| According to the traditional regulatory economics, the government should regulate public utilities directly characterized by the natural monopoly. Conventional methods concerned are price regulation and restriction of entering the market. However, Demesetz holds, the direct regulation will be unnecessary if franchise bidding is introduced in public utilities. Through competition for the market, the most efficient company will automatically win the franchise and its monopolistic profit will be eliminated. As a result, the operative efficiency of utilities will be dramatically raised. Nowadays franchise bidding has been applied to such utilities as cable television, bus service, garbage collection in many countries. Some economists are showing more and more concern about this theory. In recent years, franchise bidding is playing an important role in the development of some utilities in China. With the reform of regulatory system and privatization of public utilities, this new means of regulation will be used more widely in China. This thesis will explore how to apply it to China's utilities on the basis of the special system in the transitional stage.In the first section, the author will formally interpret the principle of franchise bidding by relying on the modern auction theory. Under five basic assumptions, that is,private value, independence, symmetry, risk-neutral and uncooperative behavior, the baseline model based on the lowest rate shows that auction mechanism is efficient because the best operator will win the franchise in the end. Furthermore, its monopolistic profit will be completely eliminated as long as there are enough bidders. The first-price auction is similar to English auction in their results. But if basic assumptions are relaxed, there will exit some obvious differencesbetween them. In order to earn the most revenue, auctioneer must set a reserve price. In this way, the social welfare will be no less than that under traditional regulation. The baseline model can be easily extended to auction of multiple franchising projects. When there exit complementari-ties among these projects, auctioneer can adopt combinatorial-bid auction and simultaneous ascending-bid auction. Apart from the-lowest-rate bidding, the-highest-lump-sum bidding, the-optimum-nonlinear-rate bidding, the-least-subsidy bidding are also feasible in the franchise bidding. But the last method can only be appropriate to auctions of lossmaking utilities. As far as the level of welfare is concerned, the-optimum-nonlinear-rate bidding is best and the-lowest-rate bidding is second-best.In the second section, the solution to some technical problems facing the practice of franchise bidding will be provided according to the progress in the concerning theory and positive test. The preceding model is confined to the ideal situations. Practice of franchise bidding will be confronted with various technical problems. Firstly, attention should be paid to competitive intensity and competitive dimension in the design of auction mechanism. Bidding competition must be intensive enough to reduce the winner's monopolistic profit as effectively as possible. Main methods include increasing bidder, cost-sharing, discriminative auction and deterring collusion between bidders. When consumers show the same concern about the quality of the service as its price, potential operators will compete in two dimensions. To overcome complication caused by the quality, auctioneer can adopt multiple-dimension auction to achieve the effective competition. Secondly, uncertainty in such factors as market demand and operative cost is likely to bring adverse effects to the fulfillment of franchise contracts. Both short-term contract and long-term one have some intrinsic defects. The least-present-value-auction with flexible term can easily avoid many problems caused by uncertainty. Itsadvantages include lowering risk of demand, reducing opportunistic behaviors, simplifying the franchise contract, raising the competitive efficiency and promoting s... |
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