Market Structure And Export

The influence of market structure on export has been one of the most concernedissues in the fields of industrial organization and internal trade research. It is generallybelieved that domestic market competition will not only influence the sale andrevenue level in the domestic market, but also have some impact on the sellingincentive and selling capability of a firm in foreign markets. Therefore, the study ofthe connection between the domestic market structure and export has been one of thetraditions of contemporary industrial economics. Different from some Chinesescholars who tend to study the relationship between market structure and export in thefield of comparative advantage or competitive advantage, scholars engaged inindustrial economics have their unique perspective. Starting from this special viewpoint, the present research attempts in a tentative way to have a profound analysis ofthe functioning mechanism of market structure and export, test the mechanism withChinese economic data, and make some suggestions for the improvement of China'smarket structure, and enhance export development.The present research comes to the following conclusions on the basis oftheoretical analysis:1. The market concentration ratio is connected negatively with export. Under thecondition of imperfect competition in the domestic market, with the increase in thenumber of firms and the degree of competition, each firm faces the problem ofreduced demand, and the sales price will become lower as a result. If the foreignmarket structure is competitive in nature, the relative revenue of export of domesticfirms will increase, and as a result these firms will reduce their sales in the domesticmarket, and increase their export. If the foreign market structure is oligopolistic ormonopolistic, the firms at home and abroad will fall into an oligopolist game that willlead to mutual export. Therefore countries with more firms and greater competitionwill have comparatively more export.2. The firm size is positively related with export. The size of a firm can influenceexport in the two aspects of product costs and transaction costs. Under certain condition,the greater the size of a firm, the lower the product cost, and the greater thecompetitiveness, the greater the export. As for product cost, the export cost of a majorfirm is lower than a minor firm, and this disadvantage of a minor firm will neutralize itsincentive for export. With the perfection of the market and the gradually lowering of thetrade cost in the domestic market, the export intensity of a minor firm will be smaller thana major one, hence the positive relationship between the size of a firm and its export.3. The firm entry including foreign direct investment is related with export in apositive way. The decrease of entry barriers will lower the cost of newly entered firmsand make it more competitive and in the meantime the revenue of the former firmswill be reduced and their product prices will be lowered. When engaged in thecompetition of the internal market, with all the other conditions remaining constant,the lowering of the product prices will enhance the export competitiveness of theproducts, and increase export. As for foreign direct investment, the above-mentionedmechanism will function on the one hand, and its competition with former domesticfirms will increase its export directly, as a result, foreign direct investment entry willincrease the export of domestic products.4. Product differentiation is related with export in a positive way. The greater thedistinctiveness and variety of the products, and the greater the possibility of theproducts to appeal to the customers' preference, the greater the export. When thecustomers are not fully informed with the features of some distinctive products, theproducers have to make some investment so as to transfer the information of theirproducts and finally sell them successfully. Therefore, in comparison with the firms ofhomogeneous products, the firms producing products of differentiation will have tospend more on information transference. At this moment, the possibility of successfulexport of differentiated products will be influenced by the size of a firm. A major firmcomparatively speaking has greater capability and tendency to export.The present research also illustrates the influence of market structure on theeffect of trade policies through such policies as exchange rate changing andantidumping.1. Under the condition of incomplete competition in the domestic market, a firmhas certain market power, therefore when the currency depreciates, the export cost ofa firm becomes lower, and as a result the firm will have more market shares, andgreater market power. And increased market power will in turn force the exporters toraise the price of their products, and lead to the incomplete pass-through effect, whichwill further influence the change of exchange rate.2. Antidumping, as a means of fair trade maintenance, will influence export ifapplied too frequently under the condition of incomplete competition. Sinceantidumping is mainly directed against price competition, when the price competitionbetween foreign export firms and domestic firms is limited as a result of antidumping,a game of product quality will be emphasized. In many lawsuits of antidumping,foreign firms that sell products of lower quality at a lower price are prone toantidumping lawsuits. It follows that when being limited in price setting, the foreignexport firms will turn to improve the quality of the products in an active manner. Ifthe domestic firms employ the policy of low quality, the quality of their products willbe lower than the foreign firms, and therefore be left in a disadvantage in theinternational competition.The present researcher makes an empirical testing of the relationship betweenChinese market structure and export. The result shows that the different elements ofthe market structure perform different functions in export, among which the functionsof firm size, product differentiation and foreign direct investment entry are the mostobvious, while domestic firm entry and the market concentration ratio are very weak.The result may be related with the development stage of the present China for as faras domestic firm entry and the market concentration ratio are concerned, theireffectiveness lies in the enhancement of market competitiveness in the marketmechanism, and the stimulation of productivity. But in China, as a result of the lowlevel of economic development, the rank of export products are all very low, and lowquality products account for a very high percentage, and the entry barriers arecomparatively lower. Correspondingly, the concentration degree of a great majority offirms is very low, and the market power of the firms is very limited. The firms dependon the lower prices of their products for their competitiveness in the fiercecompetition. On the other hand, with China being in the period of market transference,and the market economy not mature enough, the competition restraint in certain tradesmainly comes from administrative intervention and monopoly, the mechanism of themarket therefore can not perform its function effectively. Therefore, under these twoconditions, the transference effect of domestic firm entry and the lowering ofconcentration degree will be limited and influence the effect of these two elements.The research shows that market structure affects export greatly. And to adjust theindustrial organization, optimize the market structure is an effective method for thedevelopment of export. In the adjustment of China's industrial organization, thefollowing measures should be taken: firstly, administrative intervention should bereduced and administrative monopolist should be eradicated so that the resources willflux and be allocated according to the mechanism of the market;secondly, entrybarriers should be decreased to stimulate complete competition, increase productivityand enhance competitiveness;thirdly, the exit barriers of firms should be reduced, themerging and reorganization of firms should be encouraged so as to make greater useof the capital;fourthly, efforts should be made to quicken the growth of firm scale inthe market competition, enlarge the size of the firms with key competitive powerthrough competition, and enhance industrial export ability;fifthly, the differentiationof products should be strengthened so as to enhance the non-price competitive abilityof the firms.