A Study On Vertical Structure And Governance Models Of Chinese Auto Industry

Obviously, auto industry plays an important role in national economy. It has been recognized to be one of the leading sectors in industrial economy, and the other one is machinery industry. Chinese input and output table of 2002 shows that, most of industries hold a solid relation with auto industry in the supply chain.A lot of literatures have already been put forward on this subject. However, till now, the already made studies are mostly based on horizon structure of auto industry. For instance, researches focusing on relationships between efficiency and industrial structure factors such as concentration degree, entry and exit barriers is well available, while the ones on the vertical structure of auto industry is rarely known.In fact, compared with horizon industry structure, auto industry's vertical structure may be more sophisticated and be more worth studying. First, auto industry holds an important position in its industry chain. Second, auto industry is actually a case of vertical structure. Finally, limb producing techniques rather than whole mobile assemble techniques decide how far the ultimate product can go. This paper focus on the issue of "whether to integrate or separate", and try to do some supplement work at the base of preceding works and make progress in methodology, content and adaptation.After a brief review of theories relevant to this subject, the paper retrospect the history of auto industry and its process of revolution in vertical relation and governing, analysis the reason and probable outcome of the over vertical integrate phenomenon, and put forward a hypothesis that this kind of governing model is going against the industry performance in modern times.Based on the successive cournot duopoly competition model of Salinger which was developed by Lin, this paper establishes a new analysis method by introducing three new variables including self-made rate, transaction cost and scale economy into the model. Different from the traditional method, this paper views firms'vertical relationship in a successive angle instead of a discrete one. Based on the new method, this paper analysis the factors which automobile manufactures should take into consideration in deciding whether to produce the input by itself or buy them from other firms. A result is derived:competition manufactures make that choices based on their tradeoff between two factors of transaction cost and scale economy, which is also a pure-strategy Nash equilibrium. Due to prominence scale economy and reducing transaction cost nowadays, Chinese automobile manufactures should lower its self-made rate of input and separating the limb sectors away from them.Then, the paper measures the vertical integration index of the automobile industry listed corporations in China with an D-M input-output method, and analysis the relations between performance, VI index, scale and asset specificity based on the data from those listed corporations of automobile industry in China. The result shows that the VI indexes of Automobile Corporations have fallen slightly in the past few years. Besides, a negative correlation was found between ROE and VI of those corporations. The result can also verify the Smith's theorem, which is market expansion promotes labor division. In conclusion:at present, Smith's theorem works more profoundly than Coase principle. Therefore, separating the limb sectors away from the automobile firms should be the optimal strategy.Finally, the paper proposes proper vertical governing model by making use of the comparing institution research approach.