power.

(P-MC)/P=-1/Ed.

We get the equation:

L=-1/Ed,

where Ed is the price elasticity of demand for the firm's products.

For example, if the elasticity of demand E=-5 coefficient of monopoly power L=0.2. We emphasize once again that high monopoly power in the market does not guarantee high economic profits for the firm. Firm BUT may have more monopoly power than the firm B, but earn less profit if it has a higher average total cost.

Herfindahl-Hirschman index

To assess market power, an indicator is also used that determines the degree of market concentration based on the Herfindahl-Hirschman index ( I H) . When calculating it, data on the specific gravity of the company's products in the industry are used. It is assumed that the more specific gravity products of the enterprise in the industry, the greater the potential for the emergence of a monopoly. When calculating the index, all enterprises are ranked by share from the largest to the smallest:

• I HH— Herfindahl-Hirschman index;
• S1- specific gravity of the large enterprise;
• S2- share of the next largest enterprise;
• S n— share of the smallest enterprise.

If only one enterprise operates in the industry, then S 1 \u003d 100%, and I HH \u003d 10,000. If there are 100 identical enterprises in the industry, then S \u003d 1%, and I HH \u003d 100.

An industry is considered highly monopolized if the Herfindahl-Hirschman index exceeds 1800.

To coefficient (index) of J. Bain - (B) shows the economic profit received on one dollar of own invested capital:

Pa - accounting profit ( accounting profit- revenue minus accounting costs);

Mon - normal profit;

K - own invested capital.

If the firm operates in a competitive market, then the rate of economic profit ( economic profit- revenue minus economic costs (entrepreneur's risk)) will be zero (same) for various kinds assets. When the rate of return in any market or for any asset is higher than the competitive one, then this type of investment is preferable. Such a situation may arise if the market is not freely competitive and such a firm has a certain market power, which ensures its profit in the long run.

Tobin's coefficient (Tobin's q) - is calculated as the ratio of the firm's market value (measured by the market price of its shares) to the replacement value of its assets:

q = P / C, where

P is the market value of the firm's assets (usually determined by the stock price);

C is the replacement cost of the firm's assets, equal to the sum of the costs required to acquire the firm's assets at current prices.

The meaning of this coefficient comes down to the following. If a firm makes an economic profit, then future shareholders want to participate in its division among themselves, therefore they buy shares of such a firm at a higher price than the real replacement value of assets. The same is true for a firm that expects to earn economic profits in the future. In this case, the Tobin coefficient will be greater than one.

If this indicator is equal to one or slightly less than it, then the company occupies a stable position in the market, constantly receiving accounting profit. A Tobin coefficient close to zero indicates impending bankruptcy.

The use of the Tobin index as information about a firm's position is based on the efficient financial market hypothesis. This indicator has an undeniable advantage- it avoids the problem of estimating the rate of return and marginal cost for the industry. However, the assessment of the company's assets in the financial market does not always correspond to the real state of affairs in the company, since.

2. Lerner coefficient.

the firm can exploit its name, put pressure on some economic actors and, finally, fluctuate thanks to stock market games.

Numerous studies have established that this coefficient q is, on average, quite stable over time. Firms with a high value of this coefficient usually have unique factors of production or produce unique products. Therefore, these firms are characterized by the presence of monopoly profits. Firms with small ratios operate in competitive or regulated industries.

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Sources of Monopoly Power

Monopoly- this is a type of market structure in which the entire volume of industry supply is concentrated with one seller selling a product that does not have close substitutes, and the appearance of other sellers in the industry is blocked. Such a situation is possible only if there are extremely high, insurmountable barriers to entry into the industry, which is the reason for the existence of a monopoly.

Lerner coefficient

The factors contributing to the formation of such barriers are sources of monopoly power.

Monopoly- this is the unconditional dominance of one seller in the market, capable of influencing the market price.

As source of monopoly power may speak exclusive rights provided to the manufacturer for the conduct of a certain type of activity or the use of a certain method of production. Such rights may be granted by authorities state power, as in the case of the provision of postal services, the production of dangerous goods and substances, or by municipalities, as in the case of the granting of rights to operate in the field of public utilities or trade. The firm can also be the subject of establishing exclusive rights, as in the case of franchise, when it grants another firm monopoly rights to carry out certain activities within a specified territory. Often the source of monopoly power, although limited in time, is copyright. Realized through patents and licenses, they allow their owner to occupy a monopoly position in the market of any product (service) or in the application of a certain technology in the production.

The source of monopoly power is control over production resources. If a firm owns the entire volume of supply of a key resource for the production of a commodity, then this will provide it with a monopoly in the market for this commodity.

The source of monopoly power can be scale effect if economies of scale grow steadily as production expands to meet all long-term market demand. In this case, price competition itself leads to the fact that only one firm will remain in the industry, which will provide the lowest long-run average costs.

Sometimes sources of monopoly power can be consumer preferences when there is sustainable loyalty trademark, and unfair competition when a monopoly position in the market is a consequence illegal activities(bribery of government officials, cartel agreements, etc.).

Types of Monopoly

Using the criteria for the origin of the above sources of monopoly power, several types of monopoly are distinguished. closed monopoly occurs when the monopoly position of the firm in the market is protected by law or by any legal rights that protect it from competition. In this sense, a closed monopoly is the most stable form of monopoly power, which, however, most often does not lead to high monopoly profits, since the granting of exclusive rights is always accompanied by restrictions on both the price level and the rate of profit.

open monopoly reveals itself in the case when the possession of monopoly power is the result of the author's achievements of the firm itself ( New Product, new technology, achievements in marketing). The specificity of this type of monopoly is that it is always temporary, since the market advantages associated with innovations can be surpassed or copied by competitors. However, it is in the conditions open monopoly the firm can exercise its market power to the fullest extent and obtain monopoly high profits.

natural monopoly characteristic of industries in which the presence of a single producer determines the minimum average production costs while providing all market demand. Since the cause of natural monopolies is the correlation between the volume of market demand and the effective size of the enterprise, which manifests itself in a positive effect of scale, such monopolies are under the patronage of the state that regulates their activities.

Monopsony is a type market structure, which is characterized by the concentration of monopoly power in the buyer. Monopsony occurs when one firm acts as the only buyer in an industry market in the absence of alternative sales opportunities for sellers. The market power of a monopsony lies in the fact that the monopsonist is able to influence the prices of the goods he buys. Moreover, if the monopolist uses his market power to produce a smaller amount of a good at a higher price, then the monopsonist uses his market power to buy less at a higher price. low prices. Infrequent cases of monopsony can be observed in the field of public procurement of weapons and in local labor markets, where an individual firm is the only employer in a given territory.

Bilateral monopoly occurs when the monopoly power of the seller collides with the monopoly power of the buyer. The peculiarity of the situation is that although the seller has monopoly power, the monopoly position of the buyer allows him to consider the seller's marginal cost curve as an industry supply curve, i.e. similar to the conditions of perfect competition. Therefore, the buyer will set a price lower than what the seller will ask for for each given amount of demand from the buyer. Since both parties have bargaining power, the contract price and quantity will be between the bids of the buyer and the seller, and the end result of the transaction will be a function of the extent to which the parties are aware of each other and the ability of each party to negotiate. The bilateral monopoly model is often found in arms markets, when it comes to contracts for the purchase of types of weapons, the technical capabilities of the production of which only one company has.

9.2. Supply in monopoly markets

Indicators of monopoly power. Index of Herfindahl-Hirschman, Lerner

Monopoly power is the ability of a firm to influence the price of its product by changing the quantity of that product sold in the market. The degree of monopoly power can be different. A pure monopolist has complete monopoly power, since is the only supplier of unique products. But pure monopoly is rare. Most products have close substitutes. At the same time, most firms control the price to some extent; have some monopoly power. If there is only one monopoly firm operating in the market, one speaks of relative monopoly power.

A necessary condition for monopoly power is a downward-sloping demand curve for the firm's output. A firm with monopoly power charges more than marginal cost and earns additional profit, called monopoly profit. Monopoly profit is a form of realization of monopoly power.

The degree of monopoly power can be measured. The following indicators of monopoly power are used:

1. Lerner's exponent of monopoly power:

L = (P - MC) / P,

where P is the price; MC is marginal cost.

The Lerner coefficient shows the degree to which the price of a good exceeds the marginal cost of its production. L takes values ​​between 0 and 1. For perfect competition, this indicator is 0, because

Lerner index

P=MC. The larger L, the greater the firm's monopoly power. It should be noted that monopoly power does not guarantee high profits, because. the amount of profit is characterized by the ratio of P and ATC.

This coefficient can also be expressed in terms of the elasticity coefficient using the universal pricing equation:

(P-MC)/P= -1/Ed.

We get the equation:

where Ed is the price elasticity of demand for the firm's products.

2. The degree of market concentration, or the Herfindahl-Hirschman index:

where s i is the percentage of each firm's market share, or the firm's share of market supply industry, N is the number of firms in the industry. The greater the share of the firm in the industry, the greater the opportunity for the emergence of a monopoly. If there is only one firm in the industry, then n = 1, s i = 100%, then H = 10.000. 10.000 is the maximum value of the market concentration indicator. If H< 1000, то рынок считается неконцентрированным. Если Н ≥ 1800, то отрасль считается высокомонополизированной. Нужно иметь в виду, что данный показатель не дает полной картины, если не учитывать удельный вес импортируемых товаров.

20. Method of price regulation of natural monopolies, focused on marginal costs? (graphic model).

Price regulation of the activities of natural monopolies involves the forced fixing of the maximum value of prices for the monopolist's products. At the same time, the consequences of this regulatory measure directly depend on the specific level at which prices will be fixed.

On fig. shows a common variant of regulation, in which the highest allowable price is fixed at the level of intersection of marginal costs with the demand curve (P = MC = D). The main consequence of setting a maximum price in terms of the behavior of the monopoly firm is a change in the marginal revenue curve. Because the monopolist cannot raise the price above the named level, even at those volumes of production where the demand curve objectively allows it, its marginal revenue curve shifts from the position MR to the position MR 1, which coincides with the maximum allowable price value P. Then the rule MC = mr. Like any other firm, the monopolist itself without any state coercion(which is a major plus of this regulation technique) will strive to bring the volume of production to Q M , corresponding to the point of intersection of the marginal revenue and marginal cost curves. On fig. other advantages of this method of limiting monopolistic prices are also visible: a significant increase in production is achieved (Qreg > Q M) and prices are reduced (P reg< Р м).

But the described method of regulation also has a drawback: the price level set by the state is in no way connected with average costs, i.e. he can, by the will of the state, secure both the receipt of economic profits (Fig. a) and the incurring losses (Fig. b). Both options are undesirable. The presence of a natural monopolist of constant economic profits is tantamount to a tax on consumers. By paying inflated prices, they increase their costs with all the ensuing negative consequences (reducing demand for their products, reducing competitiveness, etc.). But even more dangerous is fixing losses. In the long term, a natural monopolist can cover them only through government subsidies, otherwise it will simply go bankrupt. And this leads to wastefulness.

21. Method of price regulation of natural monopolies, focused on average costs? (graphic model).

The method of price regulation of natural monopolies, focused on average costs. The benchmark for setting maximum prices can be the point of intersection of the average cost curve and the demand line (P = ATC = D). Since the average cost in this case is exactly equal to the selling price, the natural monopolist works in this case without losses and profits. Thus, the main problem of the previous control method is removed.

On fig. it's clear that this approach to regulation, as well as the marginal cost approach, solves the problem of increasing production (Q reg > Q M) and lowering prices (Р reg< Р M).

However, the MC = MR rule is against regulators this time around. Up to the point where the marginal cost curve intersects the new marginal revenue curve MR due to government price fixing, the increase in production is beneficial to the monopolist. But after this point (N), each extra good produced will cause more costs than it generates revenues (MC > MR). It is obvious that the monopolist will strive to stop production at the level of Q N and not bring it to Q reg . Since the demand at the price P will be exactly Q reg , then there will be a shortage in the market (Q reg > Q N).

Thus, the second approach to price regulation is also not ideal. In its pure form, it causes commodity shortages and therefore requires additional coercive measures in relation to the monopolists. The most common of these measures in modern Russia is the compilation of lists of consumers, to stop the supply of which the monopolist has no right.

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The Lerner coefficient used to determine the degree of market competitiveness. It is defined as the difference in the prices of the competitive and non-competitive markets in relation to the non-competitive price:

where: Рm – price of non-competitive market;

Рс is the price of the competitive market.

If the firm has no market power (in a perfectly competitive market), then the Lerner index takes on a value equal to zero. The maximum value of the index under monopoly is taken equal to one. Since in the long run the competitive price is equal to the marginal and average variable costs, the Lerner index is defined as the difference between the price of a given market and its marginal costs in relation to the price:

If there is one monopoly firm operating on the market, the Lerner index will be determined by the formula:

L = –––––––– = ––––

where: MS - marginal costs; Ed is the direct price elasticity of demand. This indicator reflects how much the market price deviates from marginal cost.

Discovered

When there are quite a lot of firms (with an oligopoly), two index values ​​are calculated. The Lerner index can characterize the market power of an individual firm or concentration in the market as a whole. For a single firm, this indicator will be equal to:

R – MS β yi

L = –––––––– = –––– + (1 – β)

The weighted average Lerner index for the industry is expressed as:

L = Σy i L i = –––– + (1 – β)

where: y i is the market share of the i-th firm;

β is the coefficient of pricing consistency in the industry.

The coefficient β shows how consistent the pricing policy of firms is. When β = 0, firms make decisions on their own, without prior consultation with each other. This is a situation of competition between Cournot and Bertrand. When β = 1 - a cartel, a secret or explicit collusion of firms that fully coordinate their actions in the market.

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Studopedia.org - Studopedia.Org - 2014-2018. (0.001 s) ...

K.S. Aynabek
Theory of social management
(Alternative economic theory and economics)
Tutorial: corrected. and additional - Karaganda: KEUK, 2014. - 608s.

Section 2. Methodology of socialization of market economy

Chapter 9. The mechanism of managing subjects in the social orientation of a market economy

9.4. Methods for determining monopoly power and competitiveness of economic entities

In the economic literature, there is great interest in defining competitiveness and, therefore, the limits of influence or "power" of subjects in the economic space. Economic theory textbooks offer economic and mathematical models for determining monopoly power, market concentration, and the degree of power over price in an oligopoly.

The author of the measurement of monopoly power is the English economist A. Lerner, who proposed in the 30s of the twentieth century a formula for determining this indicator, where it is called the Lerner index.

A. Lerner noted that “it is this ... formula that I want to propose as an indicator of monopoly power. If a R= price and With= marginal cost, then the index of the degree of monopoly power has the form ( R – With)/R". In educational literature, this degree of monopoly power is denoted by ; price - ; marginal cost and in general the formula looks like this:

The Lerner index () must be between 0 and 1. According to this formula, it can be noted that the greater the gap between and , the greater the degree of monopoly power.

The definition of monopoly power according to the above formula by A. Lerner seems to be incorrect to some extent. Since in this case the influence and participation of other entities operating in a single economic space, where they are all competitors, seeking to expand their field of action and increase their share of power, is not taken into account. The definition of monopoly power without taking into account competitors is meaningless, since power is over someone.

Here it is necessary to clarify the content of the concept of "monopoly power". On the basis of what it is necessary to engage in the selection of a mathematical apparatus to identify the parameters of the domination of monopoly power. By monopoly power one must understand: firstly, the dominant position of the subject in the economic space among competitors and be a leader; secondly, regulation by monopoly prices, at which the bulk of goods would be sold; third, scaling up economic activity; fourthly, strengthening competitiveness by improving product quality, reducing prime cost and transaction costs; fifthly, an increase in the degree of the coefficient of reduction of individual costs to the socially necessary value, which characterizes the average level of technical equipment and manufacturability of the organization.

Here we note that monopoly power must be determined on the basis of indicators characterizing the interaction of competitors in a single economic space.

These indicators include the gross revenue of the monopolist ( Pm) for a certain period of time (quarter, half year, year), the total cost ( Cm) of this corporation (firm), gross profit (∑ R) received by all subjects in the economic space.

The gross revenue of a monopolist shows in value terms the total volume of goods or services sold, thereby characterizing its own share in the total turnover. At the same time, to determine the monopoly power, the amount of profit received is necessary, since the power itself depends on it. Only profit allows expanding the scale of economic activity, investing and updating production, and reducing the niches of competitors. This resulting monopoly profit ( Rm) can be calculated from the difference from the gross revenue of the monopolist ( Pm) and the sum of the costs of this firm ( Cm), that is, it will look like this: Rm= Pm – Cm. (61)

However, to define monopoly power ( L) must take into account the influence of competitors. This can be represented as the ratio of monopoly profit to the profit of all participants (∑ R) competition for the same period or expressed in this form:

. (62)

In the form of A. Lerner's definition of monopoly power, the ratio of the difference in price and marginal costs to price does not reflect the relationship of competitors, while according to formula (47), the ratio of monopoly profit to the total profit received by all competitors reveals the share of profit of monopolists, which quantitatively characterizes monopoly power . However, for the completeness of the definition of monopoly power, it is necessary to identify the share of sales or gross revenue of the monopolist in the total volume.

In the economic literature, according to some authors, the Herfindahl index allows you to determine the degree of power and market concentration () based on the share of sales ():

. (63)

However, in this Herfindahl formula, in the definition of monopoly power, there is no direct relationship between profits, as end results competitors, and indirectly shows the mutual influence and relationship between the share of profits and revenue from total sales. Therefore, taking into account the shortcomings mentioned above, the following economic and mathematical models are proposed for determining the total monopoly power () and the totality of the share of influence of other market entities ().

To determine () the index of complete monopoly power, taking into account the share of monopoly profit and revenue from total sales, it is necessary to identify the share of sales of a monopolist or business entity (). Below is the formula for its definition:

where is the revenue of the monopolist; - total revenue of business entities, including the monopolist. Now it can be determined by the following formula: . (65)

Based on the determination of the index of complete monopoly power, taking into account the share of monopoly profit and revenue from total sales (), it is possible to identify the totality of the share of influence of other market entities. (): . (66)

where is the index of the total power of the non-monopoly first firm, and so on is the index of the total power of the non-monopoly n ( n) firms in an integrated form. Further, taking into account the above material, formula (53) will be represented in the following form: (68)

Determining the parameters of the influence of the power of subjects in the economic space characterizes the competitiveness of firms on the basis of taking into account the share of profits and revenues relative to their total volume. This approach follows from the external manifestation of the performance of firms. However, it will not be complete if we do not take into account the potential possibility or state of the subjects, based on determining the level of their technical equipment and manufacturability, that is, taking into account the ratio of embodied and living costs to socially necessary values.

Thus, in order to determine the power of economic entities, it is necessary to calculate the shares of profits and revenues based on their total volume, which, together with taking into account the coefficient of reduction of individual costs to socially necessary values, characterizes the overall competitiveness of firms.

Concepts and terms

monopoly power; monopoly profit; market concentration; firms' competitiveness.

Issues under consideration

1. The essence of monopoly power.

2. Competitiveness of economic entities and methods of its determination.

Questions for seminars

1. Criteria for evaluating monopoly power.

2. The value of determining the competitiveness of subjects in a market economy.

Exercises

Answer the questions and determine the type of problem (scientific or educational), justify your point of view, identify a system of problems on the topic.

1. What is the difference and identity of the monopoly power of business entities and the state?

2. Do the criteria for determining the monopoly power and competitiveness of economic entities meet the requirements for improving the practice of public management?

Topics for abstracts

1. Definition of monopoly power in the improvement of public management.

2. Development of competitiveness of subjects in expanding the parameters of economic activity.

Literature

1. Course of economic theory / Under the general editorship. Chepurina M.N., Kiseleva E.A. - Kirov, 1998.

2. Abba P. Lerner. The concept of monopoly and the measurement of monopoly power. Review of Economic Studies.1934.

LERNER INDEX

(one). P. 157-175.

3. Ainabek K.S. Dialectics market economy. — Astana, 2001.

The indicator of monopoly power, the Lerner index, is calculated by the formula:

• P - monopoly price;
• MC - marginal cost.

Since, under perfect competition, the ability of an individual firm to influence prices is zero (P = MC), then the relative excess of price over marginal cost characterizes the presence of market power.

Rice. 5.11. Ratio of P and MC under monopoly and perfect competition

With pure monopoly in the hypothetical model, the Lerner coefficient is equal to the maximum value L=1. The higher the value of this indicator, the higher the level of monopoly power.

This coefficient can also be expressed in terms of the elasticity coefficient using the universal pricing equation:

(P-MC)/P=-1/Ed.

We get the equation:

L=-1/Ed,

where Ed is the price elasticity of demand for the firm's products.

For example, if the elasticity of demand E=-5 coefficient of monopoly power L=0.2. We emphasize once again that high monopoly power in the market does not guarantee high economic profits for the firm. Firm BUT may have more monopoly power than the firm B, but earn less profit if it has a higher average total cost.

Herfindahl-Hirschman index

To assess market power, an indicator is also used that determines the degree of market concentration based on the Herfindahl-Hirschman index ( I H) . When calculating it, data on the specific gravity of the company's products in the industry are used. It is assumed that the greater the share of the company's products in the industry, the greater the potential for the emergence of a monopoly. When calculating the index, all enterprises are ranked by share from the largest to the smallest:

• I HH- Herfindahl-Hirschman index;
• S1- share of the largest enterprise;
• S2- share of the next largest enterprise;
• S n- share of the smallest enterprise.

If only one enterprise operates in the industry, then S 1 \u003d 100%, and I HH \u003d 10,000. If there are 100 identical enterprises in the industry, then S \u003d 1%, and I HH \u003d 100.

An industry is considered highly monopolized if the Herfindahl-Hirschman index exceeds 1800.

To coefficient (index) of J. Bain - (B) shows the economic profit received on one dollar of own invested capital:

Pa - accounting profit ( accounting profit- revenue minus accounting costs);

Mon - normal profit;

K - own invested capital.

If the firm operates in a competitive market, then the rate of economic profit ( economic profit- revenue minus economic costs (entrepreneur's risk)) will be zero (the same) for different types of assets. When the rate of return in any market or for any asset is higher than the competitive one, then this type of investment is preferable. Such a situation may arise if the market is not freely competitive and such a firm has a certain market power, which ensures its profit in the long run.

Tobin's coefficient (Tobin's q) - is calculated as the ratio of the firm's market value (measured by the market price of its shares) to the replacement value of its assets:

q = P / C, where

P is the market value of the firm's assets (usually determined by the stock price);

C is the replacement cost of the firm's assets, equal to the sum of the costs required to acquire the firm's assets at current prices.

The meaning of this coefficient comes down to the following. If a firm makes an economic profit, then future shareholders want to participate in its division among themselves, therefore they buy shares of such a firm at a higher price than the real replacement value of assets. The same is true for a firm that expects to earn economic profits in the future. In this case, the Tobin coefficient will be greater than one.

If this indicator is equal to one or slightly less than it, then the company occupies a stable position in the market, constantly receiving accounting profit. A Tobin coefficient close to zero indicates impending bankruptcy.

The use of the Tobin index as information about a firm's position is based on the efficient financial market hypothesis. This indicator has an undeniable advantage- it avoids the problem of estimating the rate of return and marginal cost for the industry. However, the valuation of the company's assets in the financial market does not always correspond to the real state of affairs in the company, since the company can exploit its name, put pressure on some economic entities and, finally, fluctuate due to stock market games.

Numerous studies have established that this coefficient q is, on average, quite stable over time. Firms with a high value of this coefficient usually have unique factors of production or produce unique products. Therefore, these firms are characterized by the presence of monopoly profits. Firms with small ratios operate in competitive or regulated industries.