Evolution Of Natural Monopolies Regulation Adjust Industry

Telecommunications, electricity, railways, air transport, water and gas supply industries have a huge investment, long payback period, asset specificity, and big sunk costs. Typically, these industries also have the common characteristics of the network economy. When the network is built and put into use, enterprises have high fixed costs and low marginal costs of production. The economies of scale are so obvious that these industries are often called as natural monopoly industries. In order to prevent monopolies developing a price higher than the marginal cost, which may result in low efficiency of the production and loss of social welfare, government regulation is in line with the principles of economic efficiency. However, theoretical research and practical experience have shown that the natural monopoly nature of industrial organization itself is not fixed, but evolving. When the nature of natural monopoly of the industry has been weakening into a competitive industry, economic regulation became possible to relax or exit.Traditional natural monopoly industries usually consists of a series of business units with vertical relationship. The evolution of natural monopoly of the industrial organization is often not holistic, but is reflected in certain business units of the vertical chain. Therefore, it is very meaningful to carry out differentiated regulatory policy by analyzing the evolution law of industrial organization and determining the nature of the business.Air transport industry as a whole is traditional natural monopoly industry, but the different types of business on its vertical industry chain has different technical and economic characteristics. This paper divide air transport industry into six different types of business,including airport service, passenger and freight transportation services, air t’affic management, support services, extensional services, aircraft maintenance and training services. Differentiated regulatory policy should be carry out on the different types of business of air transport industry.The first chapter presented background and significance of the paper, and then on the base of analyzing existing research, the research goals, ideas and methods were proposed. The second chapter has elaborated the theoretical basis on the evolution of natural monopoly industry from four point of view, that is, the idea of industrial organization theory about the evolution of the market structure, related theories of evolutionary economics on industry evolution, evolution of the theory of natural monopoly itself, actual factors of demand and technological progress affecting the change of natural monopoly industry boundaries. All these aimed at the scientific research of the thesis theme; The third chapter is mainly on the relationship between natural monopoly and government regulation. Government regulation is the broadest used and most mature way among the optional method of natural monopoly governance, unfortunately there is no perfect regulatory price. The introduction of incentives into regulatory policy may eliminate the negative effects of traditional regulation to a certain the extent. But appropriate regulatory measures should be relaxed or adjusted if the technical and economic attributes of natural monopoly industry itself or some of its business has evolved.The fourth chapter explained why airline passenger and cargo business is to some extend a natural monopoly by empirical analysis on economies of scale and other aspects of the airline business. With the expanding demand for air transportation, technological progress in airline industry and alternative competition between transport industries, the degree of natural monopoly of airline industry has being weaken, which required the regulation must be relaxed. Based on the time series data1986-2011in airline industry, this paper tested the market performance of deregulation in airline industry in China. The fifth chapter stressed the regional natural monopoly of airport, summarize the content and method of airport regulation in other countries, and analyze the welfare effects of airport regulation by a theoretical model. In this chapter, price cap regulation were proposed in china by a comparative study on airport regulation on the basis of experience of other countries; The seventh chapter proposed a basic strategy of "first restructuring second differentiated regulation", and then summarized the advantages and disadvantages of five models of restructuring. Further more, this paper analyzed the existing problems in the process of restructuring and countermeasures should be taken. In the end, differentiated regulatory policies on all types of business of the air transport industry were proposed from the two aspects of price regulation and entry regulation.The idea and analytical framework of this research is not only valuable for the air transport industry but also valuable for the reform and development of other natural monopoly industries.