The 7th Session of “The Economic Way of Thinking” Lecture Series: Market Failure and Government Regulation

On the afternoon of April 28th, 2021, the 7th session of “The Economic Way Thinking” Lecturer Series was held at Conference Room 205 of the Central Main Building, with the theme of “Market Failure and Government Regulation”. The event was delivered by Prof. Wang Yong, Tenured Associate Professor of the School of Social Sciences, Tsinghua University to doctorate candidates of Institute for International and Area Studies, Tsinghua University (IIAS-THU).

This lecture was comprised of three parts. Prof. Wang started by elaborating the definition, causes and solutions of market failure. He stressed that market failure is manifested by insufficient supply of public goods, excessive use or waste of public resources, bullying of monopoly, externalities such as inability to internalize income or cost, and excessive gap between rich and poor. He further pointed out that the root causes of market failure include insufficient income acquisition, cost sharing, competition, information disclosure and market order. Market failure can be managed through the combination of government regulation and business and market innovations. Afterwards, Prof. Wang reviewed the definition, characteristics and government supply of public goods. He commented that due to the non-exclusiveness and non-competitiveness of public goods, consumers are often unwilling to pay the cost, which prevents the private sector aiming at profitability reluctant to provide such goods or services. Therefore, public goods are mostly provided by government.

In the third part, Prof. Wang vividly illustrated the concepts of monopoly and antitrust. He explained the causes and types of monopoly, i.e., administrative monopoly, innovative monopoly and natural monopoly. The causes of administrative monopoly include insufficient separation of public and private sectors, fiscal policies leading to reinforcement of regional and sector interests, unreasonable industrial structure and defective legal system, while the causes of natural monopoly involve economy of scale, economy of scope, network effect and resources scarcity. The effects of monopoly include ineffective allocation of resources, lack of social welfare and decline in innovation ability. However, mass production can often achieve economy of scale and reduce unit costs. Finally, he pointed out that antitrust solutions range from intervention in market structure to intervention in corporate behaviors. Furthermore, Prof. Wang explored the economic essentials of antitrust by quoting the viewpoints of the well-known Harvard School and Chicago School. He also mentioned that the challenges in the implementation of antitrust law involve the definition of market scope, the determination of pricing power of enterprises, the judgment of monopoly pricing by enterprises and the distinguishment between monopoly behaviors and fair competition.

Prof. Wang Yong is Tenured Associate Professor of the Institute of Economics at the School of Social Sciences, Tsinghua University and Member of the Academic Committee of IIAS-THU. Prof. Wang holds a PhD from Guanghua School of Management of Peking University and served as a postdoctoral fellow at Department of Economics of Harvard University. He was appointed as Deputy Director of the Institute of Economics at Tsinghua University in 2012 and further served as Executive Vice President of the Institute of Minsheng Economic Research at Tsinghua University. His research interest covers game theory and its applications, theories of Internet economy and enterprises and park economy.

Text by: Wang Zijing
Typesetting by: Wang Zijing
Reviewed by: Yang Chongsheng