Research On The Efficiency Of Regulation In Chinese Railway Industry

For a long time, it is regarded that there are sereval characteristics of natural monopoly in railway industry such as ecnomies of scape, scope and density, commonweal, large sunk cost and scarcity of resources. Hence, the market mechanism did not work well and it is necessary for government to operate it as a monopoly and regulate strictly, which is on the economic basis of railway ownership and the evolution of organizational structure in most countries.From 1970s, a large number of basic industry reform which are characterized by natural monopoly came forth. This wave that is characterized by loose regulation and introduction of competition spread to railway industry. Government of U.S., Japan and Europe took diverse measures to reform their railway industry, which promote intra-industry competition.Since the foundation of China, Chinese railway industry has been under the management of intense planned economy. The short of incentive to improve technology and reduce cost caused by the monopolistic management of government, resulted in lower practically productive efficiency compared with the potential maximun productive efficiency. What is more, the monopoly can take the advantage of monopoly position to charge high price which is much higher than marginal cost or average cost which causes low efficiency of allocation, loss of net social welfare and unfair income transferring. In order to eliminate the low efficiency, the sector which is in charge of Chinese railway industry took the measure of price control. That is, price is set by the government. The enterprises can adjust the price slightly with limits according to actual situation. Thus, the regulation of government ensures the economies of scale and cost reductio. And control on price can avoid monopoly pricing and eliminate the loss of net social welfare. It is no doubt that it is effective of the government regulation. However, Chinese railway industry under the government regulation has shown some problems such as low traffic efficiency, unbalance between supple and demand, irrational economic system and poor sevice. Consequently, reform in Chinese railway industry is imperative.This paper focus on the economic characteristics of Chinese railway industry and pointed problems of government regulation. On the basis of analysing the reason of regulation failure, this paper estimates several efficiency indexes of enterprises and the loss of social welfare separately in datail, and evaluates the efficiency of government regulation. At the end of the paper, it gives some suggestions on how to break the bottle-neck in the reform which provide some meaningful references on railway industry.