Regulation And Reform On The Natural Monopoly Industries

The natural monopoly industries, with their unique characteristics of cost subadditivity and economies of scale, are widely regulated by the government. Administration monopoly and other systematic defects have been the main cause to the government regulation failure. The reformation of which, involving the improvement of welfare of the whole society and the conversion of the government function of the corresponding department of each domain, turns to be the focus and crux of the current Chinese political and economic reform drive. How to implement the market mechanism and competition system amid the course of regulation reform has been a subject of vital importance.The following thesis, taking the water supply industry—a typical natural monopoly industry as an example, from the viewpoint of the regulation economics, comprehensively reviews the regulation theories &literatures home and abroad as well as the practice and experience of western developed countries in their reform of the said industries, and concludes that market competition will be the world's trend for the natural monopolies, while in China both regulation and competition are indispensable.The article embarks upon the crux of the reform, the sharp contradiction in the price regulation for the industries, and holds that extensive & multi-level hearings on basis of franchise competition will be the key to solve the problem of asymmetric cost information. A complex reform calls for an ample preparation on law system, institution preparation and basically the transfer of the property etc..The following article highlights on the designing of such reform model as the detachment of government and enterprises, disassembling of the production links and manage them with different approaches. The key point of the reform lies in the separation of production links and reform in the light of the mode of "regulation in the middle and opening to market on both ends", i.e, to monopoly part like pipes and networks, which is the major barriers with huge sunk cost for the potential competitors, the motivation-oriented regulation is suggested, as to the production part, the terminals connecting consumers and other non-monopoly parts, the article strongly agitates the adoption of competition mechanism through franchise tendering and regional competitions along with the reorganization of enterprise property.All in all, the thesis commits to settle the problem of "Who" and "How" to regulate the natural monopoly industries with a reply to the question of "How can the coexisting regulation and competition be put into full play in the intractable reformation of the natural monopoly industries ? "...