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Tamara Izmestieva Moscow, Russia

Syndicate and its Impact on the Development of Russian Coal Mining Industry. The Late 19th – Early 20th Century. Methods of Analysis and Results. Tamara Izmestieva Moscow, Russia. Introduction.

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Tamara Izmestieva Moscow, Russia

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  1. Syndicate and its Impact on the Development of Russian Coal Mining Industry. The Late 19th – Early 20th Century. Methods of Analysis and Results Tamara Izmestieva Moscow, Russia

  2. Introduction • The late 19th - early 20th century: emergence of large-scale enterprises in Russian coal industry. • Crisis (1901-03) ==> Competition between large-scale enterprises became very keen and destructive. • What was the way out? • Emergence of the syndicate (Produgol') on coal market (February, 1906). • The syndicate created favourable conditions for both survival and development of coal mining enterprises. • A special group of enterprises which could enjoy increasing returns to scale appeared under "umbrella" of Produgol'. • The aim of this report is to investigate this group.

  3. Methods of analysis • Our research may be divided into three parts: • Revealing enterprises for further consideration. • Financial (cost) analysis of these enterprises. • Investigation of the effects of Produgol' on these enterprises.

  4. Part 1 • The goal of the firm is profit maximization. Profit could be expressed as follows: [1]where Pr is profit, R - revenue, C - costs of production, P - coal prices, Q - output. • We can calculate a scale economies index (SCI) as follows: [2]where (elasticity of cost with respect to output), C - costs of production, Q - output.

  5. Application of a scale economies index (SCI) • These indexes allow us to discern those firms, which took advantage of economies of scale. We selected those enterprises for which scale economies index was equal more than zero.So, these indexes help us to reveal enterprises for further consideration.

  6. Part 2 • Our analysis is based on decomposition of total costs into fixed costs and variable costs: • Problems of estimating the two components of total costs. ==> Applying an approximate method. • Decomposition of total costs helps us to formulate a cost equation: where Profit = 0, c – fixed costs, a – average variable costs per unit of output, Qk – output (volume of production). • This equation determines costs’ structure of an enterprise and reflects its potential production capability.

  7. Part 3 • Introducing in our analysis two external factors - prices and production limits, which were under control of the syndicate. • Cost equation may be rewritten thus: • Computation of prices was based on average costs per unit and profit percentages. • Rate percents we used were as follows: 5%, 8% and 20%. • Using this formula we can calculate output, which would ensure a planned profit. Finally, we compare this output with real output (and volume of realized coal).

  8. Algorithm of analysis: • 1. Calculation of scale economies indexes. • 2. Selection of maximum volume of production with its associated costs of production. • … • 14. Computation of the difference between estimated level of production and volume of realized coal. So, the framework of our research includes 14 steps. Although each step of analysis is rather simple, this procedure as a whole is cumbrous and tedious. I created in Excel a special template, which makes it possible to perform these operations automatically.

  9. Template for cost analysis

  10. Example of template usage

  11. Example of template usage (cont.)

  12. Some results of computation (1) Elasticity of cost with respect to output (ECO) for members of “Produgol’” Notes: (a) enterprises which acted “under umbrella” of Produgol’ throughout the whole lifetime of this syndicate are marked by grey colour. (b) bold design indicates cases of increasing returns to scale.

  13. Some results of computation (2)

  14. Some results of computation (3) Results of comparison between real output (QR), real sales (QS) and estimated output QEst which would ensure 5% (8%, 20%) profit for Ekaterinovka Coal Mining Company

  15. Summary • We considered a special group of those enterprises, which potentially could enjoy increasing returns to scale. • We studied influences of both internal and external factors on enterprises. We used cost analysis to examine internal effects on an enterprise. • The operating sequence of our analysis was written as an algorithm. We created in Excel a special template to execute the algorithm automatically. • We analysed a special group of those enterprises, interests of which coincided with interests of the development of Russian coal industry as a whole, in terms of coal deficit in the country. As analysis showed Produgol’ frustrated this coincidence. Produgol’ became an obstacle to production improvement.

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