Downstream Market Opening-up And Upstream Market Monopoly

This paper is set in the history of reform and opening-up during the past three decades in China.This paper focuses on the competition among the state-owned enterprises,the private enterprises and the foreign invested enterprises on the condition that state-owned enterprises monopolize the upstream market and the private enterprises compete with the foreign invested enterprises in the downstream market in the vertical industry structure dependent on game theory.Then we study the relationship between the performance of the state-owned enterprises and the performance of the foreign invested enterprises with the empirical methods.We find out that the relationship between the social welfare and the upstream market monopoly is nonlinear under the condition of the competition between the private enterprises and the foreign invested enterprises in the downstream market.This is because the degree of monopoly in upstream market impacts the social welfare two ways:one hand,the part of the profit of the foreign inve sted enterprises can be grabbed by the state-owned enterprises that monopolize the upstream market leading to the increase of the social welfare,the other hand,the increase of the degree of the monopoly in upstream market will decrease the profit of the private enterprises in the downstream market and the consumer surplus giving rise to the decrease of the social welfare.Therefore,for the sake of the social welfare the degree of monopoly in the upstream has to be controlled appropriately.Both the excessive monopoly and the excessive competition in the upstream market will decrease the social welfare.And the empirical research indicates that the excellent performance of the foreign invested enterprises has stimulated the state-owned enterprises in the upstream market to further development since 2000 in China.