The gains and losses of collusion: An empirical research on the market behaviors of China’s power enterprises

Abstract

Purpose: Collusion is a common behavior of oligarch enterprises aiming to get an advantage in market competition. The purpose of the thesis is to use the empirical research methods to explore positive or negative effects that the electricity generation manufacturers’ collusion has caused at the macro level of Market Economy and the micro level of enterprises’ behaviors.

Design/methodology/approach: The designed research model in the thesis is an extension of Porter’s model (Porter, 1984). It applies a more advanced measurement method, FIML. In the example of price bidding project that started by electricity generation enterprises of China’s power industry, the thesis analyzes the relevant price data of subordinate power plants of China’s five power generation groups in pilots of price bidding Policy.

Findings: It is found in the thesis that power generation enterprises are facing collusion issues in the market. To be exact, it is such a situation in which non-cooperative competition and collusion alternate. Under the competition, market is relatively steady, thus forming a lower network price. It is helpful to the development of the whole industry. However, once Cartel is formed, the price will rise and clash with power enterprises and transmission-distribution companies concerning the interests conflicts. At the same time, a higher power price will form in the market, making consumers suffer losses. All of these are bad for industry development. Not only the collusion of power enterprises affects power price but also the market power that caused by long-time Cartel will reduce the market entrant in electricity generation. Market resources are centralized in the hands of Cartel, causing a low effective competition in the market, which has passive effects on users.

Implications: The empirical research also indicates that collusion undoubtedly benefits the power enterprises that involved. As a cooperation pattern, collusion can lead to the synergy between relevant companies. However, collusion harms the benefits of other market entities. During the process of enterprises creating common interests cooperatively, collusion may bring harm to the outside industry.

Originality/value: According to the empirical research method, the thesis takes China’s power industry for example to carry out research and show the gains and losses of collusion from two levels, namely market economy level and management level.