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Expensive Way Home - Analyzing the Natural Monopoly Of Railway China

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Introduction

Expensive Way Home ------ Analyzing the Natural Monopoly Of Railway China Introduction Every Chinese New Year brings mixed feeling to every Chinese family and their traveling members, those who are busy preparing for this momentous festival and those who can't wait to be on their way home for a family reunion. However, they all find out the homecoming has become more and more difficult and unaffordable beyond their expectation. Jan 4th 2004, as the supervisor, as well as the sole carrier, of railway transportation of China, the Department of China Railway (Railway China) promulgated the temporary scheme for the price rise of train tickets during the Chinese New Year period, with a markup of 20% in average. However, even in China, a country used to be so economically centralized, it is rare to find business with such high monopolization both in resources and in pricing. Apparently, each time it announced the price adjustment, it has caused more argument than it should. Following the aftermath of the rocketing of the plane ticket price at the year-end of 2003, the price jump of train ticket threw a huge argument among consumers. Here I'm about to analyze the reasoning and economics behind those expensive trips Railway China made for its consumers. Railway China: natural monopoly and managerial limitation. ...read more.

Middle

On the other hand, if government wants to lower price by offering subsidy in order to avoid economical convulsions, as it did all these years, it has to do so by taxation. Obviously, the increase in tax will increase other economic cost and lead to further shrinking of total well-being. Simply put, even before Chinese New Year price rise, the monopolistic and competition-free position of Railway China has put its consumers at a disadvantageous situation and caused huge deadweight loss. Railway China: analysis on price rise The supervisor of an industry, Railway China uses its monopolistic advantage to raise the price of train ticket. Nevertheless, this is not handled according to market rules and couldn't be further from a market behavior. Ideally, if the capacity of carriage is below demand, price rise should give no just cause to criticism. However, a price that only increases never decreases is unendurable. Meanwhile, the legality of price rise during Chinese New Year is fishy. Since this is price rise of public service, it is necessary to hold a hearing of witness to solicit different opinions from consumers and operators in order to argue its necessity and feasibility. Furthermore, if, by any chance, the price rise is manipulated in light of the market rules, then after Chinese New Year's Day, when everybody stays home and there is few to take the train, Railway China should depreciate its ticket price. ...read more.

Conclusion

This proposal has remarkable feasibility. First, bidding enterprises possess only the operatorship, so there's no fuss for asset transfer; second, the franchise contracts contains fairly simple listed terms, including maintenance of railway facilities, pricing for the services rendered and the service standards the franchisees must meet, so that the governmental supervision and administration can be easily implemented with the asset value intact or even reasonably appreciated. 2. Further developing the highway and airway transportation systems. Government should put more effort on energetically developing alternative transportation systems, such as highway and airway, by lowering their costs, to distribute passengers. Doing so not only would ease the flux of passengers in each transportation center, but also would give the whole industry healthy pressure for its efficiency improvement. Conclusion The price rise during Chinese New Year helps Railway China nothing in distributing the passengers, instead, it, again, grabs for its designer even more excess profit for covering the high cost due to the inefficient management and operation. Once again, this "happy" ending defuses the driving force for any innovation and reform, shrinks the collective well-being and, furthermore, hinders the high growth of China's economy. The above analysis is established in studying the natural monopolistic position of Railway China, about its short run consequence only. By denying what Railway China has been unfairly practicing all these years, I offer recommendations and feasible solutions in order to beget more sophisticated and penetrating considerations. 1 ...read more.

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