ABSTRACT

This chapter attempts to understand the behavior of different types of firms in a mixed market. It identifies the relationship between the differences in firms' behavior and their performance. The chapter outlines the theoretical foundations and derives a number of testable hypotheses. It finds that Chinese state-owned firms are more aggressive in price adjustment and new-product introduction and marketing. The progress of state-owned enterprises (SOE) reform, measured by the ratio of state-controlled firms to private firms in an industry, also has an impact on firms' behavior. A firm's behavior is influenced simultaneously by its ownership structure, by its market structure, and by the level of reform within SOEs. SOEs charge lower prices than do private firms when they adopt social welfare maximization as their objective instead of profit maximization. State-owned firms will also charge lower prices than do private firms when they maximize value added.