An Empirical Analysis Of Market Structure And Excess Capacity On Industry In China

Market structure regarded as a prerequisite for industrial organization research, in traditional industrial organization theory, no matter the Harvard School or the Chicago School. That is, we must determine what kind of relationship within the industries and among enterprises firstly. In the late of 1970s, the rise of a new theory about industrial organization, the introduction of a new research paradigm and concepts, such as information economics and game theory to study the model of a perfectly competitive market has become the standard tool for analysis of policy conflicts, brings the studying field to a unified methodology. However, it did not overturn the original theoretical analysis paradigm and formed a new system, the premise is still the market structure for the content.In this paper, it measures the market structures using the concentrations of four enterprises, namely the four largest industries accounted for the entire industry sales revenue share of sales revenue. In this paper, we adopt the National Association monthly industries data and monthly detailed data of key state enterprises from 2001 to 2003, in respect that monthly data can be greater sensitivity for the study. Because of the enterprises data in some industries less than four, after screening, I calculated the following 21 monthly values of CR4 in 2-digit industry sectors. It can be found that industry concentrations were generally low, and most of them are the competition-the spread of atomic industries in China.There is no excess capacity and the community an economic phenomenon. A certain degree of excess capacity is normal in a market economy. However, in a mature market economy, due to being the mainstay of the market of rigid budgetary constraints and being the more perfect market system, competition among enterprises in an industry possesses the mechanism of survival of the fittest. In other words, poorly managed enterprises can be more easily annexed by other firms so much as closing down or going bankrupt, even if maybe exist the excess capacity, the market will force enterprises to make adjustments. After World War II, mainly Western countries pushed the Keynesian policies to stimulate demand, so normally they does not exist long and large-scale excess capacity. However, in our economic restructuring, the government's behavior maybe results in excess capacity, the country's macro-control has also met local government "stop him" and is difficult to achieve in the end. Withdrawing from certain industries with a high barrier, the sunken costs, otherwise lack of supervision of environmental, protection enterprises can easily cost and external, so that the problem of excess capacity has become difficult to control.The forming of excess capacity in China may be three causations: First, the formation of an economic cycle fluctuations, unstable investment and demand uncertainty; Secondly, the strategic actions of manufacturers, the manufacturers may invest in excess capacity in order to prevent the entry of potential entrants; Thirdly, the industry's excessive access may bring on some idle capacity and form excess capacity. Meanwhile, the formation of excess capacity of the industry may have an impact on which the firms enter or exit from an industry, thereby creating new market structure.CU represents the average rate of capacity utilization over the observation years. So from CU we can see whether or not the existence of excess capacity. In this paper we use peak-to-peak measurement method as a measure of capacity utilization. The advantage of this method is that we only need to know and single-input single-output data. It is for this reason that only the minimum information necessary to use mathematical methods to estimate production and capacity utilization, PTP has become the most applicable (Kirkley and Squires, 1999). It maybe exists in the complex and interactive connections between the trade excess capacity and market structure. To prove the existence of this interaction between them,using Granger causality test methods test whether they exist interaction. Granger causality test is defined and studied from Statistical sense. If there are significant between the two stationary series on Granger causality, in the economic sense between the two then there is definite causal relationship. On the contrary, it is not necessarily valid. Therefore, if the test results significantly, there is no definite causal link in economic sense. Due to time-series data may be unstable, we have done a unit root test to CR4 and CU. And then we integrated these time-series to stationary series. Through testing CR4 and CU with Granger causality test, it can be found the relationship of market structure and excess capacity in industries in China.Through empirical testing, from the overall perspective, it can be found that most of the industry capacity utilization rate would Granger attracted CR4. In other words, capacity utilization is the endogenous variable of the market concentration so that its changes can cause market concentration changes. This shows the excess capacity can affect market concentration, excess capacity as a strategic action may deter the entry of potential manufacturers, thereby affecting the degree of market concentration. In other words, there may be appropriate for the excess production of industrial concentration. However, CR4 of many industries didn't Granger cause capacity utilization rate. Market concentration is the exogenous variable capacity utilization. This shows that market concentration should not affect the excess capacity. This explains our excess capacity is not aroused by the market structure, but other factors. In China the relations of industrial market structure and excess capacity is complex, whether there exists a causal relationship depending on the market conditions in every industry. The existence of excess capacity in many industries can affect its industry market structure. Many industries in the form of excess capacity may not be due to the market structure and maybe for other reasons, including the economic system and government and so on. In a few industries, and it has significantly Granger causality between CR4 and CU. These sectors are highly-competitive industry. There are a small number of trades may not have excess capacity or excess capacity that may exist but no causal relations between them.