China 's Cement Industry Market Characteristics And The Game Between Enterprises

The past10years has witnessed the rapid development of China’s cement industry. With the progress of China’s urbanization and the increasing of the fixed asset investment, the cement industry has expanded in the past years, becoming the largest cement industry in the world with the highest production. However, problems such as over-capacity and malignant price competition have also emerged.The paper carries out an overview on the development of the cement industry in the past10years, so as to introduce the distinctive characteristics of the cement industry such as cyclical movement, regional distinctiveness and coordination among firms. The paper tries to modify and revise the fundamental Hotelling Model according these characteristics to make it much more realistic. And the results of the models are used to illustrate the firms’behaviors. Also some advices and policy suggestions are given out by the paper as well.The paper introduces a linear consumer’s demand density function into the model to reflect the assumption that consumers are not uniformly distributed. The result shows that the equilibrium converges to one point. However the firm which enjoys the geographical advantages would set a higher price than that of its competitor at the equilibrium, which is different from the traditional Hotelling model. Apart from adding the non-uniformly distributed demand function, the paper also introduces the differential pricing method into the basic model and the result remains the same. Furthermore, the paper introduces the normal demand elasticity into the model. The difference lies in that when firms consolidate, the equilibrium price would converge into a set of price rather than diverge into the infinite. The last part involves analyzing the impact of the transportation fee on the equilibrium price. The result is that both of the two firms would raise their prices when either firm’s transportation cost rises.Merger and reorganization should be encouraged among the cement firms to squeeze out the excessive production power and phase out backward production. Besides, the transportation cost is a major concern during the price setting. Firms with lower transportation costs bear an advantage over its competitors. Product differentiation could also be a good method to avoid the malignant price competition.