Collusion or Competition? Interfirm Relationships in the Chinese Auto Industry

40 Pages Posted: 4 Mar 2014

See all articles by Wei‐Min Hu

Wei‐Min Hu

National Chengchi University (NCCU)

Junji Xiao

The Chinese University of Hong Kong (CUHK) - Department of Decision Sciences & Managerial Economics

Xiaolan Zhou

Shanghai University of Finance and Economics

Date Written: March 2014

Abstract

The Chinese passenger‐vehicle industry contains a large number of manufacturers. Some of them are members of big corporate groups centered around state owned enterprises. These corporate relationships may facilitate collusion. This paper applies the non‐nested hypothesis test methodology to data on passenger vehicles to identify whether price collusion exists within corporate groups or across groups. Our empirical results support the assumption of Bertrand Nash competition in the Chinese passenger‐vehicle industry: We find no evidence for within or cross‐group price collusion. Our policy experiments show that indigenous brands will gain market shares and profits if within‐group companies merge.

Suggested Citation

Hu, Wei‐Min and Xiao, Junji and Zhou, Xiaolan, Collusion or Competition? Interfirm Relationships in the Chinese Auto Industry (March 2014). The Journal of Industrial Economics, Vol. 62, Issue 1, pp. 1-40, 2014, Available at SSRN: https://ssrn.com/abstract=2404129 or http://dx.doi.org/10.1111/joie.12035

Wei‐Min Hu (Contact Author)

National Chengchi University (NCCU) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

Junji Xiao

The Chinese University of Hong Kong (CUHK) - Department of Decision Sciences & Managerial Economics ( email )

Shatin, N.T.
Hong Kong

Xiaolan Zhou

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China
862165903151 (Phone)

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