China's Car Industry Organization Evolution

With the application of the latest innovations in the theory of Industrial Organization, we have studied various competitions status in the development of the automobile industry comprehensively. Focusing on Chinese car industry, this thesis tries to investigate the causes and process of its evolution under the framework of IO. First, we studied China's car industry evolution process systematically with the application of SCP theory. Second, we explained the process change with the theory of Game Theory by means of equilibrium models. Third, we studied four factors which change the proposition of each equilibrium model. At last, I get the conclusion and give some advices.China's car industry evolution can be divided into five stages: the introduction of production, first price fight, the intensive entry of brands, the rapid growth, and brand diversification. Before the Automobile Industry Policy was carried out in 1994, the car industry in our country was in a stage of product introduction. At that time, many foreign styles of cars were introduced into domestic market. At that time, the capacity of production was far behind the demand of the market. The major competition way was a kind of Cournot Quantity Competition. However, when the capacity began to exceed the potential market demand, the breakout of price war was inevitable. As the result, the stage of price fighting came. Lots of the automobile manufacturers cut their car price during 1996 to 1998, despite of the restrict control over it. Survived after the price cutting, qualified car-makers had their greater market shares. Among them, Shanghai Volkswagen covered more than half of the sedan market. Furthermore, with the price alliance, which restrained the price competition to some degree, manufacturers reached collusive agreement spontaneously. However, the considerable profit of China's car industry attracted more international auto-makers, who invested in the more profitable middle-to-high end of market, while municipal and private enterprises edged in the lower end market for the products more easily to be copied. The car industry moved into the phase of intensive entry of brands.The turning point of Chinese car industry occurred in 2001. Following the adjustment of the industrial policy, the competition among manufacturers turned on a new status. The formerly weak competition shifted to a more intensive competition. After the auto price restriction was loosen and the rule of products registration was abandoned, price fighting played a vital role, and new sedan models were pushed into the market. Owing to the demand elasticity, the car industry experienced years of rapid growth. With the manufacturers' pulling in, the capacity of cars mounted, and that caused the outbreak of the second price fight. In 2004, the Policy of Automobile Industry Development was carried out. Different from the competition on the early stage of the car industry development, the brand diversification formed a considerable part of the competition after the capacity overlapped the demand again. With these efforts, manufactures enjoyed monopolies on different quality levels respectively.With profound investigation into the characters of Chinese car industry evolution, we studied the industrial competition in different phases. Based on the rudimental equilibrium model of Cournot, we have been established several models to explain the outcome of each period by loosing the hypothesis conditions. The models contribute greatly to analyzing the purposes of competing on quantity, the motives of improving output, the reason why different type of enterprises chose different ways to enter the market, the effect the brands spreading and so forth. By means of above-mentioned, the study gives a rigorous theoretical interpretation about the cause and evolution of China's car industry. And then we illustrate some outer elements which change the proposition of equilibrium, such as industrial policy, property relationship, consuming environment, technology innovation, etc. These elements exert effect on the balance of the industrial competition, and then we construct the systematic analysis of the inner and outer factors of the car industry evolution. We also discuss and anticipate the enterprises' reaction to the future competition pattern and the characters of the market structure. Moreover, the thesis offers valuable suggests to prevalent auto-industry policies in China.