By introducing the change of market share of state-owned enterprises as an exogenous impact on the private enterprise market, this paper analyzes and tests the influence of the market scale change on the distribution of intra-group productivity under equilibrium conditions from theoretical and empirical perspectives. This research has two contributions to the literature: First, it provides empirical tests for the general equilibrium of heterogeneous firm models. Second, it provides a different perspective to understand the relationship between state-owned enterprises and private enterprises. Our research finds that: (1) Increasing market share of state-owned enterprises will increase the dispersion of productivity distribution of private enterprises and reduce the efficiency of resource allocation within the group of private enterprises. (2) Increasing market share of state-owned enterprises will raise the level of profit margin of surviving private enterprises, making inefficient private enterprises not eliminated by competition. Theoretical analysis and further tests show that the mechanism of the above results lies in the reduction of the market size, the reduction of the number of enterprises in equilibrium, the reduction of fixed costs and the improvement of profit margin. The conclusion of the study provides a useful perspective for understanding the interaction between state-owned enterprises and private enterprises and enhancing the productivity of the industry. When we observe that private enterprises in the industry have a better performance level, we cannot deny that there is no mismatch of resources within private enterprises. In fact, this kind of crowding-out of the market scale of private enterprises by state-owned enterprises formed by policies and institutional advantages will deepen the mismatch of inter-group resources between the two types of enterprises and the mismatch of intra-group resources within private enterprises. The latter has not been noticed in the research literature. An important reason is that the performance premium of private enterprises will cover up this feature. This theoretical transmission mechanism is applicable not only to the analysis of the economic impact of the interaction between state-owned enterprises and private enterprises defined in this paper (i.e. " crowding out” market share), but also to the analysis of the impact of exogenous changes in the market size on the distribution of enterprise productivity in the industry.
Crowded Private Enterprises: General Equilibrium Efficiency of Private Enterprises
Journal of Finance and Economics Vol. 45, Issue 05, pp. 99 - 110,124 (2019) DOI:10.16538/j.cnki.jfe.2019.05.008
 Gong G, Hu G L. Efficiency of resource allocation and manufacturing total factor productivity in China [J]. Economic Research Journal, 2013, (4): 4-15,29. (In Chinese)
 Kong D M, Dai Y H, Li Y. The policy shock, the market environment and the productivity of state-owned enterprises: The status quo, the trend, and the development[J]. Management World, 2014, (8): 4-17. (In Chinese)
 Li L, Wang L, Deng F F. Factor market distortion and inter firm productivity dispersion: Theoretical and empirical analysis[J]. Journal of Finance and Economics, 2016, (9): 110-120. (In Chinese)
 Liu R M, Shi L. The dual efficiency loss of state-owned enterprises and economic growth[J]. Economic Research Journal, 2010, (1): 127-137. (In Chinese)
 Liu R M. State-owned enterprises, market segmentation and implicit subsidy: Theory and Evidence[J]. Management World, 2012, (4): 21-32. (In Chinese)
 Liu R M. Financial repression, ownership discrimination, and negative spillovers: SOE efficiency losses revisited[J]. China Economic Quarterly, 2011, (1): 603-618. (In Chinese)
 Sun P Y，Hou X Y, Sheng B. Service opening，managerial efficiency and firm export [J]. Economic Research Journal, 2018, (7): 136-151. (In Chinese)
 Sun Z, Wang W. The impact of the change of industrial ownership structure on performance: Evidence from China's Industrial Firms[J]. Management World, 2011, (8): 66-78. (In Chinese)
 Wang L，Xia J J. Fixed cost and productivity distribution of Chinese manufacturing[J]. Modern Economic Science, 2015, (2): 62-69. (In Chinese)
 Wang Y Q，Li W, Dai Y. How do zombie firms affect innovation? -Evidence from China's Industrial Firms[J]. Economic Research Journal, 2018, (11): 99-114. (In Chinese)
 Yang R D. Study on the total factor productivity of Chinese manufacturing enterprises[J]. Economic Research Journal, 2015, (2): 61-74. (In Chinese)
 Zhang J, Huang T Y, Lu Z. Study on the determine mechanism of the source and difference of Chinese enterprises’ profit[J]. China Industrial Economics, 2011, (1): 27-37. (In Chinese)
 Bergin P R，Lin C Y. The dynamic effects of a currency union on trade[J]. Journal of International Economics, 2012, 87(2): 191-204.
 Brandt L，Van Biesebroeck J，Zhang Y F. Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing[J]. Journal of Development Economics, 2012, 97(2): 339-351.
 Brandt L，Kambourov G，Storesletten K. Barriers to entry and regional economic growth in China, Working Paper, 2018.
 Chaney T. Distorted gravity: The intensive and extensive margins of international trade[J]. American Economic Review, 2008, 98(4): 1707-1721.
 Feng L，Li Z Y，Swenson D L. Trade policy uncertainty and exports：Evidence from China’s WTO accession[J]. Journal of International Economics, 2017: 20-36.
 Hsieh C T，Klenow P J. Misallocation and manufacturing TFP in China and India[J]. The Quarterly Journal of Economics, 2009, 124(4): 1403-1448.
 Huang Y S. Selling China：Foreign direct investment during the Reform Era[M]. Cambridge University Press, 2003.
 Melitz M J. The impact of trade on intra-industry reallocations and aggregate industry productivity[J]. Econometrica, 2003, 71(6): 1695-1725.
 Restuccia D，Rogerson R. Misallocation and productivity[J]. Review of Economic Dynamics，2013, 16(1): 1-10.
 Song Z，Storesletten K，Zilibotti F. Growing like China[J]. American Economic Review，2011, 101(1): 196-223.
 Syverson C. Product substitutability and productivity dispersion[J]. Review of Economics and Statistics, 2004, 86(2): 534-550.
 Tombe T，Zhu X D. Trade，migration and productivity: A quantitative analysis of China[R]. Working papers tecipa-542, 2015.
 Yu M J. Processing trade， tariff reductions and firm productivity: Evidence from Chinese firms[J]. The Economic Journal, 2015, 125(585): 943-988.
Cite this article
Li Zhiyuan, Zong Dawei. Crowded Private Enterprises: General Equilibrium Efficiency of Private Enterprises[J]. Journal of Finance and Economics, 2019, 45(5): 99-110.
Previous: Air Pollution and Firm Employee Mobility