The Empirical Study Of The Market Power In China's Telecommunication And Its Influence To The Performance

Telecommunication industry is one of the most popular industries in China and it takes a very important position in the developing economics of China. But telecommunication industry has been under reform for a long time and the suitable industry structure hasn't come out till now, which results the monopoly market in China's telecommunication. With the fast development of technology and telecom business, the problem between monopoly and development becomes more and more serious, which blocks the developing China's telecommunication. So China's telecommunication gets more attention.This paper is divided into five parts: the first part introduces the object, the purpose and the main study method of this paper; the second part describes the characters of telecommunication and the history of China's telecommunication; the third parts shows the methods to measuring market power; in the fourth part, it makes empirical study about the market power in telecommunication and its influence; in the final part, it makes conclusions of this paper and it also make some suggestions to the present China's telecommunication.The history of China's telecommunication is divided into four parts: monopoly (from 1949 to 1994), primary competitive market (from 1994 to 1998), restructuring telecom and competition expanding (from 1998 to 2002), China Telecom's dividing and competitive telecom market (from 2002 to present). The object of this paper is the last part in the history of China's telecommunication and our purpose is to study whether the telecommunication market is competitive by measuring market power, and the relationship between market power and the development of China's telecommunication through a mathematic model.Market power means the ability by practicing which monopoly companies influence other companies, price, quantities and other variables in a market. Market power only exists in imperfect competitive markets and market power is zero in a perfect competitive market. The main means to practice market power is to raise the price, which will make the company lose fewer customers and get more profits.Whether market power being practiced is an important standard to define monopoly. We can get much information about the extent of monopolization in a market by measuring market power. In this paper, market power is measured by estimating Lerner Index. In practice, it is difficult to estimate the marginal cost of telecommunication. Considering the different statistic standard, the total revenue of telecommunication and the total business quantity of telecommunication, we estimate the comparable rate of Lerner Index for each quarter since the first quarter of 2002 by making a transition between marginal cost and output. After that a mathematic model is set to study the relation between China's telecommunication and market power. The study about the relation between revenue and market share, average cost and market share is also in this paper, by using the financial data and business data of companies. The results shows that: market power has decreased right after 2002, but in totally speaking the market power of China's telecommunication is increasing, especially in these years and the monopoly extent of the telecommunication market becomes more serious; the coefficient between increase rate of telecommunication's revenue and market power is negative, which shows that the increasing of market power makes negative influence to the whole China's telecommunication; the result of the coefficient between average cost and market share shows that China Mobile has more advantage in aspect of cost than China Unicom; China Mobile will get more share of mobile telecom market because its cost advantage and China Mobile will also get more share of the whole telecom market because of the mobile telecom's strong substitutability; the market will become more monopolizing and the competitive market is difficult to exist for a long time , if nothing changed in telecommunication industry.By analyzing the present telecom market four reasons are concluded to explain why the monopoly comes out in telecom market: history factor, industry barrier, business dividing, asymmetry information.Monopoly existed in telecommunication more or less for a long time. The telecom market still had many characters of monopoly market right after the telecommunication's restructure. The telecom policy is the most important reason for the barrier of China's Telecommunication; Economy of Scale and Sunk Cost are also the important components of the barrier. The telecom business dividing makes the result that there is little conflict between the top 4 companies in telecom market which takes more than 90 percent market share and Competitive market is difficult to form in the market with less business conflicts. With the development of technology and business, it is hard to get more information about the real cost of telecommunication, which makes government difficult to make regulations and telecom companies also have more advantages than consumers in aspect of information.Some suggestions are given in the final part of the paper to the present telecommunication market: adapting the business distribution, changing the market structure and reduce the standard for new companies which want to come into the market of the telecommunication.