Policies Impact On Market Power Of China’s Household Appliance Manufacturing

The household appliance manufacturing industry of our country has experienced a tremendous change over the last30years. Nowadays, household appliance manufacturing industry becomes a pillar industry in manufacturing. However, the U.S. financial crisis which broke out in2007spread to China rapidly, affecting the development of the household appliance manufacturing industry. In order to improve people’s living standards, expanding domestic demand, the Chinese government introduced a series of policies including "home appliances going to countryside" and "home appliances trade-in". Under the encourage of the policy, the household appliance manufacturing industry growth quickly once again in last5years.Market power is a core concept of Industrial Organization, it means the ability of a company control price over the cost. Since the1930s, many scholars analyze the quantify market power though cases, Wallace (1937), Adelman (1966) use the profit, the cost of sales, rigidity price to reflect market power. Around the1960’s, Mason and Bain establish a complete structure-conduct-performance (SCP) paradigm, use of cross-industry、cross-sectional data and various structural equation to get the industry profits, market concentration other indicators to indicate market power. From the1980s, the new empirical industrial organization (NEIO) development quickly in measure market power, many scholars make a creative contribution, structural model, factors model, PR model are the representatives, the new empirical industrial organization model has gradually become the mainstream method of measuring market powerFor the policies of "home appliances going to countryside" and "home appliances trade-in", most domestic scholars study on economic, social effects.In this article, from the perspective of industrial organization, we research that if the market power of China’s household appliance manufacturing industry is significant change after those two policy has been introduced. Then, illustrate the impact of the two policies on the household appliance manufacturing industry. In this paper, we use the development of the factors model-Klette (1999) approach to measure the market power of the household appliance manufacturing industry and the results show that:China’s household appliance manufacturing industry market power in2004-2008,2008-2012,2004-2008were0.56,1.04,0.81(around1). These two policies which introduced around2008significantly enhance the market power of the household appliance manufacturing industry, furthermore, the changes in sales driven by the policies and profits change data powerfully proved the result of the estimate, it’s reasonable and credible. In the household appliance manufacturing industry market power factor analysis, we take these factors into external, internal, and the other three types.Based on empirical results and reason analysis, we can make a conclusion as following:the household appliance manufacturing industry market power affected by the two policies "home appliances going to countryside" and "home appliances trade-in" has significantly increased. On the other hand, due to the large household appliance manufacturing industry segments, technology spillover very fast, frequently price war, high cost and other factors, although many sub-sectors in a satiation of the oligopoly structure significantly, but its market power is still low. At last, the household appliance manufacturing industry’s competition is very intensely, the dominance of a single corporate on the market is weak, and there is no obviously monopoly profits.