Monopoly Profit


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Monopoly Profit

 

a form of income that represents the goal and result of the activity of monopolistic commercial and industrial capital. Monopoly profit is derived not only from the exploitation of the working class by capital but also from a redistribution, in favor of monopolies, of the income of peasants, artisans, professionals, and small and middle-level members of the bourgeoisie, as well as from the exploitation of the peoples of the developing countries.

Commercial monopolies attain their profit not from surplus value produced by laborers but from the exploitation of peasants and craftsmen, whose products are bought at prices beneath their value and sold again at prices in excess of their value. This type of profit was typical in the 17th and 18th centuries, when the world market was dominated by such commercial monopolies as the East India Company and the West Indies Company.

Industrial monopoly profit may first appear even under free competition but becomes the dominant form of capitalist profit during the era of imperialism. To an ever increasing degree, its major source becomes surplus value. K. Marx noted two types of industrial monopoly profit—natural and artificial. The first of these is a form of economic realization of a natural industrial monopoly, arising as a result of the appropriation and economic exploitation by capital of rare and difficult to reproduce elements among the forces of production, such as land. Natural limitations on the production possibilities of a given product give rise under the domination of private ownership to monopoly prices and greater than average profits. Artificial monopoly profit emerges from the monopolization of the production and/or marketing of reproducible capitalist commodities. As capitalism is transformed into state-monopoly capitalism, artificial monopoly profit takes on a succession of more developed forms; accidental monopoly profit is replaced first by stable superprofits in certain branches of industry, which represent a more extended form of monopoly profit, and finally by its universally dominant form.

Accidental monopoly profit in excess of average profit can arise for a buyer or seller as the result of an accidentally favorable correlation of supply and demand, or as the result of an accidentally occurring monopoly on a particular type of product or on the best technique, equipment, or work force in a given branch of industry. Other capital enterprises in the same branch of industry or in other branches at the same time suffer analogous losses, which represent deductions from their average profit. Accidentally high monopoly profits for some capital enterprises and low profits for others constitute the two poles of the phenomenon of average profit. In this form, such profit already masks and distorts its true source and nature and represents a rudimentary form of the monopoly profit derived from industrial capital.

The stable or extended form of monopoly profit became wide-spread in the late 19th and early 20th centuries as a result of the concentration of production and the formation of stable monopolies on particular types of commodities or over the best techniques, equipment, or work force. Giant commercial-industrial monopolies hampered the flow of capital, and by extracting the surplus value created in the nonmonopoly sector secured for themselves unprecedented superprofits, which were no longer affected by the tendency for profits to level out to an average. “Monopoly yields superprofits, i.e., a surplus of profits over and above the capitalist profits that are normal and customary all over the world” (V. I. Lenin, Poln. sobr. soch., 5th ed., vol. 30, p. 173). Such monopoly profit is no longer a manifestation but is instead a negation of average profit, distorting and hampering the operation of a pricing mechanism based on cost of production in the nonmonopoly sector. Ruining competitors by setting low prices, a monopoly then assures itself maximum profits by setting prices at a level most advantageous to itself.

Marx noted that the rise of this type of profit, or “monopoly profit per se,” violates the “basic law of competition” and requires state intervention. On the one hand, through such measures as seizure of colonies, subsidization of foreign expansion by monopolies, superprotectionism, and military contracts, the bourgeois state has actively encouraged and continues to encourage the growth of this type of monopoly profit. On the other hand, through antitrust laws, high taxes on superprofits, and state control of prices during wartime, the state has hastened the further development and transformation of this extended form of monopoly profit.

The universally dominant form of monopoly profit arises under the conditions of state-monopoly capitalism and the scientific and technological revolution; at this stage the monopolies subordinate the national economy entirely to themselves, consequently appearing on most markets both as the main buyers and the main sellers. Monopoly profit forms the basis for the profits of paper securities and finance capital in general, but unlike the monopoly profit of industrial capital the mechanism of profit leveling no longer operates in this case; in Lenin’s words, the greatest profits then go to the “geniuses” of financial manipulation. Monopoly profits sharpen the economic and social antagonisms of the capitalist system. The struggle against monopoly profits is one of the most important economic foundations of broad democratic and national-liberation movements.

REFERENCES

Marx, K. Kapital, vol. 3. In K. Marx and F. Engels, Soch., 2nd ed., vol. 25, part 1, chs. 10, 14; part 2, chs. 37–47.
Marx, K. “Teorii pribavochnoi stoimosti (IV torn ‘Kapitala’).” Ibid., vol. 26, part 1, ch. 1.
Engels, F. “Dopolneniia k tret’emu tomu ‘Kapitala’.” Ibid., vol. 25, part 2.
Lenin, V. I. Imperializm, kak vysshaia stadiia kapitalizma. Poln. sobr. soch. 5th ed., vol. 27.
Aganbegian, A. G. Voprosy teorii monopol’noi tseny. Moscow, 1961.
Kozlov, G. A. Deistvie zakona stoimosti v usloviiakh sovremennogo kapitalizma. Moscow, 1964.

IU. A. VASIL’CHUK

References in periodicals archive ?
If the monopolist charges all consumers the monopoly price and sells one unit to each consumer then it will earn a revenue of $200 of which the monopoly profit is $100 (assuming the marginal costs are constant and equal to $1 per unit).
The incumbent is particularly affected by this because even if the two parties have the same attitudes toward risk bearing in general, litigation is more risky to the incumbent, who stands to lose the monopoly profit or rents on its investments, than it is to the entrant.
That is to say, Hayek differentiates the circumstance where a monopolist can only take a monopoly profit at a monopoly price from the circumstance where a monopolist can discriminate prices and take the maximum profit.
123) Hand recognized that dominant firms may internally consume their monopoly profits through sloth, waste, and managerial excess, which show up on the balance sheet as costs of the firm and therefore keep accounting profit margins in the range of competitive industries.
In a dynamic economy monopoly profit is transitory, and arises from bringing an innovation to market ahead of other competitors.
FIGURE 2 Percentage of Pairs Forming a JV in the Two-Firm, Two-Step Markets @(0,0) @(1,1) Increasing Monopoly Profit Market 18 94% X * 81% X * Market 17 48% * 10% X * Market 16 29% X * 11% X * Market 20 21% X * 8% X * Low Duopoly Profit Market 19 23% * 4% * X Prediction * Behavior in Markets 6-10 Note: Table made from bar graph.
Rewarding the parent for messages left on voicemail to the child encourages the parent to leave a message and thereby increases the calls returned by the child to the parent, and as a result increases the monopoly profit on call services supplied to the market.
which is naturally smaller than the monopoly profit [?
If it is really the case that incumbent firms collude and maximize joint monopoly profits, then the entry of an additional firm would not have any effect on prices.
25 represents the monopoly profit retained by the company.
Moreover, shareholders would be acutely concerned about whether they would get most of the potential monopoly profit, or whether unconstrained managers, happy with extra slack, might lose it for them.
In Graph 1, a stripped-down version of the basic supply-demand setting for a monopoly, the monopolist can restrict production, raise price, and maximize its monopoly profit by finding the price-quantity combination that makes the "rectangle" (and, hence, its profits) as big as possible.