Nowadays, monopolistic companies appear to be interesting to study in the context of the economy. The article of Alejandro Egüez (2021) District heating network ownership and prices: The case of an unregulated natural monopoly analyzes the variety of price levels on district heating in Sweden. The author emphasizes that prices on heating differ significantly among country’s networks. He aimed to find out if this diversity depends on whether the company is municipal or private. Alejandro Eguez describes how the objectives of private and municipal companies govern the price-making process. The author identified that privately- and municipally-owned companies’ diverse goals are the reasons why prices on heating are higher in privately-owned companies in Sweden.
Any large company is inclined to capitalize on its position in the market and tends to dictate prices, considering this policy to be one of the most effective ones. Both large and medium companies can be monopolistic; it depends on conditions and regulations. Today one can not tell whether a pure monopoly exists. Every process of concentration or centralization will not surely lead to the formation of a monopolistic company. However, one can find out the reflection of monopolistic behavior of enterprises.
A firm has monopoly power when it can influence the price of its product by changing the quantity sold. The extent to which a monopolist can exercise its monopoly power depends on the availability of close substitutes for its production and its market share. Establishing and retaining unreasonably high prices and inhibition of scientific and technological processes are typical signs of such behavior. In addition, monopolies usually try to limit the action of the market regulation mechanisms. All of this leads to unfair raw materials distribution and the inability of new companies to enter the market.
Alejandro (2021) admits that several factors today influence prices formation in large monopoly companies in Sweden. As there are only a few companies on the market for the provision of heat services, private companies use monopoly power; however, it is prohibited by law in Sweden today. The absence of an effective price regulation system has led to the creation of a unique platform by authorities. The task of this platform was to establish a new method for the prices for heat services ratio and control the interaction of companies and customers.
After all, the main goal of private companies is not to be at a loss but to make a good profit. The author notices that public providers respond to the public while private heating companies respond to shareholders (Alejandro 2021). In other words, stockholders can put some pressure on the company, for example, while setting a price. Accordingly, monopolistic companies can control their income and expenses by decreasing the quantity of the produced product or by increasing the price. As monopolistic companies are the only ones to provide their services in the market, it will not lead to negative consequences.
Nowadays, the issue of monopolistic companies is relevant and exciting to study. Some of the “corporate giants” even influence the market in their area and other spheres. Thereby, this topic is widely studied in different institutions such as schools, colleges, universities, and on the course as well. This article confirms what was indicated in the course materials by several examples. Namely, the ability of monopolies to regulate the level of prices for their products, depending on their goals. It was identified by the author that “If affordable energy prices are part of an energy policy goal, municipal district heating providers can play an essential role in achieving that goal” (Alejandro 2021).
The same applies to private companies, and if their goal is to cover their losses or get more profits, they can adjust different indicators. For instance, they can change the number of manufactured products, the price of the product, and the price for purchasing raw materials. It has some impact on the country’s economy, which formulates the importance of this issue.
The article’s author used official data and statistics, such as reports of Government Offices of Sweden and SCB Statistic Sweden. It explains data validity and accuracy based on which the writer made conclusions. The material is accessibly presented, the author’s thesis is based on a relevant evidence base. There is a clear structure of concrete facts and correctness in presenting the author’s reflections. The author completely covered the raised topic and achieved his goal: to prove his thesis statement using the foundation based on arguments and thoughts. The author’s main thesis was that the variation in prices for heating services depends on whether it is a private company or a municipal one. It has been proven that prices depend on different goals that companies pursue.
The author set himself the task of analyzing how private and municipal companies manage their prices. One can conclude that the author revealed the dependence of their pricing policy: the indicators of private companies were higher. It is explained by the fact that these companies have different goals and conditions in which they operate. Thus, private companies focus more on shareholders, who can also exert pressure and influence. In the case of municipal companies, they are more oriented towards the public and stable pricing policy.
Reference
Eguez, A. (2021). District heating network ownership and prices: The case of an unregulated natural monopoly. Utilities Policy, 72(101252). Web.