Sunk Costs,Transaction Costs and Government Regulation in the Case of Chinese Natural Monopoly

This paper is to analyze the perfect competition and contestability market benchmark model,we found that without scale economies,sunk or transaction cost,Pareto optimality may be realized.Hence we introduct scale economies,sunk and transaction costs to take into account market and governace structure,at the same time market and governance failures result from natural monopoly market,and we discuss that private ordering and government regulation play an important role in economic development.Particularly the regulation is concerned with transaction cost,and regulation edge occurs.Under these conditions we need the regulation model tradeoff of the market competition,private ordering and regulation structure and its implications for China's natural monopoly reform,and manage sunk and transaction costs under scale economies.