The Analysis And Research On Competition Policy Of China Water Industry

The traditional network industry including water sector was seen as natural monopoly industry for a long time and was regulated by government strictly. However, as the market is not flawless, the government also fails in some cases. A-J effect, X-inefficient and government captive theory all reveal the puzzle that regulation confronted with.As we all know, the first welfare theorem under general equilibrium framework has proved that competition can offer lower price and higher quality goods for consumers and allocate the resource with more efficiency to reach Walrus equilibrium and maximum social welfare. Furthermore, stimulation theory reveals one vital insight:stimulation can reduce the problem caused by lack of stimulation when information is asymmetric, hence, increasing the stimulation level can improve manufacturers’ efficiency. Keeping up competition has been the most basic mechanism to promote economy development and improve efficiency.Western countries in70s-80s of last century began to relax regulation, and then gradually introduce competition, privatize the utility and implement stimulation regulation. Many industries traditionally managed by government changed significantly, government cast heavy fiscal burden off.The successful theory and practice experience offer strong support for Chinese competition policy enforcement. Under the transition background of China, the object of competition policy is to protect free competing, keep the economical mechanism in effect. For traditional natural monopoly industry as water utility, the target is to create efficient competition compatible with scale of economies and energy of competing, maximizing the social welfare.This paper will analyze the pro-competitive and anti-competitive effect caused by horizontal and vertical integration through empirical test, theory modeling and case study. Based on analysis above, viewpoint of this paper is that inter-region integration just contributes to scale of economies but impair companies’ efficiency and raise cost and expenditure. Besides, vertical integration also results in access difficulty and restricts scope of competition. So we show that there is no obvious evidence to support the existence of integration. Differing from previously research and other network industries, we believe the specialization of inputs by production stage may generate more cost savings than the coordination across stages and conformity based on inner region is the key of current competition policy.