The Research On The Endogenous Barriers To Entry In China's Generation Market

The electricity industry was a vertical integration monopoly in China's history. After the institutional reform program was announced in 2002, the structure of the electricity industry changed greatly. The section of generation was decomposed horizontally, into which competitive mechanism was also led. The generation market was formed since then. Among the competition of various enterprises in the generation market, the state-owned oligopolies are the leader enterprises and most small- and-medium-sized enterprises are the followers. All the incumbents are facing the competition from the potential entrants. So far, the result of competition among all kinds of enterprises in China's generation market is that the share of state-owned oligopolies increases rapidly, while the share of private and foreign enterprises drops year by year. The profit rate of the generation market has long been higher than the average profit rate of industries in the economy. The reason why the swarming into the market by new enterprises (mainly non-state capital) didn't happen is that the government implemented a strict entry regulation policy. While after the deregulation, the policy barriers to entry reduced significantly, and the potential competitors are sure to participate in the competition to share "a cup of soup". In order to maintain their monopoly status and long-term profits, the state-owned oligopolies have strong motivation taking strategic actions to deter the entry of potential competitors. These strategic actions make up of the endogenous barriers to entry.Since Bain proposed the concept of barriers to entry, the research for entry barriers has been a hot and cutting-edge domain, and the main theories has been impacting the anti-monopoly policies and judicial practice of many countries greatly. The reason why the barriers to entry are so important is that they are related closely to the structure, the conduct and the performance of a market. The higher is the entry barriers of an industry, the higher is the concentration degree and the stronger the market power and the more the price deviates from the competitive equilibrium and the lower is the allocation performance of the market. From the perspective of the Structure School, barriers to entry are the core and pivot of SCP paradigm. Therefore, the importance of the research for entry barriers to generation market can match the institutional reform of the power industry. However, unfortunately, except for a few documents from the perspective of scale economy or administrative monopoly, almost no one has systematically studied the entry barriers in the generation market, and more few people pay attention to the endogenous problem of entry barriers in the deregulated monopoly markets.The research methods of normative and empirical analysis are used in this paper. Using the game theory to construct a theoretical system, the paper analyzes the formation mechanism of the phenomenon. After that, the paper studies the relationship between the excess capacity and the new entrants empirically. Finally, combined with the impact of the endogenous entry barriers on the generation market, the paper proposes some resolutions to solve the problem. Specifically, this research work mainly includes the following parts: The first is the analysis of the realistic background of endogenous barriers in China's generation market, introducing the technical and economic characteristics of the power industry briefly to give the reader of this paper an initial grasp of the research object. Secondly, according to the realistic condition of the relation among enterprises in China's generation market, the paper studies the impact of new entrants on the incumbents'profit, the action choices which the leaders and followers make and the dynamic game relationship between the leader enterprises and the potential entry enterprises. Thirdly, on the basis of the statistic data in China's generation market, the paper analyzes the state of excess capacity and finds the source for it. Then, using the empirical test of the relation between the excess capacity and the new entrants, the paper proves the reasoning foregoing. By the analysis of the performance in the oligopoly market, the paper excludes the possibility of scale economy. The fourth is the analysis of the impact of endogenous entry barriers on generation market, such as the market power and the reduction of consumers' welfare, and the policy suggestion, such as the use of anti-trust policy and asymmetric regulation.On the basis of the theoretical and empirical analysis, three conclusions are reached mainly in this paper. Firstly, the excess capacity makes up of the entry barriers to new competition in the generation market actually. Secondly, the excess capacity in China's generation market is the result of the oligopolies'capacity expansion. Thirdly, the reason why high profit rate and low entry rate are coexisting in China's generation market is that the endogenous barriers undercut the positive result of the lowering exogenous barriers.The paper has the following innovations:first, the paper provides a new perspective for the promotion of the generation market. Second, the paper constructs a theory system to show the formation of the endogenous entry barriers. Third, the excess capacity is measured and the relationship between the excess capacity and the new entry is tested empirically in this paper.The paper studies the entry barriers in the generation market from a new perspective, trying to interpret the reason of high profit rate and low entry rate in China's generation market. Since the paper is just a trial work, there exist some shortcomings inevitably. Specifically, there are two aspects. The first is that the paper did not consider the excess capacity caused by the structural adjustment of generation techniques, the fluctuation of the business cycle and macroeconomic policy control of government. The second is that the quantity of the sample is a little small, which affects the persuasion of the multiple regressions.