A Study on Excessive Competition of Chinese State-Owned Duopoly Enterprises: Cases of China Telecom and China Netcom

Based on the demand function and social welfare function, making use of the Cournot equilibrium and Stackelberg equilibrium approaches, we analyze the condition, process and corresponding results of excessive competition between two monopoly enterprises owned by a single organization. Theoretical analysis shows that, if the leading duopoly enterprise continues to increase its market share, total profit, net asset yield and average profit of customer of the two enterprises as a whole will decline, and social welfare will reduce at the same time. Following that, in the case studies of China Telecom and China Netcom, we analyze their business data, and the empirical results support our theoretical conclusion. The empirical results show that, since China Telecom Ltd. has been in the dominant position, if it were to continually increase its market share, total profit, ROE and average profit of customer of the two enterprises as a whole would decline.