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A Study on Barriers to Entry of China’s Representative Industries

Author: ZuoShaoChun
Tutor: HuangWenPing
School: Zhejiang University of Finance
Course: Industrial Economics
Keywords: barriers to entry excessive entry government regulation industrial policy
CLC: F203;F224
Type: Master's thesis
Year: 2012
Downloads: 152
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Abstract

As one of the core issues in the research of industrial organization, the barrier to entry the market calls for an urgently in-depth investigation during the industrial development and the enterprises reforming in China. In its most general term, the barrier to entry refers to the obstacles that enterprises come across when getting into certain industries, sectors, markets and regions. These obstacles enable the incumbent firms to make continued excessive profits and keep the industrial structure in highly concentrated state. In a perfectly competitive market, enterprises can enter into the industry with no cost, and driving by the incumbent firms’interest, social resources allocated reasonable in different industries and industrial organization innovation and the evolution of industrial structure promoted. In recent years, Chinese industrial structure has some positive changes with the fast development of macroscopic economy, but as the result of institutional transition and government intervention, many industries have been emerged over entry condition. The practice has proved that, enterprise excessive entry will cause a large number of production capacities be idle and hinder the scarce economic resources from transferring to more efficient and more rational industrial sectors. Excessive entry has negative impact on scale economy and market performance, and also destroys the efficiency and the normal order of competition and reduces the social welfare. Through empirical analysis this article proves that the enterprise excessive entry is caused by the failure of entry barriers. Combined with the macroeconomic background, this paper analyzes of the reasons of structure, strategy and institution, and put forward industrial policy to solve the excessive entered problem.According to the empirical results, from an overall perspective, the industry entry barriers of our country rose with volatility in recent 5 years. Taking three years as a cycle, 22 industries’barriers to entry are elevated while 8 industries’barriers to entry are reduced. Taking four years as a cycle, the result shows almost all industries’barriers to entry are elevated except the tobacco industry and water production and supply station. In the 33 selected industries, almost 1/2 of the entry barrier height index is less than 0.5, so it means that a lot of industries of our country exists the problem of excessive entry. Relatively to the market structures and company acts in mature markets, excessive entry is the phenomenon that there are too many companies gathered in the same industry to engage in production and operation activities, resulting in the production capacity of industry is relative surplus and the enterprise benefit is low even deficit when the traditional planned economy transfers to market economy, but new companies can still enter into the industry. This article analyzes the historical reasons of excessive entry from the change of the market structure, and makes a deep analysis on the factors of structure, policy, institution about excessive entry in china. On this basis, this paper discusses the industrial policy choice for the rationalization of the barriers to entry. The government should loosen control, rather than to strengthen control, in order to give the enterprises enough space for development. and the enterprises need to develop their own. On the other side, to solve this problem, only depending on the government regulation policy is not enough, considered form the point of the incumbent companies’strategy, the companies should make continued efforts to enhance product differentiation, lower costs and achieve economies of scale, such as adjusting the product structure by making use of science and technology.From the empirical view, using entry barrier height index to analyze the excessive entry problem in Chinese industry is better than using the enterprises number and this thesis is a beneficial attempt. While researching the entry barriers of industrial purely over excessive entry condition, is the inadequacy of the paper. Because the reason for more and more enterprises existence in an industry is not only lies in the continued entry of the enterprises, but also lies in some no efficiency enterprises unable to exit. So we need to refer to the other hand of industrial barriers, industry exit barriers. It will be better if we combine both to research.

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