Research On The Impact Of Government Regulations On The Profitability Of Monopolistic Industries

The main purpose of this thesis is to study how government regulations affect the profitability of monopolistic industries. Use the financial information of two electric companies in Hong Kong as the basis to find out the reason of monopolization in electricity market and factors contributing to their profit. In addition, the thesis reviewed the reasonableness of the profitability of regulated companies and the adequacy of disclosure requirement imposed on them as well as the impact of existing electricity charges on the whole economy.The findings of the research include : 1. The monopolization in the electricity market of Hong Kong is only partly due to the regulatory policy but is mainly due to the scale of the market. 2. Due to the rapid change in the economic environment, the "permitted return" under the regulatory policy turned to a super-profit. 3. Comparing with other countries, the electricity charges of Hong Kong is still at a reasonable level, but can be lower. The efficiency of the electric companies is low and the stand-by electricity capacity is too high. 4. The super-profit earned by the electric companies has negative impact on the whole economy.According to the scale of the electricity market in Hong Kong, government regulation is more suitable especially when the market condition for competition is not ready. There are some suggestions in this thesis, including lowering the upper limit of the "permitted return", increasing the transparency of the approval procedure on investment plan and regulating the contents and format of the "Scheme of Control Statement".