Network Industries, Deregulation And Regulatory Reform

This paper sheds light on the economic regulation, deregulation, and regulatory reform in network industries in China. Network industries generally cover sectors of the Chinese economy such as electricity, petroleum, natural gas, communications, railway transportation, and public utilities. Over the past several decades, numerous regulations have been reformed or repealed after academics, policy maker, and general public became convinced that these rules and statutes made markets less competitive, discouraged economic efficiency, and lessened overall consumer welfare in many countries. The hidden cost of weak competition in these industries in China can be seen in the fact that the price levels have been increasing during recent years. Supply-side reforms to stimulate competition and reduce regulatory inefficiencies have become central to effective economic policy. China has recognized that many regulations are either unnecessary or poorly designed and needlessly inefficient and is undergoing its deregulation and regulatory reform during the transition of the economic system towards the market economy. We focus on the barriers to entry or exit, licensing, price control, vertical structure, firm behavior ,and their effects on efficiency and social welfare. We conclude that deregulation and regulatory reform and vertical disintegration can enhance competition, boost efficiency, reduce prices, stimulate innovation, and improve the ability of economies to adapt to change and remain competitive in markets.The paper consists of introduction and five chapters. Apart from the definitions of economic regulation, deregulation, regulatory reform, and network industries, the introduction also provides basic analysis on regulation failure and the combination of regulation and market.Chapter 1 gives a challenge to regulatory reasons in network industries, makes comments on international experiences of deregulation and regulatory reform, and approaches the connections among competition, regulation, and antitrust policies.Chapter 2 stresses the consequences of entry regulation on the basis of the contestable market theory. Firm behavior can be restrained by potential competition and entry and exit provide thecompetitive benefits. Competition can be led into these industries and sectors in which sunk costs and minimal efficient scale have been notably reduced as a result of technological innovation and demand changes.Chapter 3 deals with the firm behavior being probably taken by monopoly firm and monopoly group during the process of deregulation, such as collusion, predatory pricing, price discrimination, and price squeezing.Chapter 4 looks into motives of vertical integration and experiences based upon vertical disintegration in network industries in typical countries. Both direct competition from diversification of transaction routes and indirect competition from substitutes play a positive role on the strengthening competition, increasing consumer choice, and service quality in network industries.Chapter 5 studies the problems resulting from price control in the light of individual firm cost and profit margin control. Both the price control and profit margin control bring about the effects that firms can easily shift cost increase on to their consumers. Regulation on prices in network industries should pay attention to not only price level but also price structure and price forming mechanism which can produce a great impact on firm behavior and consumer behavior.