Research On Incentive Regulations In Government Pricing Of Network-type Natural Monopoly Industries

In order to effectively regulate the network-type natural monopoly industry,the Chinese regulatory departments have learned from theoretical knowledge and practical experience(especially from the wave of “regulatory revolutions” in the 1980s)since the Reform and Opening to continuously promote reforms in related fields.Although some good results have been achieved,the practice of many years of reform has not fully achieved the expected results.The outstanding performance is that the increase of product price of the network-type natural monopoly industry far exceeds the increase of CPI,but the enterprise is generally in a state of loss or meager profit.Regulatory departments(such as development and reform committees at all levels and in all regions)are eager to be given a set of guiding principles and mechanisms that are scientifically sound and practical by academics.However,most of the existing literature tends to be rigidly attached to classical economic theory and traditional methods,ignoring the“information asymmetry” and “principle-agent relationship” in regulation.Even if some of the literature touches them,the mechanism design is rarely used in countermeasure analysis.This paper will focus on the regulatory reform of China's network-based natural monopoly industry in the new era under the framework of incentive regulation theory.And it attempts to systematically examine the information and incentive problem involved.The regulations of the network-type natural monopoly industries generally include entry and exit regulation,price regulation,quality regulation,environmental rules and many other aspects.Because price is the signal to convey market information,the core of the market economy,and the key to reform,the research in this paper focuses on price regulation.whether it is ROR regulation or Price Cap regulation,the price of network-type natural monopoly industry is mostly formulated or guided by the government.China's “Price Law” also clarifies the principle of “government pricing”.This paper focuses on the study of incentive pricing of government pricing in China's network-based natural monopoly industry,combining the classic literature of traditional and modern regulatory theory with the specific practice of Chinese regulatory reform,starting from four dimensions.These include: classified pricing for multi-product companies,access pricing for symmetrically competitive competition,LRIC pricing associated with infrastructure inputs,and tax structure in government pricing based on universal service obligations.In addition,unlike most of the previous literature,this book uses more detailed microdata(such as China Urban Water Company Data,China Industrial Enterprise Data,CHIPS Data,etc.)to measure the Welfare of Enterprises,Consumption Welfare and Total Social Welfare in different situations.This paper closely combines the latest incentive regulation theory with the regulation practices of China's network-type natural monopoly industry and analyzes practice under theory guidance,and check the theory by conducting practices.This article consists of six chapters.The first chapter is the introduction,introducing the research background,purpose and significance of this paper,research ideas and methods,and the main innovations of the research.The second chapter,the third chapter,the fourth chapter and the fifth chapter are the four aspects,namely,classification pricing,access pricing,pricing cost and information and incentives in the study of direct and indirect tax based on universal service obligations.And these four aspects cover the main content of government pricing in network-based natural monopoly industries.After years of the SOE reform,China's natural monopoly industries have basically achieved vertical separation,forming a situation in which competing markets and monopoly bottlenecks coexist.Among the targets of government pricing in the natural monopoly industry,competitive opponents have been added.At the same time,the price levels of various markets also show huge differences.Does discriminatory price distort market performance and whether there is any room for welfare improvement? Based on the industrial structure characteristics of China's urban water supply industry,Chapter2 of this paper constructs a social welfare function under the constraints of budget equilibrium and gets the Ramsey-Boiteux optimal pricing benchmark.The results show that under the condition of complete information,the optimal pricing to residential users is affected by the elasticity of demand and the shadow price of public funds.The access pricing to competitors should conform to the ECPR,while the pricing to other downstream enterprises as intermediate products pricing should be consistent with Stackelberg game.In the case of information asymmetry,to avoid the “reverse selection”and “moral hazard” problems of bottleneck enterprises,the benchmark of the optimal classified pricing should be modified.There will be an optimal price gap between local government's pricing and benchmark in the bottleneck industry.Through the estimation of urban water supply data in Beijing,it is found that the water price of residents is reasonably subsidized due to the characteristics of “Jeffin Good”,the non-resident water prices enjoy subsidies below the optimal benchmark,and the access price in the competitive market has exceeded the optimal level.If the government pricing behavior deviates from market principles,it will bring price distortions and affect social welfare.To improve market performance,a viable solution in bottleneck industry classified pricing is to find appropriate incentive corrections which can show the true cost of the firm.In the urban tap water pricing,the indicators based on the “production-sales rate”meet the incentives of the optimal pricing benchmark,and it is conducive to achieving the harmonious unity of “Cost Reduction” and social welfare goals.China's state-owned enterprise reform has experienced 40 years.In the early stage,China's SOE reform partially achieved its goals relied on preferential policies and ownership reform.But it also exposed some new problems,such as asymmetric competition.In the new stage of comprehensive deepening the reform of SOE,the reform should pay more attention to fair competition.Chapter 3 of this paper takes“business robbing” and “value creation” as the perspective,which come from the reform of “competitive market”.This paper analyzes player,strategy space and payoff by using Bertrand model and Hotelling model respectively.The result is:(i)Under the condition of information asymmetry,due to the strategic behavior of bottleneck enterprises,it is difficult for social planners to expect “the incumbent and the entrant to compete with Bertrand to improve the total social welfare”.(ii)The “new value”brought by the entrants will also shrink sharply.(iii)This strategic behavior is neither an administrative monopoly nor an entry barrier.It is the bottleneck enterprise that uses the information advantage to increase the access pricing and extract the “rent” of the downstream competitors.(iv)The game itself does not involve the nature of ownership.The high cost of the enterprise has little impact on welfare changes and does not change direction.The enlightenment to the reform of China's natural monopoly industry is:Deregulation does not necessarily improve market performance.The market failure caused by information asymmetry has a greater impact.China's state-owned enterprise reforms principle is “Deregulation-Regulation-Service”.At this time,the “Regulation”should be highlighted.In the new era,the reform of state-owned enterprises should:(i)Maintain the public ownership nature of natural monopoly industries,and make the goals of enterprises and social planners close to each other;(ii)Learn from the modern regulation theory,use appropriate mechanisms to design incentive companies to display real information,improve the scientific nature of government pricing,and resolve the adverse effects of asymmetric competition.Price is the core of the market economy and the key to reform.Most of the reforms in China's natural monopoly industries have been carried out around price reforms.Even the reform of the open competitive market and the introduction of other investment entities is largely to create a situation in which Bertrand competes,thus showing the true cost of the company and lowering the market price.However,the existence of competitive entry and technological progress often leads to the problem of“economic idleness”,which leads to “post-event effects” undermining “ex ante effects”,affecting corporate investment enthusiasm,and even inducing market distortions.Chapter 4 of this paper begins with an analysis of the differences between goals and behaviors of social planners and monopolies in an open competitive market.It reveals the source and influence of “economic idleness”.Chapter 4 of this paper begins with an analysis of the differences between goals and behaviors of social planners and monopolies in an open competitive market by theoretical analysis.In addition,it also uses the natural experiment of price reform in China's power industry.It analyzes the technological progress of price reform(competitive pricing)and equipment manufacturing,and the impact on producer surplus and consumer surplus by Difference-in-Difference Methods.The results show that:(i)Under the existing government pricing model(seeking cost-based pricing method),technological progress factors are not really included in the pricing system.Under open competition conditions,it will make it difficult for enterprises to recover their investment costs.(ii)Technological advances in equipment manufacturing have improved consumer welfare in utilities but have hurt manufacturers' profits.(iii)Competitive entry and social average cost pricing damage the in-service corporate welfare,but it is passed on because of the “strategic behavior” of the incumbent,so the significance is not high.Therefore,in the future price reform of the natural monopoly industry,we should take the incentive regulation as the direction,make full use of information,rationally allocate resources,and ensure incentive compatibility.Network-type natural monopoly industries usually have “universal service obligations” and “cross-subsidy” compensation.These also have important effects on government pricing in monopoly industries.With the advancement of state-owned enterprise reforms,the sources of “cross-subsidization” in China's network-based natural monopoly industries are increasingly restricted,and direct tax schemes like“universal service funds” are receiving more and more attention.In this scenario,there is also the problem of information asymmetry and incentives,except that the agent is replaced by a monopoly enterprise into a low-income family or a remote area.The fifth chapter of this paper starts from the optimal decision of consumers and social planners,introduces the optimal scheme of direct tax and indirect tax by introducing “universal service obligation”.The results show that:(i)under the condition of information asymmetry,the direct tax collection has the least distortion to market performance,that is,it does not affect the consumption mix and maintains neutrality;(ii)the direct tax rate in government pricing comes from the constraints related to after-tax income.Conditions,information asymmetry,especially pay attention to the “incentive compatibility” of displaying real information.In addition,this paper uses the method of Fuzzy Regression Discontinuity to test the family residential consumption in CHIPS data.The results show that:(i)information asymmetry and transfer payment will have an impact on low-income households' hydropower fuel consumption;(ii)“relief income” of poor households in some years will lead to increased hydropower fuel consumption,rather than poor low income.The family reduced the expenditure on hydropower fuel after receiving “relief income”,indicating that the policy plan achieved the separation goal;(iii)but some years were not significant,indicating that the policy at the time did not meet the expected target.Under the condition of information asymmetry,the regulation of natural monopoly industries based on universal service obligations should also take incentives as the direction,make full use of information,rationally allocate resources,and ensure incentive compatibility.Based on summarizing the full-text research,the sixth chapter summarizes the main research conclusions and proposes corresponding countermeasures.Among them,the incentive regulation in the classification pricing of multi-product enterprises requires that the market efficiency and the fair burden are unified,the solution body of the external problem is transferred from the enterprise to the government,and the incentive to reduce costs is provided.Incentive regulation in asymmetric competition requires ensuring that corporate goals are consistent with social planners,encouraging competition,and paying attention to the issue of “Regulatory Capture”.Economic inactivity and incentive regulation,called for accelerated depreciation,adhere to open“Contestable Market”,and to give businesses adequate advance “Incentive”.Incentive regulation based on universal service obligations requires multi-sector cooperation,rational establishment of tax structure,and consideration of “Universal Service Obligations” based on resource conservation.