Economy Of A Country Monopoly

Added on -2020-02-23

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Running head: Natural MonopolyExplain how and why governments may want to regulate the price setting of a natural monopolyCountry: ChinaStudent’s NameCourse Code
1Natural MonopolyEconomy of a country is like the oxygen which enables the country to live breathe andprosper. In the world of global economic development China is a country where the monopoly ofits economy is kept intact and with great pride (Baldwin, Cave & Lodge, 2012). Monopolizingits economy has paid great dividends to the economy of China as it has pulled a large part of itspopulation out of poverty. Workers of China have moved from a low-productivity job to high-productivity jobs which are yielding them higher incomes. Monopoly of economy has its ownfeatures such as rapid urbanization, concentration of wealth, disparity among citizens, diversifiedsocial status of people and many more. China is endowed with almost all the resources to make itan economic superpower (CHEN & ZHU, 2012). But having resources and using them wiselyare two different issues altogether. To go in depth of the nature of monopoly discussion on thenature and the way of business done by companies of China should be done. In the variousresearch papers about the Chinese economy it is written that it has a comprehensive strategy tokeep the monopoly intact and to improve it further. There are many things to be found out in thisdiscussion and the most important thing will be the how and why of the regulation the Chinesegovernment imposes on the price setting of a natural monopoly.In the following discussion, it is imperative that the aspects and characteristics of theChinese monopoly over its economy will be thoroughly discussed in detail and with properanalysis. It can be easily speculated that when it comes to monopoly of economy everythingwhich Chinese government produces and controls comes in the ambit along with the political andadministrative aspect of China as well (Crozet, Nash & Preston, 2012). But the emphasis will beon the economic part as the discussion is about natural monopoly on pricing.
2Natural MonopolyPriceQuantityMarginal costAverage CostDemandMarginal RevenueNatural Monopoly Graph Source: (Created by Author)The first thing which comes into mind when the topic is raised about monopoly of pricingis the natural resources produced in China. Industries which are based in China are dominatedmainly by the State Owned Enterprises which gives its government exclusive authorityandcomplete autonomy over the natural resources produced. When the survey was done in theGuangdong province of China it was found that the State owned enterprises have access toalmost eighty industries whereas foreign companies have access to only sixty out of whichprivate owned companies are allowed to enter only 40 industries (Foster & McChesney, 2012).This shows the grip of Chinese government over manufacturing through its own enterprises.When it comes to the Energy Resources Chinese use their franchise to maintain their monopolyas it is also binding by the Mineral Resources Law. This ensures the leash over one part of theenergy sector of China. Another vital part of energy sector is the oil industry in which the roots
3Natural MonopolyPriceQuantityAverage CostDemandEconomies of Scaleon monopoly are very deep. China National Petroleum Corp., China National Offshore OilCorp., China Petrochemical Corp are some of the franchise who have exclusive rights of oilexploration both inside and outside China and without their permission entry of any othercompany is prohibited (Haucap & Klein, 2012). Along with this the corporations owned byforeign partners working with the Chinese franchise are also kept on a tight leash. Anotherprominent restriction which is applied for doing business is that the procedure of examination forforeign companies. Any foreign entity that wishes to enter into the oil industry has to complywith the contractual terms of the Chinese government which are very rigid. The governmentauthorized state companies negotiate, conclude and execute all the contracts. Apart from this, theinvestment which is being done by foreign entities is also scrutinized by the investmentdepartment. Economies of Scale during Natural monopolySource: (Created by Author)

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