Research On The Game Of Internet Financial Innovation And Supervision

With the continuous development and expansion of Internet Finance,China's commercial banks are facing fiercer competitive environment.While the competitors are becoming much more powerful than ever,the newly emerging Internet Finance would most likely replace the original business model of commercial banks.It has expected that the leading function and monopoly role in the financial market will not change during a long time.Because of the rapid development of clients,transaction,information,and cost reduction,the traditional structure of financial market will change with innovation.Nowadays,the global economic development request the information sharing and mutual benefit.China's banking industry has been in a fierce competition atmosphere for a long time in which it is hard unable to control itself and maintain balance.With the rapid development of Internet Finance,commercial banks have to change the traditional management idea and make the reasonable plan to win the competition.The service scope of the traditional commercial banks mainly include settlement,loan,risk control,information spread,pre-sales and after-sales service,etc..The advantage of Internet Finance is that it has penetrate into all aspects of traditional commercial banks while performing the same function,which has great impact on the traditional commercial banks.Based on the previous study on the Internet Finance,it explored the questions in the development of Internet Finance using the method of Game theory.The results show that:(1)As China is experiencing the economic transition,the commercial banks have been losing the advantage on monopoly.The Internet Finance companies are able to invest a lot in R&D.How to lead the Internet Finance innovation is becoming interest in the following practice.It needs to answer the following questions,including the equilibrium between the leading and following Internet Finance companies,and the factors affecting the leading companies and the following ones.It analyzed the choice of strategy in the innovation and the Nash equilibrium up to the gaming results,with which it expected to make recommendations on the policy of Internet Finance innovation and supervision.The results show that,firstly,the innovation can expand the market of Internet Finance companies,and increase the demand on the products.The financial products,however,will be profiting less while the supply increasing like the ordinary goods.Secondly,the leaders will be profiting less while the technology spillover increasing.(2)In the short time the competition is temporary between the Internet Finance and the traditional financial institutions,while the convergence is the trend in the future.It exists quite many problems for the Internet Finance although which has much technology advantage.The traditional financial institute still dominates the whole finance industry.Therefore,it is hard to analyze the relationship between them.It uses the game theory to research the questions below: the factors affecting the traditional financial institute towards the direction of internet finance;the factors affecting the strategy choice of the Internet Finance companies during the development process;the factors influencing the choice of strategy between the traditional financial institute and Internet Finance companies;and if the data stimulation can tell the effects of the different factors impacting the traditional financial institute and Internet Finance companies.Research shows that it is difficult for both sides to form innovative cooperation since the traditional financial institutes and Internet Finance companies have different resources.In the gaming process,the both sides will be influenced by the resource possession rate of the Internet Finance company,total investment of the project,and extra income,etc.Also,they have different choice strategy and evolutionary path.The both sides will reach for the equilibrium and continue to keep this status while the resource possession rate of the Internet Finance company changing only with keeping the others at the original level.(3)In view of the research by the current scholars on the supervision of Internet Finance,it indicates that how the risk mechanism inside the Internet Finance form during the process of innovation form the perspective of Game Theory.With the model of game between the supervision and company in the Internet Finance industry,it intends to resolve the questions as follows: how to supervise the risk of over innovation occurred by the Internet Finance companies;how to achieve the optimized status of supervision with the lowest cost.Research shows that the measures to control the risk of over innovation include the mechanism combined with the identification of projects with high possibility of success,less investment and more turnover,loans with low interest rate,efficient punishment and other necessary supervision steps.(4)It requests further research on the supervision of Internet Finance due to the systematic risk,which can reduce the risk possibility and improve the theory on the Internet Finance innovation.It researches the following questions with the game theory model based on the consideration above: the motivation inside the Internet Finance innovation,the factors affecting the supervision strategies,the supervision policies for risk control.The results show that the development of the Internet Finance industry has appeared the symbols of systematic risks while the supervision is relatively weak.It will result in the over innovation due to the high profit and low cost of innovation.Whether the supervision institute can operate successfully depends on the supervision cost.Besides,the setup of the punishment parameter has effects on the supervision strategies of the Internet Finance.The data simulation of the gaming process draw the conclusion that the over innovation of the Internet Finance result from the extra profit and insufficient supervision.