Page 15 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.71, # 1, 2014, pp. 4-25

take advantages of vertical integration, some assets should be retained within the framework of a

single enterprise. Other existing bilateral relationships with the enterprise may be substituted

with market-based relations of individually separated participants with no compensation in

effectiveness.

If such bilateral relations are adopted, then it will not be difficult to address a question

which of the assets should be delivered to a single enterprise, and which assets to an individual

enterprise. Sometimes appearance of additional rivals may balance advantages of large-scale

economic institutions and vertical integration. We may compare positive features of

effectiveness of vertical integration and creation of new markets which did not exist before.

In each enterprise, with a view to transfer its capital investments into byproduct and end

product, different funds are operating in cooperation with each other. Interrelations between

assets and enterprise funds are divided into two lines – horizontal and vertical. If a product of

one participant (“incremental” funds) is a capital investment of another participant

(“diminishing” funds), then two types of funds are at vertical relationship with each other

[Werden G. J. 2002]. When funds provide the same limited market with products, two types of

these funds are at horizontal relationship. For instance, industrial enterprises and distribution

network are at vertical relationship, while two industrial enterprises producing the same product

in the same town are at horizontal relationship.

In practice, selection of methods of demonopolization is limited to initial investments. For

instance, if equipment are concentrated in one plant, then distribution of these equipment among

individual enterprises will require either movement of machines from one place to another or

long negotiations on importance of joint capital investments in management, real estate and

utilities (water supply, sewage, electric power) between individual enterprises. If these extra

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