On The Natural Monopoly Industry Pricing Regulation In China

"Marginal-cost pricing paradox" is the starting point of the research on thenatural monopoly industry pricing regulation. Traditional theory holds that naturalmonopoly industries with inherent economic characteristics like “economies of scale”,making it neither use marginal-cost pricing nor profit-maximization pricing, thereforenatural monopoly require government pricing regulation. The purpose of governmentregulation is to seek a balance between industry profit and social welfare: thegovernment should not only ensure that the social welfare is not be hurt by themonopoly price, but also ensure that the natural monopoly industries to obtain areasonable profit and improve efficiency.Almost all the traditional models of natural monopoly industry pricingregulation are built on the approach of neoclassical economics. The assumptions ofneoclassical economics approach are too idealistic, making the theory and reality arevery different. Through the reflection on the approach of neoclassical economics, thisarticle assume that there are both practical significance and theoretical significancethrough introduce the institutional factors (transaction cost, structure of propertyrights and principal-agent relationship) to the study of natural monopoly pricingregulation. By analyzing the influence of institutional factors on natural monopolyindustry pricing regulation, we can explain the reason of the failure of regulationreasonably, then we can provide a new idea on the reform of natural monopolyindustry pricing regulation. Namely we can improve the institutional arrangements toregulate the natural monopoly industry pricing regulation and make the price ofnatural monopoly industry more reasonable. In such a theoretical basis, this articlefinds out the current problem of natural monopoly industry pricing regulation andthen analyzes the reasons of these problems, especially the reasons about institution;Finally, this article offer some policy recommendations about improving naturalmonopoly industry pricing regulation in China. In addition to the summary and prospect, this article is divided into eightchapters.The first chapter is the introduction. Firstly, this chapter illustrates thebackground and significance of this article, including international and domesticbackground, theoretical and practical significance; Secondly, this chapter combs andconcludes both international and domestic relevant research review; Lastly, thischapter figures out the innovations and defects that would exist in this paper.The second chapter gives the relative theories and the limitation of the naturalmonopoly industry pricing regulation. This part reviews and combs the theories onthe limitation of the natural monopoly industry pricing regulation, including naturalmonopoly theory, government regulation theory, transaction cost theory, propertyright theory and principal-agent theory, which provide a theoretical base for thefollowing analysis and research. And then, this chapter gives the limitation of thenatural monopoly industry pricing regulation, pitching out the natural monopolyindustry discussed in this paper is the strong natural monopoly industry, which meansthe natural monopoly industry with a stable reduction of average cost.The third chapter mainly introduces the natural monopoly industry pricingregulation which based on the approach of neoclassical economics. This chapter isdivided into two parts. The first part analyzes of the conditions that natural monopolyindustry without pricing regulation, such as a fully competitive market without sunkcosts. In a fully competitive market, a natural monopoly enterprise with theeconomies of scale would adjust the price to average cost because of facing the threatof entering of potential companies. Then it realizes the suboptimum of social welfareand does not need to regulate at this time. What’s more, if the contract is complete,even if the natural monopoly enterprise has sunk costs, the enterprise could eliminatethe sunk costs through signing a complete contract. At this time, the market becomesa "competitive" one again and do not need regulation. The second part introduces twomodels of natural monopoly industry pricing regulation, Ramsey pricing and two-partpricing.The fourth chapter is a further analysis of natural monopoly industry pricingregulation. First of all, this chapter continues the last chapter, reflects the approach of neoclassical economics. The hypothesis of the approach of neoclassical economics istoo strict to find out the idealized model in reality. So we should give upthis theoretical framework which is idealized and look for the practical factors outsideof the idealized model which could influence the natural monopoly industry pricingregulation. Then we can introduce the transaction cost, the structure of propertyrights and the principal-agent relationship which are in newinstitutional economics. Secondly, this chapter analyzes how these factors influencethe natural monopoly industry pricing regulation. Finally, through the analysis of theinfluence of these factors on natural monopoly pricing regulation, this chapter reflectson the natural monopoly industry pricing regulation again.The fifth chapter shows the revolution and current situation of Chinese naturalmonopoly industry pricing regulation. This part divides the revolution of Chinesenatural monopoly industry pricing regulation after the founding of new China as3stages, introducing the features of every stage, and announces the current situation ofChinese natural monopoly industry pricing regulation.The sixth chapter is mainly about the problems of the natural monopoly industrypricing regulation in our country and the reasons about these problems. This chapteranalyzes of the problems existing in Chinese natural monopoly industrypricing regulation, then analyzes the reasons about these problem from the angle ofinstitution. The main reasons including the single structure of property right, complexrelationship of principal-agent in the natural monopoly of state-owned enterprise, thesignificant sunk costs without compensation, the incomplete market mechanismincreases the uncertainty and lack of effective laws on pricing regulation.The seventh chapter is the exotic experiential references of the natural monopolyindustry pricing regulation. This part declares2exotic riper forms of the naturalmonopoly industry pricing regulation, which are America Return on Investment andUK Price-Cap Regulation. At the same time, this part also reviews the revolutions ofnatural monopoly industry pricing regulation of Russia in1990s, and then coming upwith the experiential references of Chinese natural monopoly industry pricingregulation. The eighth chapter is mainly about the policy suggestions of improving Chinesenatural monopoly industry pricing regulation. Firstly, we should transform thetraditional idea about natural monopoly industry pricing regulation and form a new"market-institution-government" trinity idea, avoiding the simple dichotomy methodbetween market and the government. We should pay attention to improvingthe institutional arrangements about natural monopoly industry pricing regulation;Secondly, we should create a “competitive market” environment by reducing the sunkcosts and eliminating administrative barriers to entry actively. Then we can rely onthe market to solve the pricing problem of natural monopoly industry; Thirdly, weshould promote mixed ownership reform of the natural monopoly of state-ownedenterprises and improve the relevant institutional arrangement, then weaken theimpact of institutional factors on the natural monopoly industry pricing regulation;Finally, we should build a scientific model of pricing regulation and accelerate theestablishment of relevant laws and regulations in our natural monopolyindustry pricing regulation.The last part is the summary and prospect. This part briefly summaries all of thecontent and gains several conclusions. What’s more, this part forecasts the contentsneed to be further researched.