Monopoly Price

a specific form of market price of a commodity. The monopoly price exceeds the value, that is, the price of production of the commodity and assures a yield of superprofits to monopolies.

Under premonopoly capitalism, monopoly prices could arise only with certain agricultural or industrial products as the result of a natural or accidental monopoly. The economic basis for the massive spread of monopoly prices was the transition to imperialism, when free competition was replaced by the domination of capitalist monopolies capable of successfully holding the market price above or below the price of production for a certain period of time. Monopoly profit constitutes the bulk of the monopoly price. A distinction can be made between two types of monopoly price: high monopoly prices are those at which mo: opolies sell their products and low monopoly prices are those at which they buy raw materials and semifinished goods, for example, in developing countries, or at which they purchase the output of small-scale commodity producers.

Monopoly prices display internal contradictions that are related, on the one hand, to the uncontrollable nature of market prices that are based on competition and capital flow and, on the other hand, to the privately regulated nature of any monopoly, especially to the possibility of directly influencing the terms on which a commodity is traded, that is, the actual relationship between supply and demand. Basing themselves on a monopoly in one or another sphere of production and distribution, the very largest firms acquire the ability to influence the movement of market prices. The techniques of monopoly price formation and the marketing strategy of a monopoly firm change as the economic and organizational forms of such a firm continually develop. In many cases the greatest advantage is brought about by increasing monopoly prices, within the limits fixed by the operation of the law of value.

K. Marx showed that the monopoly price is determined above all by the need and effective demand generated by the buyer. Thus if a commodity on which a monopoly price has been set has become one of the consumer goods needed by workers, the price “would be paid by a deduction from real wages (that is, the quantity of use-values received by the laborer for the same quantity of labor) and from the profit of the other capitalists. The limits within which the monopoly price would affect the normal regulation of the prices of commodities would be firmly fixed and accurately calculable” (K. Marx and F. Engels, Soch., 2nd ed., vol. 25, pt. 2, p. 432). At the same time even the most powerful capitalist monopolies cannot uphold prices that bring in super-profits for more than a brief period. Despite all the barriers erected by the monopoly, capital controlled by other financial groups will penetrate the industrial sector in question. Rapid growth in the production of substitutes leads to sharply intensified competition within and among different branches of industry and prevents further price increases, or even brings about a price decline. When monopoly firms have driven back their competitors and strengthened their position, they can once again resort to price increases.

The largest monopolies frequently follow the practice of setting different monopoly prices for similar or nearly identical products, with the price level depending in each case on the company’s competitive market position, the nature of the demand, and a number of other factors.

For example, the American firm Alcoa, which had virtually total control over aluminum production and sales before World War II, gradually reduced its quoted prices. Yet these lower prices did not match reductions in the costs of production; thus nearly half of the price of aluminum represented profit. In the postwar period, two new major firms were established in this industry. The monopolists initiated a rapid rise in prices for the metal; consequently the base price for aluminum in alloys rose and profits came to represent more than a third of the price charged by Alcoa in the early 1950’s.

Monopoly price setting by the dominant privately owned firms intensifies the disproportions inherent in the capitalist economy. The maintenance of monopoly prices requires artificially induced tension in the market and in many cases significant underutilization of capacity. At the same time, as Lenin wrote, “since monopoly prices are established, even temporarily, the motive cause of technical and, consequently, of all other progress disappears to a certain extent and, further, the economic possibility arises of deliberately retarding technical progress” (Poln. sobr. soch., 5th ed., vol. 27, p. 397). A counter tendency toward accelerated technical progress also operates, engendered by changing conditions of world development and the extreme sharpening of competition among monopolies both domestically and in foreign markets. The effect of the law of value on the movement of monopoly prices emerges in the way in which technical improvements, especially the rapid reduction of the amount of labor socially necessary to produce a commodity, tend to a certain extent to restrain the rapid rise of monopoly prices for a given type of product.

Monopoly prices constitute one of the chief means of redistributing aggregate surplus value among the various types of capital. Marx demonstrated that if the earnings of a monopolist do not form surplus value embodied in the commodity itself, they form a “part of surplus value of other commodities, that is, of commodities which are exchanged for this commodity having a monopoly price” (K. Marx and F. Engels, Soch., 2nd ed., vol. 25, pt. 2, p. 401). The redistribution of surplus value through the mechanism of monopoly pricing places nonmonopolized enterprises in a still more precarious position and contributes to the ruin of great numbers of smaller entrepreneurs. At the same time monopoly prices can assure the major monopolies a profit even under conditions in which there is a vast disparity between supply and demand. Leading American firms in certain cases have managed to assure a profit even when as much as half of all their productive capacity was not being utilized.

The conflicting interests of the various classes in modern capitalist society can be distinguished in the phenomenon of monopoly pricing. The monopoly price serves as a means of additional exploitation of the working class and other social strata. An ever greater number of prices charged for products of prime necessity reflect the fundamental patterns inherent in monopoly pricing. The sale of goods at monopoly prices also presents a mechanism for increased profits through the appropriation of a part of the necessary labor of industrial and service workers. In addition, the decreased responsiveness of monopoly prices to overproduction and to drop-offs in production during economic crises creates the conditions for a constant rise in the general price level; the manipulation of sales terms by private monopolies becomes one of the most important factors contributing to the general mechanism of inflation. It is the real earnings of working people that are unfavorably affected by price rises. The rising cost of living leads to sharpened social and economic conflicts within capitalist countries.