The Chinese economic reform is remarkably different from the East European reforms in which the Chinese model emphasizes competition over privatization. This paper explains why the Chinese distribution reform is successful, although the Chinese government has made no attempt in privatizing her inefficient state-owned enterprises. By extending Coughlan's (1 985) price competition model to endogenize the pre-commitment versus flexibility decision, it is shown that reducing uncertainty can encourage enterprises to pre-commit their investment which allows further development of the retail sectors. This results supports the gradual pace of distribution reform policy of China. By contrast, the 'renolutionary' East European model inevitably creates high uncertainty in the society and enterprises are unwilling to pre-commit their investment.
Chow, K. W. C. (1996). Pre-commitment vs. flexibility: Uncertainty and distribution reform in P.R. China (HKIBS Working Paper Series 001-967). Retrieved from Lingnan University website: http://commons.ln.edu.hk/hkibswp/1