Mixed Competition, Strategic Externality and Regulation Mechanism
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| Title | Mixed Competition, Strategic Externality and Regulation Mechanism
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| Author | Shi Mingming, Zhang Xiaojun and Que Guanghui |
| Organization | Renmin University of China; National Development and Reform Commission; University of Maryland |
| Email | ms@ruc.edu.cn;zhangxiaoj@ndrc.gov.cn; |
| Key Words | Mixed Competition; State-owned Enterprise; Strategic Externality; Regulation Mechanism Design |
| Abstract | To in-depth study and develop a general theory of mixed competition is an important foundation for an understanding of China's ownership system reform in last three decades. This paper constructs a two-stage game model including three kinds of agents like government, state-owned enterprise (SOE) and private enterprise. The equilibrium results show：（a）Strategic externality resulted from the game behaviors makes mixed competition system very different from the private enterprise competition system or the monopolistically SOE system. The strategic externality has fundamentally distorted the resource allocation pattern in the market. The ex-strategy for SOE to maximize the social welfare will be unrealizable, which will deviate from the post result of social optimality. (b)There is no necessary conflict relationship between the social and economic goal for state-owned enterprises. (c)The optimal regulatory mechanism is neither equal to the traditional mechanism which requires SOE to maximize social welfare, nor the mechanism to make SOE acting like private counterparts. Its design should consider the enterprise’s cost efficiency and the trade-off between SOE’s surplus and gain from internalizing strategic externality. The social regulator needs to clarify and commit the regulatory mechanism which is very important for the regulation’s effectiveness and market stability. |
| Serial Number | WP700 |
| Time | 2014-09-16 |
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