The Welfare Losses Of Monopoly:Theory?Evidence And Antitrust Policy

The study on monopoly started from Free Competition theory of Adam Smith. Neoclassical Economics further stressed the empacting on resource allocation by monopoly. Neoclassical Economics also thought that only perfect competition can arrive at optimal welfare, so the more competition, the better welfare. However, Chicago School, Transcation Costs theory and Schumpeter's Innovation theory thought that monopoly is closed to efficiency, boundary, innovation and conduction of firms, so we could not simply think that the more monopoly, the more welfare losses. In general, with the development of theory, there are always controversies on competition and monopoly. Therefore, these controversies are the one of the reasons why this paper researchs on Welfare Losses of Monopoly.Although there are controversies, an important reality is that more than 100 conturies enact Antitrust Policy for regulating monopoly. However, monopoly is full of energy and exists all kinds of markets. In general, monopoly has gradually become one of the most important types of economy. In domestic market, the development of monopoly theory is mainly for studying economical monopoly, but the most common monopoly in China is administrative monopoly, so situation for anti-trust in China is more severe and complicated with the background of economic globalization and knowledge based economy. For Anti-trust policy, how to promote social welfare is the second reason why this paper research on Welfare Losses of Monopoly.Because there is not perfect competition market in real world, the Welfare Losses of monopoly is kind of probable losses relative to perfect competition. However, the welfare losses can reflect the welfare losses of consumer caused by deviating from perfect competition and the social costs caused by inefficiency using of resource.The Welfare Losses of Monopoly is the research object of this paper. Accroding to the logic of " the estimation of welfare losses — influential factor analysis of welfare losses — the enlightment of antitrust policy by the influential factor analysis — the study on antitrust policy", This paper researchs on Welfare Loss of Monopoly comprehensively. As a whole, this paper is doing research mainly based on three points:Firstly, this paper has estimated the welfare losses of monopoly. This paper, based on the frame of NEIO, has estimated the welfare losses of monopoly in Chinese industries from 2003 to 2009. The welfare losses estimated by this paper include not only the traditional Harberger Triangle but also relative efficiency losses caused by cost variance. The results show that the average welfare losses of Chinese industries from 2003 to 2009 are 35381 billion RMB, which account for GDP is the average of 14.5%. Moreover, welfare losses of monopoly are mainly from efficiency losses, the welfare losses from market power is relatively low. Therefore, the government should further perfect competitive mechanism, especialy the entry and exit mechanism, to urge these firms with high cost to enhance efficency.Secondy, this paper has analyzed the influential factor of welfare losses. This paper has combined theoretical and empirical method to analyze the main factors impacting the Welfare Losses. Under the imperfect competition, the econimic welfare losses will increase firstly and then decline with the enhancement of monopoly degree, which presents a trend of inverted U shape. The empirical analysis shows that the monopoly welfare losses are influenced by competitive level, advertisement expenditure, R&D expenditure, economies of scale, adminisstrive monopoly and capital density. Therefore, the anti-trust policy which aim is to maximize social welfare can promote welfare based on those factors. This paper also did a special analysis for this problem and provided some policy suggestion.Thirdly, this paper has comprehensively studied Chinese antitrust policy based on influential factor analysis. The analysis on influential factor of welfare losses has some enlightening role for Chinese antitrust policy. Moreover, besides making some sepicific antirust policy based on influential factor of welfare losses, we should comprehensively study Chinese antitrust policy from perspectives of history, current situation and deficiencies, so that this paper can provide useful suggestion for further perfecting antitrust policy.In conclusion, from estimating welfare losses to analyzing factors, from discussing policy meaning of these factors to a full study of anti-trust policy, this paper takes welfare losses of monopoly as key to systematically analyze the problem related to welfare losses of monopoly.This paper probably has some innovations.Firstly, this paper has estimatied the degree of administrative monopoly in Chinese industries. Administrative monopoly is very close to Chinese economy, so many paper have studied the degree of administrative monopoly. Most paper use state-owned degree to assess administrative monopoly, but single index may be not comprehensive. Some paper use a comprehensive index to assess administrative monopoly, but the setting of index weight may be subjective. This paper use scale, crew size, capital, cost, quantity of state-owned firm to comprehensively assess administrative monopoly based on Principal Component Analysis, which is more rationality to some degrees.Secondly, this paper has estimatied the welfare losses on monopoly in Chinese induetries. The method used by this paper for estimating welfare losses can be applied more widely in different industries. The traditional Harberger Triangle does not contain efficiency losses, but in the real economy, the cost is not equal for different firms, so the efficiency losses caused by cost variance should be contained in welfare losses for the sake of estimating welfare losses more precisely. In addition, the product differentiation is also taken into account in the theoretical model, which is more close to reality.Thirdly, this paper has further analyzed the U shape relationship between welfare and competition. The basic target for Chinese anti-trust policy is to improve social welfare. Theoretically, perfect competition market can maximize welfare. But there is not perfect competition market in the real world, so excessive market competition cannot improve welfare of whole society, and we cannot simply think that the more competition, the better welfare. Both of theoretical and empirical analysis in this paper has further proved this conclusion. Therefore, only appropriate competition can maximize welfare.