Improvement in the information component to control natural monopoly

Abstract

We define the specific features in the control over natural monopoly and the main drawbacks in the contemporary methods of such a control. Also, we analyze some alternative methods of monopoly control that take place in world practice. This paper presents a possible way to improve the information component for quantitative control of natural monopoly using the method of marginal price level fixing (method of price coefficients changing). This method is a widespread one that is used for price regulation of natural monopoly in highly developed countries. However, the method to define the main elements in the corresponding formula — inflation number, economic efficiency factor (X-factor) and effect of external factors (Z-factor) — is still to be elaborated. This fact is one of the main objective reasons why this method is not presently used in practice in Ukraine. Of fundamental importance is the uncertainty of the efficiency factor (X-factor) revision criteria. It can contribute to the slowdown of investments, reducing the interest of the monopolist in large-scale and long-term investments. This paper presents an attempt to eliminate most of the above mentioned drawbacks in the method of the marginal price fixing (method of price coefficients changing) using author's CMI-model of macroeconomic dynamics. We propose a method to define unambiguously the efficiency factor (X) for natural monopoly. Also, we have modified the formula to define the price (tariff) for a product of natural monopoly in order to stimulate the monopoly's innovative and investment activity while keeping the consumer’s interest, and to eliminate the slowdown effect of investments. Besides, using the CMI-model we are able to determine quantitative indexes of monopoly power and the rate of effect of this power on the economy as a whole and on its various sectors. These indexes are proposed as additional ones to the price (tariff) formula to verify the results of the formula’s action.