Measurement Of Natural Monopoly In Mobile Telephone Service Of China

Basic telecommunications is related to a country’s information security,economic development and people’s daily life. Because of its importance to economyand industrial characteristics, China’s basic telecommunications has been consideredto be a typical natural monopoly industry and has been under monopoly and strictcontrol. However, as the communication technology updates rapidly andtelecommunication demand grows fast, the fixed capital investment of thetelecommunication service has been greatly reduced, and the market capacity areconstantly expanding, leading to the fact that the natural monopoly characteristics ofsome parts of the industry is gradually weakened. At the meantime, the voice to breakmonopoly and introduce competition into market is high as the disadvantages ofmonopoly is prominent. Therefore, the country propose to let go and introducecompetition into the unnatural monopoly business. But the problems of how tomeasure natural monopoly and how to identify competitive business and naturalmonopoly business are to be solved.Baumol etc.(1978) pioneered the modern natural monopoly theory that CostSubadditivity is the necessary and sufficient condition of natural monopoly, which isaccepted by the world. However, due to constraints such as data and cost functionestimation, domestic researches have remained in qualitative research, especiallylacking of empirical study in basic telecommunications. To this end, this thesisrationalizes related theory of natural monopoly, systematically demonstrates therelationship between scale economy, scope economy, subadditivity, network economyand natural monopoly, which proves the properness to base the model on thesubadditivity theory. Then, the thesis analyzes the history and current situation ofChina’s mobile telecommunication industry. Thirdly, a Translog Cost Function modelis built to estimate the industry cost function, using data of the telecommunicationoperators between 2004 and 2014.Finally,the thesis calculates the subadditivity index.The main results include:(1) China’s mobile telecommunication industry changedfrom natural monopoly to unnatural monopoly during the recent decade;(2) Thedegree of natural monopoly is highly related to technology and demand;(3) Thedegree of natural monopoly is also affected by the scale ratio of incumbent firms.