Study On Diversification Of Market Structure In Natural Monopoly Industry

Traditional economic theory suggests competition is not suitable for natural monopoly industry. However, Economic environment that the traditional natural monopoly industries faced has been changing because of the practical market demand expansion and technical progress. The classic natural monopolistic market structure has been gradually eroded; the practice of industrial development shows great possibility and demand of introducing competition in traditional natural monopoly industries. Since the 1970s, in order to introduce and intensify competition in these industries, competition-oriented reforms have taken place in developed countries. Diversified reconstruction of market structure becomes a popular trend in the reform of traditional natural monopoly industries. Taking the electric power industry as example, there are successful cases such as the reconstruction of market structure of electric power industry in British, and painful lessons such as the failed reform of electricity power market in California. Under the situation of this worldwide trend and the domestic market environment of institutional transformation of economic system, the market-oriented reform of traditional natural monopoly industries, such as the market of electricity power, telecom and railway, did or do conduct in China.The diversified reconstruction of market structure becomes the preferred and main way in the worldwide market-oriented reform of natural monopoly industries, and its purpose is to improve the productive efficiency, allocation efficiency and social welfare by introducing mechanism into market. The formation and presentation of workable competition needs a well-structured and organized market. In this paper, we think that it's not the real and effective diversification of market structure, which just has the external structural form of diversified market competitors but without or be hard to produce expected competition, in the market-oriented reform of natural monopoly industries; in order to produce workable competition, the matching institutions adjustment should be implemented to act as the internal security of the external diversified market structure. What the market-oriented reform of natural monopoly industries pursuits is the workable diversification of market structure, which has combined the external market structure of diversified competitors with internal expected adaptive institution.Taking the reconstruction of market structure in natural monopoly as the clue of this study, on the basis of the analysis on the termination of traditional natural monopolistic market structure and the possibility and rationality of diversified reconstruction, the paper have studied the evolution of market structure in natural monopoly industries and proposed a patter of wedge-shaped market entry, demonstrated the target of workable diversification of market structure in the market-oriented reform of natural monopoly industry and presented the importance of institutional change to market structure adjustment. Finally, combined the theoretical development with empirical study, taking the competition-oriented reform of electric power industry as a typical case, the paper has explored the successful experience and painful lessons from the reform of developed countries; and the paper has analyzed the evolution of electric power industry's market structure in China's competition-inducing reform, analyzed the development, market performance and the institutional dislocation in its diversified reconstruction. On this analysis and the former theoretical development, we have evaluated and judged the diversified reconstruction of electric power market in China.According to the research ideas and clues above, the main contents of the paper are developing as follows:Chapter one is the introduction of the paper. The research proposition has been firstly presented due to the development of the natural monopoly in practice. Then, in order to avoid the possible misunderstanding of the study, correlating concepts are meticulously re-defined and explained. Finally, the main ideas, research clues, research methods used, main contents, technical route and main innovations of the paper are briefly illuminated. The second chapter has made a systematical review on the understanding and development of natural monopoly, the reform of natural monopoly industry and the issue on the evolution of its market structure in the theory of industrial organization. In this part, the paper has briefly summarized the literatures that have argued and debated the relationship between government regulation, the change of the structure of property right and competition in the development of natural monopoly industries. The research proposition of the study has been presented through the brief review and comment on the theory and literatures.In chapter three, the paper has theoretically analyzed the reason of the existence of traditional natural monopolistic market structure, pointed out the drawbacks of the market. The unified market structure of natural monopoly industry can promote the social welfare but may cause the loss of it at the same time, which is called "unified paradox", namely that the unified traditional natural monopolistic market structure is unstable. Consequently, form two aspects of theory development and practical support, the paper has analyzed the possibility of the diversified reconstruction of market structure, clarified that the diversified reconstruction of market structure, as well as the end of traditional natural monopolistic market structure, is an inevitable trend and direction in the development of natural monopoly. Then, it has argued the rationality of the diversified reconstruction, described the possible ways of adjustment of its market structure and the five diversified patterns of the natural monopoly industries in the practice of OECD countries.Form the firm's market entry caused by the change of economic environment, in the fourth chapter, the paper has firstly induced the economic mechanism of the adjustment of market structure of natural monopoly and its evolution of diversified reconstruction, namely the so-called "wedge-shaped market entry". Then, the hypotheses are gradually released, it has been pointed out that it's very important for the matching of internal institution with the external market structure to the diversified reconstruction of natural monopoly. Further, the concept of workable diversification of market structure and its four fundamental judgment criterions have been put forward in this part. Finally, form the perspective of gambling, the paper has analyzed the mechanism of strategy of market competition to the number of firms in contestable business of natural monopoly industry; in order to avoid the existence of excessive market competitors result from market failure, the government's regulation of entry into natural monopoly market can not be cancelled yet.Taking the market-oriented reform of electric power industry as a typical case, chapter five has studied the evolution and reconstruction of market structure in monopoly industry. Firstly, the paper has explored the effectiveness and issues on institutional changes in diversified reconstruction of market structure of electric power industry in developed countries by comparing the successful experiences of the diversification in British with the painful failure of American reform in California. Secondly, the paper has described the evolutionary history of market-oriented reform of electricity power market and its diversified reconstruction of market structure in China, and judged its status and changes of market structure since the diversified reconstruction according to empirical analysis.In chapter six, evaluation and judgment on the diversified reconstruction of market structure in China's electric power industry has been made. By empirical study on the development and market performance of China's electric power industry since its competition-oriented reform, the paper has presented that the bias of external market structure and the dislocation of internal institution are existing. China's electric power industry has made a certain degree of development since the reform of diversified reconstruction; however, the increased market performance mainly does not results from the expected market competition but expansion of the industry's scale and technical progress. There has the phenomenon of trap of interest group gambling in the diversified adjustment of market structure in China's electric power industry. As the weak interest group, consumers have obtained limited benefit in social welfare; most revenue of the market-oriented reform has been got by the producer which acts as the strong interest group in gambling. In the process of diversified reconstruction of market structure of China's electric power industry, government has led and controlled the market excessively. According the four fundamental judgment criterions presented in former theoretical development and on the basis of empirical analysis, the paper has concluded that the present competition-oriented reform of China's electric power industry is merely an inefficient or low-efficient diversification of market structure, which just initially established the external diversified competitor in the generate side of the whole electricity power market but without the expected substantial workable competition. Finally, based on the analysis above, corresponding proposals and recommendations have been put forward to achieve the goal of workable diversification of market structure in China's electric power industry.As the conclusive part, chapter seven has made a brief review and summary of the whole research, and proposed the further study perspectives on this issue according to the research deficiency of this paper.