| The features of natural monopolies such as industries of telecommunications, electricity, railway, gas and water supply are that they need huge investment, have a long period to return their invesment, specialalities of the investment, economies of scale, and so on. By the traditional theories of regulation, government should invest and manage the natural monopoly indusries directly. Since 1970s, many new theories emerged in developed countries, focused on introducing competition into natural monopolies to improve efficiency. Regulatory reform become a strong tide in all over the world.Since 1980s, China has made some reform in natural monopolies such as industries of telecommunications, electricity and railway. The reform have made some active results, but haven't changed the basic situation of natural monopolies in China. The government still manage these industries monopoly, efficiency in those industries is very low. Chinese natural monopoly industries have to open to the world after China enter into the World Trade Organization. It is a important issue that how can Chinese natural monopoly industries improve their competitive ability with foreign competitors in the process of opening to the world. China has to learn from developed countries. Improve the market structure and enterprise organizations by introducing competition into natural monopoly industries. It is necessary that to study how to introduce competition into Chinese natural monopolies more effectively on the basis of industry case studies, how to regulate the industries after introducing competition into them, how to push the natural monopolies from the position of monopoly to contestable competition and resolve the problems and conflicts arising from this process, and so on. All of the above issues are very important for Chinese government to fomulate the reform plan and regulatory policies. In this paper, I will study the theory and practice of regulation in developed countries, the road and policies for China to reform its regulatory system and to improve the efficiency of natural monopolies. I think that the basic method to reform the natural monopolies is to separate the monopoly business and non-monopoly business in the natural monopoly industries. To introduce deregulation and let more firms compete with each other in the field of non-monopoly business. Regulate the monopoly firms strictly in the field of monopoly business.On the basis of case study of telecommunications, this paper focused on the issues of the features and changing tendency of natural monopolies, the basic theory and policies of regulation for natural monopolies, how to introduce competition effectively into Chinese natural monopolies, how to regulate the monopoly business and non-monopoly business, and so on. The key issues discussed in this paper are: (1) The boundary of natural monopoly and non-monopoly business. To identify the monopoly and non-monopoly business among natural monopoly industries, one has to analyse the changing features of an industry according to the development of technology; (2) How to separate the monopoly and non-monopoly business in an industry. It is important to separate different business and to forbid cross-subsidies and anti-competition activities of the monopolists in an industry; (3) How to resolve the problem of asymmetry between regulator and regulated firms by introducing competition in natural monopoly industries; (4) How to establish a price regulating mechanism which can meet conditions of Chinese industries. How to prohabite problems of over enter or short of enter in an industry.The research of this paper include studies of both theory and practice. In the field of theory research, this paper has analyzed the features of natural monopoly, natural monopoly industries and their changing tendencies by using theories of Economics of Industrial Organization , Microeconomics and Economics of System. In the field of practice research, this paper has analyzed the industry of telecommunications,...
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