２
０【特集・論文】

Estimating the Competitive Advantages of SOEs
and Rivals in China: A Preliminary Result
Mariko Watanabe＊［キーワード］Demand estimates, competitive advantage, cost advantage, benefit advantage,
SOE, POEs, FOEs
［JEL 分類番号］L11, M21, L63, P52

characteristics of markets in developed econo-

1. Introduction

mies such as those in US, EU or Japan. In

This paper seeks to quantify and to visualize

particular, SOEs have had preferential treat-

the outcome of competition in the mixed

ments such as access to financial resources,

market in China. The mixed market is aregulations or permissions on entry etc.. On

market where heterogeneous agents, that is,

the other hand POEs or FOEs were limited tostate‑owned

privatelyaccess these treatment. In spite of thisowned enterprises (POEs) and foreign‑owned

inequality, all agents have competed with eachenterprises (FOEs), compete with each other.

other in a market. Favored treatment to SOEs

To accomplish the goal of the study, I depicted

lowers the hurdle to keep staying in thea value map, i.e., cost‑benefit supply curve.

market; if SOEs faces shortage of working

This is a very familiar concept in management

capital, the banking sector will provide thestudies ascompetitive strategy by Porter

funds so easily, that is not the case for POEs.

(1980). To quantify benefits of productsThis paper is motivated to see how theseenterprise(SOEs),

comprehensively, I computed the consumer

institutional forces impact on the quality of thesurplus and benefit utilizing estimates of───────────＊ Gakushuin University, 1‑5‑1 Mejiro, Toshima,
Tokyo 171‑8588, Japan. Phone: +81‑3‑5992‑
3075, Fax: +81‑3‑5992‑1002, E‑mail: mariko.
watanabe@gakushuin.ac.jp This paper is written
based on a presentation titled Who creates thehigher values in Mixed Market of China?:
Estimation of Competitive Advantages of Mobile,
Air Conditioner and CTV firms at Annual
Meeting of Japan Association for Chinese
Economy and Management on 8, November,2014 at the University of Tokyo. Author
appreciates the Association for kindly providing
an opportunity to present a newly started work.
All remained errors belongs to the author.

differentiated demand function. Results revealthat foreign brands maintains abenefitadvantage and private firms holds a

cost

advantage and SOEs were in the middle. At
the same time, estimated data indicate that thebenefits of products, a valuation by the
consumer to the products, were not appropriately priced in some industries.
Previous studies argue that the institutional
treatment toward SOEs, POEs and FOEs
varies, which is substantially different from theEstimating the Competitive Advantages of SOEs
and Rivals in China: A Preliminary Result

２
１strategies, that is, the cost advantage strategy

market.
An anecdote in Zhou (2006) indicated thatand benefit advantage strategy. I created value

this mixed market environment is the cause ofmaps based on the estimates of demand

excess capacity . Zhou notes that the excess

functions.

capacity problem appeared only in markets in

A theory behind my exercise is as follows:which SOEs and FOEs, POEs are competing

Consumers prefer more benefits and lower

with each other. Zhou attributed the phenome-

priced/cost products. At the same time, there

non to the differentiated standard for exiting

is a trade‑off between benefit and cost at a

the market among SOE and other ownershipcertain level of total utility. Figure 1 indicates

type that causes excess capacity. This paper

this indifferent relationship. In 1985, Mercedes

is motivated by this argument and attempted

products stayed on the cost benefit indifferent

to document the tendency by depicting value

curve 1985. In 1988, Japanese cars appeared onmaps, which are described by the axes ofthe point that named Japanese Cars 1988. The

benefits and prices of products that firms are

positioning of the Japanese cars product 1988

offered to consumers.

is far superior to Mercedes 1985 in terms ofHere, I must note that concept of the mixed

consumer surplus. Japanese cars in 1988 ismarket is different from the concept of mixed

much cheaper and better in quality thanownership

Mercedes then. In 1994, Mercedes recoveredthat Chinese government has

recently advocated as a step of economic

theirreform. Mixed ownership describes a situation

Japanese cars in terms of consumer surplus.

in which a firm is owned by heterogeneous

As is seen in this story of Mercedes

agents, that is, SOEs POEs and FOEs. I define

positioning, the utility of the consumer remains

the mixed market asa market in which

the same on the bold line in Figure 1 forheterogeneously constrained firms are compe-

Japanese cars and Mercedes, but the configu-

ting with each other as will be detailed later.

ration of price and benefit changes along theThis paper proceeds as follows: Section 2

line. Consumers will buy the products as longpresents strategy of analysis for this paper.

as the configuration of benefit and price of theSection 3 presents economic models as anproduct remains along with indifferent curve

analytical framework, and Section 4 reports

or left down the curve.

positioning

which

is

equivalenttothe estimated results. Section 5 discusses the

Faced with this consumer s preference, theresults and implication for understanding the

supplier can follow either of the following two

characteristics of the Chinese markets, thenstrategies. One is the cost advantage strate-concludes.

gy whereby a manufacturer lists a product2. Research Strategy
To evaluate the nature of the market

with lower cost and price and its benefit
remains along with the indifferent curve. The
other is thebenefit advantage strategies

outcome, I will quantify the value supplied towhereby the manufacturers lists a productthe society by firm or ownership types. This

with greater benefits products but the price ispaper attempts to identify the competitive

along the indifferent curve. This is the familiar

advantage of Chinese brands, or by ownershipconcept of the value map in management

type, referring to an idea of Porter s genericstudies (Porter (1980), Besanko, et.al (2010)).

２２

中国経済研究第１２巻第１号

Figure 1: Concept of Cost and Benefit Indifferent Curve

Besanko, et.al (2002, Japanese edition), Figure 12
5Once the cost-benefit curve were depicted,

defined as a difference between a benefitof

we can identify where a brand locates on the

product j for consumer i, and its production

value map. This is the goal of this paper. Whencost

the curve is going to be depicted, we need tozero, the business is viable. The larger the

get the data of benefit. I use estimated utility

benefit of transaction,from the product as the benefit of transaction

contribution provided by the business to thethat explained below.

society.

. As long as

is not smaller than
, the larger is the

When a products are traded, the productthat are generating a benefit

that wasvalued by a consumer/buyer. The net value orsocial welfare１ of an economic transaction is
Table 1: Cost Advantage Strategy and Benefit Advantage Strategy at Equilibrium
Cost

BenefitCost Advantage Strategy

Lower than rival

Benefit Advantage Strategy

Maintaining the original levelon the indifferent curve

Maintaining the levelon the indifferent curve.
Greater than rivals

Author. Based on Besanko et.al (2010: Chapter 9) and Porter (1985)

Value of the transaction are divided between

receives a fraction as much as. This isthe consumer and producer: Consumers/buyer

called consumer welfare or consumer surplus.

───────────
１ If the transaction generates positive or
negative externality, we need to grasp its impact
and we can explicitly describe them out in themodel.

The seller receives another fraction of value asmuch as, which is called producer s

welfare or profit. Once we obtained the data of
consumer surplus,, we can quantita-Estimating the Competitive Advantages of SOEs
and Rivals in China: A Preliminary Result

２
３tively compare the size of welfare produced by

Figure 2.1 indicates how much products

particular type of sellers or products. Then,

were supplied by private owned, SOE orquestion remains as to how to obtain theforeign investment enterprise. This shows abenefit or consumer welfare? I obtained themvery contrasting profiles among the threeby estimating demand function for the markets.

industries. In color TV industry, SOE domi-

Demand function induced from product choicenates the industry. More than 80 per cent ofmodel based on individual utility will beunits were produced by SOEs. Contrastingty,

detailed in Section 3.1. In this paper, I

the mobile phone industry is dominated byestimated demand functions for color TVs,

foreign and private owned industry.

mobile phone and air conditioners in China forthe 2000s.
Based on this estimated parameters of

2.2 Institutional setting: Law and Politics of
SOEsdemand function for products supplied by

In China, three types of ownership, foreign

manufacturers, I can depict cost‑benefit

investment, SOEs and private owned firms are

curves for the consumers.

faced with different institutional settings.
Though they are sometimes competing with

2.1 Description of Industries

each other in a market, the institutional

In this paper, three electronics industries inconstraints they are faced with are often

China were the target of analysis: color TV, airsubstantially different each other. In terms ofconditioner and mobile phone. Among these,

this, I regard the three ownership types are

CTV industry was the earliest to emerge,heterogeneous agents in a market and thedating back to the late 1980s. There was amarket should be called

technological transfer from the Japanese manu-

Legal institution since the 1980s clearlyfacturer, Panasonic, to several SOEs including

discriminate private enterprises to SOEs until

Changhong. The air conditioner industry

the middle of 2000s: Company Law, Security

started to grow in the 1990s, nearly ten years

Law, Bankruptcy Law provided respective

later. Initial technology was also transferedclauses to SOEs and private enterprises.

from Japanese manufacturers, such as Sanyo,

Foreign invested enterprises are regulated by

Mitsubishi and German companies to SOEs.

independent special laws and regulations.

The mobile phone industry is the newest one

There was a substantial reform of these legal

among the three industries and emerged in theinstitution around 2006. Major institutional

2000s. In the very initial stage, Nokia anddiscrimination among ownerships disappeared,

Motorola dominated the industry. Since thebut the enforcement remains widely a prefe-late 1990s, the government has encouraged

rential toward SOEs.

foreign investment firm to transfer thetechnology by forming joint ventures. However,
because the government lifted the regulationin 2006, massive entry of private brands was

mixed market.

3. Model and Estimation
3.1 Estimation model
Here, I develop a model for estimation.

repeated２.

Consumer demand is modeled using a discrete-───────────
２ Detailed case studies of these industries were───────────extended in Watanabe ed.,(2014).

２４

中国経済研究第１２巻第１号

Figure 2: Shares of production by ownership types Color TV, Air Conditioner and Mobile Phone

GfK Market Auditing Survey.

choice formulation. This model describes atime . Other factors affect product choice,process that consumer will choose a productsuch as the features of productaccording to the size of the utilities. On the

product‑market specific unobservable.

supply side, I assume competition between

the random unobservable error. To predict

severalconsumer surplus as much as appropriately,brandsindifferent

geographicalmarkets at different timings.

.

is a
is

we need capture difference of elasticity ofprice to the same product by attributes of

3.1.1 Utility and Demand

consumers. We need some random coeffcientFirst, I describe the utility of consumer thatof the price. The random coeffcients of price inconsists of the benefit product . Consumers

this paper are defined as

chose a brand j in a given market (=city andis the observed income３.

year, here) to maximize their utility. I view a, whereMean utility of product４ j can be rewritten as,

product as a particular brand sold in a city
market= 1, 2, ... . (I delete m hereafter(2)

simply for the reader s convenience). The
indirect utility
purchasing brandof consumer

from= 1, 2, ... at time = 1, 2, ....

is,(1)
denotes price of brandat market m in───────────
３ I used average income of each city-year
segments in this paper because we do not havedata of individual income. That means
andis population.
at market m and time t in this paper.

Estimating the Competitive Advantages of SOEs
and Rivals in China: A Preliminary Result

where

２
５

represents unobservable and product６

specific characteristics and time specificcharacteristics. Each consumer
will choose product(5)

in market

to maximize her utility.

Absolute value of consumer surplus is

Therefore, the aggregate market share formeaningless because of the unknown C. But

product

in market

is the probability thatthe difference between several states of

productyields the highest utility across all

consumer surplus as a figure generated fromproducts including outside goods 0. Therefore,

the structure. This paper focused on difference

the predicted market share of product= 1, ....

between two different agents, for example,

is a function of mean utility

andagent i or ownership type i comparing to agent

５).

If theh or ownership type h, it can be written as,

parameter vector= ( ,unobserved error,,

in the equation (1)follows: follows:

follows i.i.d. extreme value, this relationship(6)

can be rewritten as a logit choice probability(see Train (2009) ) as below.
Once you obtained

from above estimates,

we can compute the value of benefit of product
,

.

(3)
(7)
Here, 1 in denominator in equation (3)Here, we can see the relative size of benefits

represents value of outside option, becauseof the product following the same way as we== 1. Remaining variables incan do for consumer surplus.

the denominator is the sum of exponential
3.1.2 Nested Logit Model and Identification

utilities of all of the choices in every market.
Under this logit assumption, consumer

The logit‑based utility model provides ansurplusfor consumer , previously indica-estimating equation of utility in the following

ted by, takes the following closed format.

form (see Train (2009) for an explicit explanation.). Based on the model, I estimate the(4)demand parameters following Berry (1994) andNevo (2000) and other BLP literatures.

The expectation is over all possible values oferror

Our estimation equation is,. Here, expected consumer surplus

can be written as follows.
───────────
４ Because this is the mean of utility, unobserved
independent error
in equation (1) can be
regarded as zero.
５is the nesting parameter that explained later
referring to equation (9).

(8)───────────
６ C is an unknown constant that represents thefact that absolute value level of utility cannot be
bserved.

２６

中国経済研究第１２巻第１号

Here, I set the outside option as a difference

services for the three industries: air conditio-

between population and total number of airner, color TV and mobile phone. Sales value

conditioner for individual market and year thatand number of units for individual model are

represents number of potential buyer of theavailable for each top 10 brands and others for

products.

several features of the products for 30 cities in

The parameters of this demand can be

China. The features of the products are as

identified as the previous empirical industrial

follows: Air conditioners are divided by (1)organization literatures claimed (see Acker-

horsepower ( 1 HP, 1 to 2 HP and 2 HP andberg and Crawford (2009)). Identification ofabove) (2) grades of the energy effciency labels,

price parameters, which is critical for ourand (3) types of installment. Color TV data arebenefit computing, relies on the fact that thedivided by (1) types of panels (CRT, LCD, PDP),

unobservedare(2) screen size 2 inches and below, 21 to 32

uncorrelated with input prices. To account for

inches, 32 inches and over). Mobile phones arethis potential endogeneity of prices that may

divided by (1) types of networks (CDMA, GSM,

be caused by the presence of changes in

TDS‑CDMA), (2) types of operation system (nounobserved attributes, we use the GMM

OS installed, Linux, Symbian, Windows Mobile

estimator with either type of instruments

and others) (3) Number of colors in the panel,variables discussed in Section 3.3.

and (4) Whether it has a camera or not.

determinantsofdemandTo account for the degree of preference

Regarding the air conditioner data, the data

correlation between products of the sameon sales and information related to energy

group, I impose a further assumption on the

consumption begins with the year 2008 and iserror term,

obtained from the GfK market auditing data.

in equal on (1).

Data for power consumption are not available(9)

directly from this data base. We supplemented
the information from the catalog on e‑

is a nesting parameter , 0

1 thatcommerce site, SOHU.

captures the correlation between preference
3.3 Instruments

and product characteristics.
When estimating demand estimates based

The estimation of the models I employedon the nested logit model, consumer surplus

here is typically done using IV or GMM using

will be computed as follows (see Ivaldi andinstruments for

Verboven[2005:677]).

Instruments

and nested variables.

that are correlated toare independent to
(10)

of

instrumentsbut. In this case, candidates

heremainlycome

fromfollowing four sources: (1) cost shifters; fees ofelectricity etc. (2) price of the same products of(11)

the same brand in other city. Here, we need toassume that difference of prices of the same
products across cities only reflects demand

3.2 Data
I use the market survey data of GfK market

factors, and that the price of other city of thesame products are correlated with price via

Estimating the Competitive Advantages of SOEs
and Rivals in China: A Preliminary Result

only cost factors. (Berry, Levinson and Pakes,

4. Estimation Results

1995 Hausman, 1996. Nevo, 2001). (3) Price ofthe same type of products by competitor

２７

4.1 Estimated Parameters

brands in a same city (Berry, Levinson andEstimated demand parameters are presen-

Pakes, 1995) (4) characteritics of products; it is

ted in Figures 3, 4 and 5. The CTV and mobile

natural to assume that characteristics ofphone markets demands are estimated withproducts are designed and planned in advance,nested logit model and air conditioner market

before the price is fixed. Exploiting this natural

demand is estimated with a logit model. For

assumption, we use the characteristics ofthe air conditioner and mobile phone markets,

products as instruments that predetermined to

it is confirmed that the instrument variables

the price. (i) The first type of

qualityused were exogenous to price variation.

dummies are the sum of index of characteris-

Nesting parameters in the color TV andtics within the own brand, such as capacity ofmobile phone market indicates that color TV

air conditioners or size of visual panels of color

market is homogenized ( =0.995), whereas

television. (ii) The second type of this category

mobile phone market is more differentiated (s IV is the sum of the characteristics of other=0.245). For the air conditioner markets, I

products of rival firms, and (iii) the third one is

could not find effective instruments variables

the sum of the characteristics of otherfor the nested logit model, but could findproducts of own firms (see Grigolon andappropriate IVs for the logit specification.

Verboven (2011) Verboven (1996)). (iv) The
fourth is the average index of the characteristics of a competitor. The Hausman instrument

4.2 Comparing Consumer Surpluses and Benefits

approach 2 relies on the assumption that prices

Estimated demand parameters allow us to

in two different markets be correlated via

compute the benefit and consumer surplus ofcommon cost shocks and not via common

each brand or firm. Here, I compare whether

demand side shocks such as nationwide

there is a systematic difference in consumer

demand shock. If a situation such as particularsurplus or benefit across ownership types

two markets demand shrink a certain common(Figures 6, 7 and 8 summarize the results.).

shock occurring when shrin-kage in demandAcross three industries, foreign‑invested firms

tales place between two particular markets,

offer greatest benefit to the Chinese market,

the instruments are invalid. However, in our

but its price is also the highest. Privately

estimation case, this IV works effectively７.

owned firms offer prices that are either thelowest or not higher than others prices acrossindustries. State owned enterprises provide
products that offer lower benefit than foreign‑───────────
７ GMM c‑statistics of demand estimates resultsin Figures 3 (GMM c‑statistics is 1.185 p =0.2763), Figures 4 (GMM c‑statistics is 3.05299 (p= 0.2173)) and 5 (GMM c-statistics is 1.6e‑07 (p =1.0000)) show that the IV were confirmed as
exogenous to our demand.

invested firms and not lower benefit thanprivate firms. Their prices are higher thanthose of privately owned firms, and lower thanthose of foreign‑owned firms. On the whole,the ownership types that provide the greatest
consumer surplus differ among the industries.

２８

中国経済研究第１２巻第１号

Figure 3: Demand Estimates: Air Conditioner(1)ln(sj) −ln(so)price/wage‑5.496＊＊＊(0.431)cooling capacity

0.0001＊＊＊(0.000)power consumption capacity‑0.0004＊＊＊(0.000)

HP: 1 to 2
(Reference=1HP below)

0.544＊＊＊(0.124)

HP: 2 and over

0.476＊＊＊(0.090)Label Introduced

0Introduced X Label 1

4.816＊＊＊(0.125)Introduced X Label 2‑1.844＊＊＊(0.056)Introduced X Label 3‑1.052＊＊＊(0.047)

Introduced X Label 4‑0.522＊＊＊(0.041)Inverter Introduced‑0.983＊＊＊(0.041)

Non Inverter Period

0.000＊＊＊(.)

Installment: Stand Alone(Reference=Others )0.0046＊＊＊(0.058)Installment: Split‑3.137＊＊＊(0.125)

Brand dummies+

City dummies+

Year dummies
Constan+‑5.243＊＊＊(0.247)

N

17914

2

R

0.487

IV

average cooling capacity of competing products sum of horse
power of products of the same brand average horse power ofown brand price of other city of the same brand products, wage

Standard errors in parentheses＊
p < 0.1, ＊＊p < 0.05, ＊＊＊p < 0.01. Note: Wage is a proxy of income specified in equation (1). This is the samefor Figure 4 and 5.

Estimating the Competitive Advantages of SOEs
and Rivals in China: A Preliminary Result

２
９Figure 4: Demand Estimates: CTV market(1)ln(sj) −ln(so)price/wage‑1.110＊＊＊(0.060)ctvtypes

0.995＊＊＊(0.060)CTV Type: LCD(Reference= CRT)

‑2.096＊＊＊(0.037)

CTV Type PDP‑3.356＊＊＊(0.088)Screen size: 21 to 32 inches(Reference= 21 inches and below)

0.316＊＊＊(0.034)

Screen size: 32 inches and over

0.658＊＊＊(0.059)Year dummies+

City dummies+

Brand dummies+‑2.432＊＊＊(0.243)

Constant

N

12432

2

R

0.850

IV

average price of other markets of the same products by thesame brand sum of the screen size among the same typeproducts the same brand wage, population of other cityStandard errors in parentheses＊
p < 0.1, ＊＊p < 0.05, ＊＊＊p <0.01
Author s Estimates

In the CTV market, in which a substantial

In the air conditioner market, in which noshare of the products are supplied by the state‑

single type of ownership had a dominant share,

owned

firms

foreign‑invested firm supplies products withoffers the greatest consumer surplus, and thatthe greatest benefit, but their prices are highof privately owned and state‑owned enter-as well. As a result, the consumer surplus

prises remains the same level.

offered by foreign nvested firm and private

enterprises,

foreign‑invested

In the mobile phone market, in which foreign‑firms remains approximately the same level,

invested firms shared the largest but private

but both are definitely greater than those of

firms

products supplied by the state owned enter-vigorously

provided

thewhereasforeignentered,largestprivateconsumerinvestedfirms

products with the highest benefit.

firms
surplus,supplies

prises.
In summary, foreign‑invested firms supplies
products that provide greater benefit, in other３０

中国経済研究第１２巻第１号

Figure 5: Demand Estimates: Mobile phone market(1)ln(sj) −ln(so)price/wage‑6.422＊＊＊(0.797)OS

0.245＊＊(0.106)

Network GSM

1.669＊＊＊(0.240)(Reference=CDMA)

0.823＊＊＊(0.158)

Network: TDS-CDMA
Panel: Color

0.131＊＊＊(0.042)(Reference= B&White)‑0.562＊＊＊(0.077)

No Camera
OS: Others‑2.489＊＊＊(0.390)(Reference=Linux)
OS: Symbian

0.410＊＊＊(0.075)

OS Windows mobile‑0.170(0.153)

OS: No OS

1.940＊＊＊(0.279)Brand dummies+

Year dummies+

City dummies+‑8.418＊＊＊(0.461)

Constant

N

46741

2

R

0.598

IV

price in other markets of the same products by
the same brand square of price in other marketsof the same products by the same brandStandard errors in parentheses＊
p < 0.1, ＊＊p < 0.05, ＊＊＊p < 0.01

words, they follow the benefit advantage

enterprises fell into the trap of the middle, andstrategy. At the same time, privately owned

the size of the consumer surplus that offeredfirms offers the cheapest class of products: i.e.

by SOEs to the Chinese markets is lower thanthe cost advantage products. State‑ownedthat of either the privately owned firms orEstimating the Competitive Advantages of SOEs
and Rivals in China: A Preliminary Result

３
１

Figure 6: Difference in mean among ownerships: Air Conditioner

First, utilizing the demand function estimates

unit: RMB Consumer Surplus
F‑P
F‑S
P‑S

obtained above, I obtain the predicted value ofBenefitPrice

the benefit of individual products in equation‑335＊＊＊

1227＊＊＊

1559＊＊＊(7). Secondly, draw a spline within the group,

136＊＊＊
470＊＊＊

1140＊＊＊‑87＊

1005＊＊＊‑553＊＊＊

such as ownership or brand. I employ a linear
spline with equally spaced knots based on theStandard errors were not displayed＊p < 0.1, ＊＊p < 0.05, ＊＊＊p < 0.01

prices and benefits of all units sold in each

Figure 7: Difference in mean among ownerships: CTV

benefit supply curve for selected brands. I

unit: RMB Consumer Surplus
F‑P
F‑S
P‑S

4352＊＊＊
4190＊＊＊‑162

year. Figures 9, 10 and 11 graph the cost andBenefitPrice8532＊＊＊
8138＊＊＊‑393

4180＊＊＊
3948＊＊＊‑232-735＊＊＊-237＊＊＊
498＊＊＊

sales units are relatively large.
Graphs visualize the competitive positions of
the ownership types or the brands. If a brandwith higher benefit and keeps price at

Figure 8: Difference in mean among ownerships: Mobile Phone
F‑P
F‑S
P‑S

period of the data and for which the number ofor one type of ownership listed the productsStandard errors were not displayed.
＊p < 0.1, ＊＊p < 0.05, ＊＊＊p < 0.01

unit: RMB Consumer Surplus

chose the brand that has data for the entire

BenefitPrice

243＊＊＊
348＊＊＊
104

980＊＊＊
587＊＊＊‑393＊＊＊

Standard errors were not displayed.
＊p < 0.1, ＊＊p < 0.05, ＊＊＊p < 0.01

approximately the same level with a competitor, the brand or ownership type have abenefit advantage . On the other hand, abrand or a type of ownership that provides a
product with a lower price and keeps thebenefit more or less the same as that of acompetitor has acost advantage (Besanko,

et. al 2010: Chapter 9). Figure 11 clearly
indicates this positioning pattern. This indicate

foreign‑invested firms.

that foreign brands, such as Nokia, Samsung
and Motorola listed the products with nearly

4.3 Drawing Cost Benefit Curves

all the support of the benefit distribution.

Now, we have the data on the price andForeign brands monopolize the higher benefit

benefit of the products, and we can draw theranges, for example, 12,000 RMB and above

cost benefit supply curve for the threerange for 2001, 20,000 RMB and higher for 2005

industries８.

and 35,000 RMB and above for 2008. Foreign

The procedures are as follows:

brands succeeded in taking the───────────
８ What we depict here is the cost‑benefit
supply curve, because we connected thepredicted value of benefit and consumer surplus
by brands or ownerships. This is the line chosen
by the suppliers. When you connected thepredicted values of benefits and consumer
surplus according to the equivalence of consumer
surplus or benefit levels, it becomes the cost‑benefit indifferent curve that Figure 1 showed.

benefitadvantage position. On the contrary, theprivate and SOE cost‑benefit supply curves
moves nearly horizontally over the benefit.
They are positioning at a lower cost and offer
the same benefit to foreign brands. This
relationship basically holds in the color TV
market (Figure 10). For air conditioner market(Figure 9), the support of benefits for SOEs,

３２

中国経済研究第１２巻第１号

Figure 9: Cost and Benefit Supply Curve of Selected Brands: Air Conditioner

Author s estimation.

POEs and FIEs coincide each other, thoughterms of benefit, SOEs are inferior to foreign

FIEs supplies in relatively higher prices thaninvested brand, however, in terms of cost, they

their counterparts.

are inferior to the private brands.

A comparison of the positioning among

In addition, it is important to note theownership types indicates that SOEs fail todirection of correlation between benefits andtake an advantageous position and are stuck

price (cost of consumer). When the benefit isin the middle argued by Porter (Besanko et.al,large, the consumer values the products to a

2010, Chapter 9. Porter 1980: Chapter 2). In

larger degree, and there is more room forEstimating the Competitive Advantages of SOEs
and Rivals in China: A Preliminary Result

３３

Figure 10: Cost and Benefit Supply Curve of Selected Brands: Color TV

Author s estimation.

raising the price. Usually, this is the necessary

market condition, and they may lose thefor supplier, as suppliers bear the additional

incentives to invest in upgrading the quality or

cost of producing products with greater

benefit of the products.

benefits. Relatively speaking, foreign brands
can enjoy positive correlation between price

5. Summary of Findings and Discussion

and benefit. However, private firms and SOEs

The main findings of this paper can be

are facing with the horizontal cost benefit

summarized as follows: (1) Foreign brands

indifferent curve. That is, price is independent

exhibit relative superiority to local brands inof benefits. For suppliers, this is a harshterms of the benefit advantage, but inferior in

３４

中国経済研究第１２巻第１号

Figure 11: Cost and Benefit Supply Curve of Selected Brand: Mobile Phone

Author s estimation.

terms of cost advantages. (2) Private brands

them from investing in creating greater

succeeded in realizing abenefits and might causes a vicious cycle thatcost advantage

across the three markets. (3) However, forcreates

private firms and SOEs, the greater benefit ishinders the benefit and quality improvement

excessive price competition thatnot priced proportionally. The product thatthat the market supplies to the consumers inprovides greater benefit is priced unfairly.

Chinese markets. This tendency appeared inThis implies that the market mechanism does

the color TV market and mobile phone market

not works in an ideal way. This might haveand is more pronounced in the air conditioner

suppressed the profits of suppliers and prevent

market that exhibit negative correlations

Estimating the Competitive Advantages of SOEs
and Rivals in China: A Preliminary Result

between benefits and price until 2007９.

6. Conclusion
This paper attempted to estimate thecompetitive advantage of brands in Chinese
markets. The results reveal that there is atendency across three industries for foreign
brands to hold a benefit advantage and for
private brands to maintain a cost advantage .
The SOEs are trapped in the middle, failing tohold competitive advantages. An additional
important feature is the SOEs and private
firms are trapped in the excess price competition equilibrium where higher benefit
products is priced as the same as lower benefit
products. This implies market were notworking as expected as an ideal. This excess
price competition phenomenon may be correlated with theexcess capacity problem

noted in Zhou s essay. Identifying the mechanism that is generating the market equilibrium
will be the next step of this research.
References［１］Ackerberg, Daniel A. and Gregory S.
Crawford (2009), Estimating Price Elasticities in Differentiated Product Demand
Models with Endogenous Characteristics,
mimeo, 2009.
［2］Besanko, David et. al (2010), Economics ofStrategy, 2010, 6th edition, Wiley. (Japanese version, Besanko et. al 2002 is translated from the 2nd edition.)───────────
９ Positive correlation between benefit and priceget apparent since 2008, 2009 and 2010. In 2008,
the Chinese government implemented a energy
effciency standard and labeling system so as tomitigate information asymmetry between consumer and suppliers in terms of energy effciency
of products. Further study to investigate how
the system intervene the market outcome.

３５［３］Berry, Steven (1994) Estimating Discrete‑
Choice Models of Product Differentiation
Rand Journal of Economics, 25 (2) 242‑262［４］Berry, Steven, James Levinson Ariel
Pakes (1995) Automobile Prices in Market
Equilibrium Econometrica, 63 (4): 841‑
890.
［５］Grigolon, Laura and Franc Verboven(2011) Nested logit or random coeffcient
logit? A comparison of alternative discrete
choice models of product differentiation
Center for Economic Studies, Discussion
Paper Series 11‑24.
［６］Hausman, J. (1996) Valuation of New
Goods under Perfect and Imperfect Competition,in The Economics of New
Goods, ed. by T. Bresnahan, and R.
Gordon. University of Chicago Press.
［７］Ivaldi and Frank Vanboven (2005),
Quantifying the effects from horizontal
mergers in European competition policy
International Journal of Industrial Organization 23 (2005) 669-691.
［８］Porter, M. E.(1980) Competitive Strategy:
Techniques for Analyzing Industries andCompetitors. New York: Free Press, 1980.
(Republished with a new introduction,
1998.)［９］Train, Kenneth (2009), Discrete Choice
Methods with Simulation, 2nd edition,2009. Cambridge University Press.
［１０］Nevo, A. (2001): Measuring Market
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［１１］Watanabe, Mariko ed. (2014), Disintegration of Production Palgrave‑McMillan.
［１２］Zhou, Qiren (2006) Excess capacity
problem only appears in the market
where the governments heavily intervene The Economic Observer, 29, April,2006 (http : //finance.sina.com.cn/review/20060429/09432541373.shtml). In Chinese.
［１３］Verboven, Frank (1996). International
Price Discrimination in the European Car
Market. RAND Journal of Economics
27(2).
(Gakushuin University)

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中国経済研究第１２巻第１号

Estimating the Competitive Advantages of SOEs
and Rivals in China: A Preliminary Result
Mariko Watanabe (Gakushuin University)
Keywords: Demand estimates, competitive advantage, cost advantage,
benefit advantage, SOE, POEs, FOEs
JEL Classification Numbers: L11, M21, L63, P52
This paper estimate value maps of three electronics industries of China in the 2000s. Utilizing theestimated demand estimates of the three industries, I draw a cost‑benefit supply curve that canvisualize the positioning strategies, such as cost‑advantage strategies and benefit‑advantage
strategies . Results indicate that FOEs takes a benefit‑advantage position and private owned
enterprise keeps a cost‑advantage position, whereas SOEs were trapped in the middle. An
additional findings is that benefits of POEs and SOEs were not priced proportionally. Higher benefit
products are priced as much the same as lower benefit products. This might implies excess pricecompetition among SOEs and POEs.