The Restraint Mechanism Of Important Equipment Manufacturing Industry' Technology Upgrading By Downstream Firms' Loss Averse

Since 1980's, in order to improve the technical level of manufacturing industry in China, the government implemented a "trading domestic market for technology" policy, which aims to decrease the technological gap between the developed countries and our country by transferring part of the domestic market for advanced technology.The result turned out to be different from what we expected. In important manufacturing industry, foreign enterprises crowds out domestic companies and formed the monopoly power. Domestic companies improved the overall level of technology through the policy period has been running. However, there is a great distance between the home and aboard. Because the downstream firms who bought the equipment products have a steady demand and dependence on foreign brands, there is not enough market share supporting the innovation activities, the local companies'technical upgrading is restrained. Not improving technical level, downstream firms will not buy the local products, so the manufacturing industry steps into such a circle.Focusing on this reality, most of the existing research gives the priority to the supply side, instead, this paper analyzes the technical upgrading problem from perspective of demand side by establishing models. First, the paper introduces loss averse into the research mode, and the result tells that loss averse makes the change of demand. Under the influence of loss averse, the home brands cannot enter the market by independent innovation, so the demand of domestic market shrinks. Second, in the process of solving demand price elasticity, loss averse is brought in. Due to loss averse, the demand price elasticity is small. The greater the degree of loss averse, the less the demand price elasticity, which makes the price of foreign brands remain high. The local enterprises cannot reverse the downstream firms' preference even by cutting the product price. As a result, the local companies lose the market share which can provide funding for innovation. To improve the ability, the key point is overcoming the downstream enterprises' loss averse, this paper also gives some policy suggestions. In the last, the paper chooses the nuclear power which has a typical characteristic of loss averse as a case study, China nuclear equipment market situation proved the conclusion in this paper.