China's Civil Aviation Transportation Market Structure And Competition In The Performance Of Empirical Research

The study system of Industrial Organization has come into being based on efforts of several generations of economists, and radical arguments and criticism have never been scarce during the period. Hitherto, Industrial Organization has been accepted widely as an important branch of Microeconomics. Characterizing with both solid theoretical bases and full-ranged empirical supports, it has been recognized as a bridge between the Microeconomic theory and industrial policy applications and is indispensable for the implementations of competition policy.As early as the 80-90s of last century, the theoretical framework of west Industrial Organization was introduced into China. By now, Chinese authors have paid quite a few attentions on recent theoretical developments including incomplete information theory, right of property, game theory. Due to lack of relevant data base, however, the area of empirical industrial study is still leaved barren. Following specific west methods (Evans and Kesside (1994) and Singal (1996)), this study attempts to explore an approach of empirical industrial study applying a series measure calculated from China's airlines industry data to test classical hypotheses. To uncover the real relationship between the performance and structure, this study has controlled as many technology and policy variables as possible. The effects of these control variables on performance have also been discussed.Chapter one Theory and Literature Reviews introduces and reviews the theories and literatures relevant to the following study. These theories and literatures includes the SCP framework of traditional empirical IO (or Harvard tradition), criticism from other schools (Chicago tradition) and recent developments (NEIO); contestable market theory and relevant arguments; multimarket contact theory and related empirical studies; recent developments on airlines industry studies.Chapter two Aggregate Study on China Airline Market starts from an introduction on the evolution of regulation policy in China airline industry in terms of the marketization reform, market entry regulation and market price regulation respectively. Then, following the general methods used in industrial studies, this chapter calculates a series of measures of market structure (number of active competitors, concentration ratio, HHI) and market performance (nominal and real yield, nominal and real fare). In the calculation, effects of merger and acquisitions have been taken into full account. The chapter also gives a detailed profile of the evolving market structure and market performance through both vertical (time series) and horizontal (Sino-US) comparisons. Lastly, using the time series data from China's airline industry during 1991-2005, the chapter does an OLS regression on the relationship between structure and performance. The results show that: first, keeping all unchanged, increase in labor and fixed inputs of airline industry leads to the decline in market average yield significantly; second, the hypothesis of positive relationship between concentration and average yield is rejected probably due to the existence of strict price regulation, and because the effects of"Merger and Acquisitions in 2002"and"New Entry in 2005"have been controlled result in the above; third, mergers and acquisitions in 2002 has significant positive effects on the average market yield, this is consistent with the theoretical expectation; fourth, new entrants enhances the market competition effectively, and decreases the average market yield significantly. That is, as expected by industrial people, entry of small private airlines plays a role of so called"catfish effect".Chapter three Empirical Study on China's Domestic Airline Industry constructs a set of measures for market competition performance regression by following west research methods. Using cross-section data from 244 China's domestic airline market, the chapter calculates measures of market feature (number of active competitors, number of potential competitors, HHI, MMC), production technology (distance, average load factor, average passenger density, annual passenger traffic), policy (guided ticket price and three dummy variables for different released price policies). A multimarket contact index (MMCi) of China's domestic airline route market is calculated here for the first time. The calculation show that multimarket contact exists widely in China's domestic airline markets, and the multimarket contacts are important on trunk routes and for big airlines. The results of regression show that: first, multimarket contact in China's domestic airline market can lead to mutual forbearance, that is, Chinese airlines are living with"the golden rule"as their counterparts in US; second, the hypotheses of positive relationship between market structure and performance and contestable market are rejected; third, coefficients of technology variables are all significant, this is consistent with the expectation; fourth, government regulation is an important influent factor of market performance, this is coincide with the results shown in chapter two.Chapter four Welfare Effect Analysis on China Airline Market establishes a theoretical welfare function, and estimates the consumer welfare and firm welfare on China's domestic airline market in 2005. This chapter concludes that the market is suboptimal with negative firm welfare. Lastly, this chapter does a regress of airline industry's cost on market performance and technology efficiency measures. The result shows that China's airline industry is in a phase where average cost will decline with the increase of aggregate output, that is, the industry is in its growing phase. And this can also contribute to the unexpected sign of coefficient of structure variable. Besides, the result shows that government regulation affects the market performance significantly in that release of entry and price floor regulation can improve social welfare significantly.Chapter five Conclusions and Suggestions presents the primary policy implications of this study based on a conclusion of the former chapters. The primary policy implications include, first, the market structure measure should be used as identification criterion in anti-trust implementation with cautions; second, the authority should give more concerns on the potential negative effect of multimarket contact between firms with geographically separated network on the market performance; third, the release of price floor regulation will improve the social welfare; fourth, low market entry barrier combining with appropriate mergers and acquisitions, will facilitate the fluctuated growing locus of the industry performance and welfare converging to a uprising line; fifth, the release of regulation on input market have strategic implications for improving the competitive advantage of airline industry.