At present, the word "profiteering" appears frequently in the mass media, and the so-called industry profiteering issue has become a topic of concern in economic life. However, there is no strict definition of the concept of "profiteering" in the economics literature. In the economic literature, there is the term excess profit or high profit, which is a concept corresponding to the average profit formed by the law of competition in the market. In addition, monopoly profits formed due to administrative monopoly and natural monopoly are a special form of profit formation. The term "profiteering" is a vague term, somewhat emotional. Observed from economic life, huge profits are related to economic behaviors with low investment risks and high returns and lax government market supervision.
A currently popular saying is that the generation of huge industry profits is related to the intervention of administrative power in the market. “Some industries and departments can obtain monopoly profits or high profits through monopoly operations or unequal division of initial conditions for competition. The core problem is that due to insufficient reforms, the 'administrative power' factors left over from the old system seriously interfere with or even directly restrict the market function, and many of them are carried out in a 'legal' way, or in the current system and policy system This does not fully prove that it is 'legal'. "We partially agree with this view. As for huge profits in some industries, they are essentially high profits caused by the role of administrative power. This is a super-economic phenomenon that is basically higher than the sum of industry average profits plus excess profits. However, administrative power intervention is only one of the foundations for huge profits in the industry at this stage, and it is not the whole answer to the problem. The formation of industry huge profits is also related to uneven income distribution, information asymmetry and consumer group behavior, and is intertwined with administrative power intervention.
1. Uneven income distribution and huge profits: taking the real estate industry as an example
1. Approval and monopolistic competition in the real estate market. Although my country's 1986 "Land Management Law" stipulates that land acquisition shall be carried out in two ways: administrative allocation and paid use, in practice the practice of administrative allocation by government officials has not fundamentally changed. Because there are no strict uniform standards for land approval in various places. It is the officials who have the final say who will grant the land and at what price. Therefore, some real estate developers may obtain land use rights at low prices through various means. . Because the land prices approved unilaterally by the government through administrative procedures are too low, a large amount of land appreciation income flows to units and individuals, thus creating conditions for huge profits in the real estate industry. In the hottest years of real estate, 1992-1994, the average profit of my country's real estate industry reached 100-200%, which was 5-10 times higher than the 20% of the industrial sector and 30% of the commercial sector. One consequence of the huge profits in the real estate industry is that real estate development companies have sprouted all over the country. Even in 1997, 1998 and 1999, when profits in the real estate industry fell seriously, the number of real estate development companies continued to increase. In the five years from 1997 to 2001, the number of real estate developers nationwide continued to increase. In particular, the number of state-owned and collective enterprises, which accounted for more than 80% of the number of manufacturers, grew at an annual rate of 1%. It can be seen that in the market structure of China's real estate industry, state or government power still plays an important role. On the one hand, land approval limits the market entry of foreign capital, but on the other hand, it lacks restrictions on the entry of state-owned and collective manufacturers. Under the incentive of 100-200% profit, on the one hand, real estate manufacturers under the leadership of administrative power openly plunder consumers; on the other hand, there is disorderly competition and speculation in the real estate market, which in turn causes the instability of manufacturers' profits in the short term. sex and real estate market volatility. In short, we can call this phenomenon monopolistic competition under the influence of administrative power.
2. The investment of real estate developers is tilted. Due to the role of the market economic interest mechanism and competition mechanism, manufacturers can only obtain average profits in long-term competition, and excess profits cannot be maintained for a long time. Manufacturers in monopolistic competition, driven by the pursuit of short-term excess profits, always try to allocate their resources to where they can gain the most benefit. Therefore, in order to capture market opportunities, manufacturers must have a certain degree of foresight, that is, they must have a clear understanding of the market environment in which they are located. In this sense, manufacturers' response to the market can reflect changes in the macroeconomic environment to a certain extent.
As far as China's real estate manufacturers are concerned, their behavior reflects the distribution of consumer purchasing power to some extent - the over-development of high-end housing to some extent indicates that the distribution lever of China's national income has tilted, so , unfair income distribution is an important factor causing or leading the overheating of the real estate industry and resulting in huge profits. In recent years, although the state has introduced some policies to encourage investment in affordable housing, the tendency of real estate developers to invest in high-end housing has not fundamentally changed. In recent years, the ratio of investment in the development of high-end apartments and villas to that of affordable housing has remained high. Except for 1999, the ratio in other years has been above 50%. The main reason for this situation is that high-end Housing price signals induce developers. In recent years, the selling price of high-end housing per square meter has been much higher than that of affordable housing, and there is a greater profit margin for investing in high-end housing.
3. Who will support the huge profits of real estate developers. We believe that the huge profits in China's real estate industry at this stage are the result of income being too concentrated among some people. Commercial housing is a special commodity, especially in crowded big cities. Commercial housing is a commodity that has the function of maintaining value and even increasing in the long term. For some wealthy people, the purchase of high-end housing is not only to cater to modern consumption trends, but also has a greater ability to maintain and increase the value of high-end housing than affordable housing. Therefore, for this group of people, high-end housing is a commodity with low demand elasticity. According to economic principles, when real estate developers face a demand curve with low demand elasticity, they can make profits by raising prices. The higher the price, the more profits they make. In fact, this demand curve for real estate developers has already been formed. In a sense, China's real estate industry is an industry that relies on the wealthy class to grow. A considerable number of their products can only be consumed by the wealthy class. The following data can support Our opinion:
According to the data in Table 2, it can be calculated that in recent years, among the total investment in affordable housing and high-end housing by real estate developers every year, investment in high-end housing accounts for more than 30%. At the same time, according to our estimates, the disposable income of the 20% of the wealthy class has accounted for about 33% of the disposable income of all urban residents in recent years. Of course, if other properties are included, this proportion is even larger. These are two very similar interesting data. Isn’t this 33% disposable income ratio not enough to support the 30% investment ratio? According to our estimates, between 1997 and 2001, the annual housing expenditure per person of the wealthy class (high-income class and the highest-income class) was about 2.5 times that of the low- and middle-income class, and this ratio was quite stable, which shows that the wealthy class has a high demand for high-end products. Housing has greater purchasing power than the lower- and middle-income groups.
3. Information asymmetry and huge profits—an economic explanation of huge profits using the pharmaceutical retail industry as an example
In game theory, information that not everyone has is usually considered It's called "asymmetric information". That is to say, for some information, some players have it, but other players do not. Due to the existence of asymmetric information, some players with asymmetric information will make information decisions based on it and seek benefits through activities such as acquiring, hiding and transmitting information. The phenomenon of information asymmetry is particularly prominent in the pharmaceutical industry. We believe that this phenomenon has caused the rise in pharmaceutical retail prices and huge profits in the pharmaceutical retail industry.
1. Information asymmetry causes price authorities to set prices for drugs that are falsely high. At present, for new drugs, the application and approval method for government pricing is as follows: for drugs listed in the pricing catalog of the Planning Commission for the first time on the market, the production and operation enterprise shall submit a pricing application to the provincial price authority, and the provincial price authority shall After review, the drug will be forwarded to the State Planning Commission; for drugs listed in the provincial government pricing catalog for the first time, the production and operation enterprise shall submit a pricing application to the provincial price authority. The original intention of this kind of government-approved pricing is good. On the one hand, its purpose is to enable "producers and operators to cover reasonable production costs and obtain reasonable profits", and on the other hand, it is to protect the interests of consumers. However, the effective realization of this wish must be based on a prerequisite, that is, the drug pricing authorities must have sufficient information about new drug manufacturers and potential consumers to prevent manufacturers from committing fraud when submitting pricing applications.
In fact, this assumption cannot be established, because it is impossible for the competent authorities to participate in the research and development of new drugs. In the game with manufacturers, they will always be the kind of players who do not have relevant cost information. To take a step back, even if the competent authorities clearly know that there are problems with the manufacturer's pricing application and try to review a more reasonable pricing, due to information asymmetry, the competent authorities must conduct detailed and thorough investigation and research. However, this approach requires the authorities to incur huge "search costs", which are often so high that conducting such surveys is simply impossible. As a result, the competent authorities had no choice but to agree to the manufacturer's pricing application. Manufacturers that obtain high prices often adopt deep discount marketing methods to occupy the market. As a result, the artificially high ex-factory prices of drugs pave the way for the rise in pharmaceutical retail prices.
2. Information asymmetry causes huge profits for hospital retail drugs. At present, the government’s pricing method for the retail price of drugs is: the retail price of domestic drugs and imported repackaged drugs is composed of the ex-factory price of the manufacturer and the circulation spread; the retail price of imported drugs is composed of the port price and the circulation spread; the relevant departments also stipulate that , the retail price of hospital preparations is set based on the principle of capital preservation and low profit. The retail price is composed of manufacturing cost plus a profit of no more than 5%. In the drug catalog priced by the State Planning Commission, maximum retail prices are stipulated for more than 400 Class A drugs as well as patented drugs and Class I and II drugs within the new drug protection period, and the maximum sales profit rate and profit rate of domestically produced drugs are clearly stipulated. The maximum price difference rate,
According to the above-mentioned government policies and regulations, the specific operation of drug pricing is usually divided into the following three links:
First, the production cost increase of the drug manufacturer About 20% of the profit becomes the ex-factory price;
Second, the ex-factory price of the drug plus 15-20% of the profit becomes the wholesale price;
Third, the wholesale price of the drug plus 15-20% becomes the wholesale price. 20% becomes the retail price. However, under the condition that my country's current medical system is not yet standardized, this pricing mechanism is difficult to work. The fundamental reason is that there is always asymmetry of information between patients and hospitals.
Doctors have absolute monopoly rights in diagnosing patients' conditions and recommending medication. Hospitals are different from ordinary commodity markets, and patients do not have any bargaining rights over the consumption of commodities. Perhaps a patient can choose a hospital, but he cannot choose the price of drugs because he has no idea how much the drugs he consumes are worth. Usually, the thinking logic followed by patients is that good medicine can cure diseases, and good medicine is priceless. In fact, for many hospitals in China, they take advantage of this mentality of patients and use their monopoly power to arbitrarily distort the implementation of drug pricing policies, thus making the already high drug prices even higher. One yard. Furthermore, the existence of information asymmetry can easily cause moral hazard for doctors. It has long been a well-known fact in China that doctors take advantage of patients' lack of information about their condition to prescribe high-priced drugs.
4. Group behavior and huge profits—an economic explanation of huge profits using the mobile phone industry as an example
1. Risk-laden corporate strategies. The rapid development of my country's mobile phone industry only happened in the past two or three years. In 1999, the market share of domestic brands in my country's mobile phone market was only 3%. In the same year, the output of the three major foreign brands, Motorola, Nokia and Ericsson, in my country was 16.6 million units. However, except for Konka, TCL and Waveguide, whose mobile phone production capacity design scale reached 1 million units, the design and production capacity of other domestic brands was only 1 million units. About 500,000 units. However, by 2002, the market share of domestic brands had reached 30%, and the profitability of several major manufacturers had also been greatly improved. One of the reasons why domestic mobile phones have made such huge progress in just a few years is that the country Regarding industrial policy support, the second reason is the corporate strategy adopted by domestic mobile phone manufacturers to occupy the market with high-end products.
At that time, one assumption that the state supported domestic mobile phone manufacturers in entering the market from high-end products was that because foreign brand mobile phones already had an absolute monopoly in the domestic mobile phone market, and foreign companies fully owned the core technology of mobile phone production, If the domestic mobile phone industry enters the market with the image of low-end products from the beginning, not only the low price of mobile phones will not provide sufficient profit support for future enterprise development, but also the high cost of production due to the lack of core technology will not be able to provide domestic enterprises with Competitive advantage.
On the contrary, the high price of high-end products can theoretically give companies huge profit returns, if this venture can succeed.
Indeed, this is a venture worth taking, and the rapidly increasing domestic market capacity also provides opportunities for such risks, because the domestic mobile phone market increased by nearly 7% between 1997 and 2000. times, and in 2001 it increased by more than 10 times compared with 1997. Mobile phone production is a brand new business for domestic manufacturers, and at the same time, mobile phone consumption is also a brand new consumption method for domestic consumers. Just like other new products, domestic consumers have shown a certain degree of immaturity when it comes to consuming products such as mobile phones. The specific manifestation of this immaturity is the group behavior of consumption or "following the trend". "Behavior. Group behavior often makes consumers accept existing prices without or with little price-quality comparison, allowing manufacturers to easily make profits (according to a rough estimate of the data in the table above, the net profit of each mobile phone is around 300 yuan) ), this is the root cause of huge profits in the mobile phone industry.
2. Group behavior and huge profits. The economic theory of group behavior believes that the generation of group behavior in the market is mainly caused by two methods of information dissemination:
(1) Market consumers can disseminate information through oral communication and get to know each other. By talking to consumers, they can gain a perspective on what's going on in the market. Consumers who communicate with each other are often infected by each other's emotions, leading to following trends.
(2) Under certain circumstances, market information can lead to consumer group behavior through price signals, a relatively indirect method. Generally, consumers tend to believe that the market price of a product contains some information that cannot be directly observed by him, and that the price is a signal that reflects the quality of the product. When consumers face a new product, because they cannot find enough information through various channels, those consumers who think they have less information will learn about the behavior of other consumers through price and imitate it. . In this way, consumers with less information are effectively following the crowd. Domestic mobile phone manufacturers are actually targeting this behavior of consumers, and use high prices to convey such a message to consumers: high prices are high-end, and high prices represent high-quality products. In fact, domestic consumers also recognized this message. Therefore, in the high-price competition between domestic mobile phones and foreign brand mobile phones, domestic mobile phones finally won a place for themselves and achieved huge profits as they wished.
5. Conclusion
1. The wealth-tilting effect of huge profits. The above analyzes several economic assumptions that lead to industry huge profits in the domestic market. Improper segmentation of the market by administrative power, uneven income distribution, market information asymmetry, and immature consumer behavior all provide the basis for the generation of industry huge profits. and conditions. In turn, industry huge profits will intensify the distortion of market price signals and market imbalances. However, the most serious consequence of industry huge profits is to aggravate the imbalance of national income distribution, thus causing an excessive skewing effect on national wealth. If we use the lower-income agriculture and extractive industries as a benchmark, we can roughly see the extent of the wealth-skewing effect of huge profits.
In terms of average wages, in 2001 the incomes of employees in the air transport industry, postal and telecommunications industry, insurance industry, real estate development and management industry, and culture and art industry were 5.56 times, 4.06 times, and 4.06 times the per capita income of agriculture respectively. 3.56 times, 2.97 times, and 3.00 times; respectively 2.85 times, 2.09 times, 1.83 times, 1.52 times, and 1.54 times the per capita income of the extractive industry.
Of course, we do not deny that industry income differences are affected by labor productivity factors, but the key question is whether the improvement in labor productivity in some profit-making industries matches the income of employees. In fact, even looking at the situation abroad, labor productivity in certain industries, especially service industries such as air transportation, real estate, and postal and telecommunications industries, is already very low. What's more, the domestic service industry has been criticized? A large part of the industry's huge profits flow into personal pockets through irregular distribution mechanisms, thus arousing people's dissatisfaction. No wonder the media has compiled a list of the "top ten profiteering industries". This is the fact.
2. Policy recommendations. From the above analysis, it can be seen that the fundamental reason for the huge profits in the industry at this stage in our country is the failure of government intervention in the market and the distortion of market price signals.
Over the past 20 years of reform and opening up, how to eliminate the phenomenon of huge profits in the industry has been a difficult problem that has troubled academic circles and economic policymakers. Any suggestions and practices that try to eliminate the phenomenon of huge profits in the short term are unrealistic.
(1) As far as the elimination of administrative monopoly is concerned, domestic and foreign scholars have put forward many policy suggestions in this regard. From a practical point of view, policymakers are also working hard to introduce competition mechanisms into recognized administrative monopoly industries such as civil aviation and telecommunications. However, it is impossible to expect such efforts to achieve great results in the short term. Administrative monopoly has caused congenital deficiencies in domestic monopoly industries - such as uneconomic scale of enterprises or no economic scale at all, and other such problems. Simply splitting up a monopoly is a last resort to break up a monopoly, especially for industries with high entry barriers such as railways, telecommunications and civil aviation. Unless foreign capital is introduced, splitting is almost the only feasible option at this stage. method. What is inappropriate about splitting an original enterprise into two is that the split enterprise often forms a new monopoly in its own business due to business incompatibilities. In response to this situation, we recommend that the government introduce policies and regulations to encourage the diversity of business operations within the industry, and implement punitive taxes on companies with monopolistic tendencies or monopolistic behaviors.
(2) Since uneven income distribution is an important factor leading to huge profits in the industry, the government should impose restrictions on some manufacturers that tend to favor the wealthy class. The huge profits in the real estate industry are an obvious example. If the government does not formulate restrictive regulations and allows real estate development resources to be excessively transferred to high-end housing, then the result will inevitably be a situation where low-income groups cannot afford housing and a large number of high-end housing will be vacant, because the market for high-end housing products will decline in a certain period of time. After all, it has its saturation point. In fact, in recent years, the phenomenon of vacant high-end housing has emerged. The waste of real estate resources caused by excessive regulation has actually caused damage to overall social welfare.
(3) The phenomenon of industry moral hazard caused by information asymmetry and thus harming consumers is endless in China. As far as the pharmaceutical retail industry is concerned, it is an industry that provides special goods and services, and it is also an industry in which consumer interests are most vulnerable to infringement. In order to eliminate the huge profits in the pharmaceutical retail industry, the centralized bidding and procurement method of drugs formulated by the government is a good way to gradually eliminate the huge profits in the retail pharmaceutical industry. But bidding and procurement are only a temporary solution after all. The root cause of high retail drug prices and huge profits in the pharmaceutical retail industry lies in my country's current medical system of "supporting medicine with medicine". Public hospitals now basically rely on buying medicine to maintain operations. Therefore, the fundamental solution to eliminate drug profiteering is to reform the current unreasonable medical mechanism. While increasing financial allocations for public hospitals, we should seriously manage the moral hazard of doctors and restore the true nature of hospitals as public welfare undertakings.
(4) Consumer group behavior may make manufacturers profit in the short term, but in the long term, group behavior can also easily cause market bubbles. In the end, it is manufacturers and the entire industry that suffer huge damage. National welfare. In fact, it is a very short-sighted approach for the government to allow the companies it supports to deprive consumers of consumers at high prices. The government's frivolous mood often gives companies the illusion that they can easily make profits under the cover of the policy, thus Enterprises fundamentally lose the motivation to innovate. As far as the mobile phone industry is concerned, the government should be based on long-term goals in formulating policies. In view of the inherent shortcomings of my country's mobile phone manufacturing industry, the government should focus on improving the technology research and development capabilities of enterprises.