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According to industrial organization theory, market structure is a crucial factor to market performance. Based on the VAR model and the data from 1994 to 2014, we revealed the dynamic response route of the market structure to these factors and the change process of contribution rate of these factors to the market structure. It shows that market structure is inertial adjustment; technology advance and industry policy have continuous effects on improvement of market concentration ratio; market size and production scale have sustained negative effects on market concentration ratio; fixed capital has barrier effect, which is mainly the entry barrier effect at the beginning, and then the exit barrier effect continues to play a leading role. Therefore, the government has no need to introduce special policies to encourage merger or expansion on the capacity as enterprises would do it spontaneously; it is necessary to make market access system stricter, to improve exit compensation mechanism and to promote technological innovation; all these policies need dynamic adjustment based on the stages of economic cycle.
4. Conclusions and policy implications
Based on the VAR model and time series data from 1994 to 2014, we reveal the dynamic path of the market structure driven by its main factors. The Result shows that market structure is inertial adjustment and enterprises would spontaneously adopt measures to do it, and drive the China's coal industry shift to the oligopolistic market structure; technological advance and industry policy have continuous improvement to concentration ratio; market size and production scale have significant and sustained negative effects on concentration ratio; fixed capital is of the barrier effect, which is mainly the effect of a barrier to entry in the beginning, and then the effect of the exit barrier play a leading role. According to this result, there are some policy implications to optimize the market structure in China's coal industry: (1) The stricter market admittance criterion should be set up. According to the negative relationship between concentration ratio and market size (Fig. 3), the expansion of market size can bring about the entry of a large number of small-sized enterprises, which implies the entry barrier is relatively low. And compared with the admittance criterion of technology in developed countries, such as the United States and Australia, those in China is still low, although including the criterion of production technology, equipment and recovery rate of the resource. Therefore, in order to weaken the inhibitory effect of market size on concentration ratio in economic boom, the government should set up stricter market admittance criterion, especially technology admittance criterion, the most important factor in the long run except for lagging market structure (see Table 3). The stricter admittance criterion of technology is not only beneficial to limit the entry of small coal mines by the increase of barriers to entry, but promote the continuous optimization of market structure by virtuous cycle of technology according to the inertia of technology adjustment (see Fig. 4), which thus benefits to form the industry dominated by large enterprises with advanced technology. According to the result of this article, the effects of those policies of admittance criterion will have a weak effect on the optimization of market structure in the second year, the largest effect in the fourth or fifth and then an effect with a downward trend.