The Economic Approach To The Administrative Monopoly Institution

Administrative monopoly is that the government agencies use their administrative powers to restrict or exclude competition. That will lead to distortion of resources allocation, loss of social welfare, unfair income distribution, malignant problems of local protection, regional market segmentation, and so on. The topic of breaking administrative monopoly is not only one of the most active topics in the process of China's marketing but also the focus of China's political and economic reform. As a traditional industry that has significant natural monopoly characteristics and the serious administrative monopoly problems, the telecom industry is always the representative industry in the study of administrative monopoly. The paper analyses the administrative monopoly institutions through the use of demand and supply analysis method, equilibrium analysis method, the framework of new comparative economics and cost-revenue analysis method with China's telecom industry as an example.Ⅰ. The demand-supply and equilibrium analysis of the administrative monopoly institutions. Firstly, from the demand viewpoint, the administrative monopoly institutions benefit not only the monopolistic firms but also the suppliers of the administrative monopoly institutions those are the industry administrative agencies. The monopolistic firms' pursuit of exorbitant profit and the industry administrative agencies' pursuit of the interests of the control rights are continuous and that will make the administrative monopoly institutions exist in a long time. Secondly, from the supply viewpoint, the suppliers of administrative monopoly institutions are divided into the upper and lower levels. The upper suppliers pursue the maximization of social welfare and the lower suppliers pursue the maximization of their own rents. And the lower suppliers should be subordinated to the upper supplier. To a certain extent, the supply of administrative monopoly institutions compensate for the shortcomings of market competition, especially under the conditions of market failure where administrative monopoly regulates the economy and makes it operate normally. Thirdly, from the viewpoint of the equilibrium of demand and supply. China's administrative monopoly institutions are often far form the equilibrium.Ⅱ. Construction of the general analytical framework of administrative monopoly institution choice. The paper constructs the general analytical framework of administrative monopoly institution choice with new comparative economics. The paper considers that the optimal or equilibrium institution portfolio must meet two conditions: first, the institution portfolio must on the border of IPF that is institutional possibility frontier; second, the cost of the institution portfolio is the minimum that the total cost of combination of administrative monopoly and market is the minimum. In the short run, the position and shape of the institutional possibility frontier (IPF) are fixed and under this constraint condition the optimal institution portfolio depends completely on the curve of total social cost (TSC). In the long run, the position and shape of the institutional possibility frontier (IPF) of the industry will change accordingly that will affect the long run equilibrium of the institution portfolio. At the same time the dynamic change process of the administrative monopoly institutions of China's telecom industry is analyzed with the general analytical framework. The reform of China's telecom industry in the future is to further reduce the administrative monopoly institutions and increase market competition.Ⅲ. The research of the economic rationality of administrative monopoly institutions. Firstly, the criterion of the economic rationality of administrative monopoly institutions is that total revenue is more than total cost. Secondly, a practical method to estimate the rationality and efficiency of the administrative monopoly institutions is to measure and compare the total cost. Thirdly, through the empirical study on total cost during 1995-2006, it is found that China's telecom industry should reduce administrative monopoly and increase market competition.