Anti-Monopoly Law Enforcement Gradually Normalizes, And Internet Companies Face New Challenges

By Zhang Chao,[Anti-Monopoly]

 

The core elements of anti-monopoly in the platform economy are data and algorithm rules. The competition and compliance of platform companies need to revolve around data and algorithm rules, to ensure the accuracy of data in the process of collecting, using and integrating "data to platform”, users’ right to know and consent, the neutrality, fairness and transparency in the process of platform's reaction to individuals, society and country through algorithms.
 
 
 
This article will take the recent global antimonopoly legislation and enforcement developments as a starting point, analyze the common background of anti-monopoly in China, the United States, and Europe, and their individual value trends and logical goals, further analyze the special problems faced by antimonopoly in the platform economy era compared to the anti-monopoly in the industrial economy era, the core elements and important contradictions that need to be considered, and finally make suggestions on the competition and compliance work of Internet platform.
 
Chinese, U.S. and European regulators simultaneously "challenge" Internet platform
 
The year of 2020 is the first time that modern society has faced a global epidemic. With the acceleration of the epidemic, more and more online services such as online meetings, telecommuting, remote education, and telemedicine, etc. are coming to more people's attention, and the penetration of Internet platform into human life and work has further strengthened. Under the new market pattern and trend, in order to guide and regulate the influence of digitalization, global anti-monopoly regulation has been pointed at the Internet platform in the past two months.
 
On November 10, 2020, China' s State Administration for Market Regulation (SAMR) publicly solicited opinions on the "Anti-Monopoly Guidelines for the Internet Platform Economy", which is the world's first anti-monopoly legislation specifically targeting the platform economy. On December 11, the Political Bureau meeting of the CPC Central Committee proposed for the first time to "strengthen anti-monopoly and prevent the disorderly expansion of capital." On December 14, the State Administration of Market Regulation announced three top penalties involving Alibaba’s acquisition of InTime’s equity, China Literature’s acquisition of New Classics Media’s equity, and Shenzhen Hive Box’s acquisition of China Post Smart Logistics’ equity for fail to declare in accordance with the law. Those are unprecedentedly punishment against the concentration of undertakings of the Internet platform. On December 16, the Central Economic Work Conference again proposed to "strengthen anti-monopoly and prevent the disorderly expansion of capital." In late December, the State Administration of Market Regulation announced that it had filed a case against Alibaba for alleged monopolistic practices, setting a precedent for Internet abuse investigations and releasing signals to the society to strengthen anti-monopoly regulation in the Internet field.
 
Coincidentally, the current attitude toward anti-monopoly in the United States has also clearly shifted from lenient to prudent. After a 16-month investigation, on October 7, 2020, the U.S. House of Representatives Judiciary Committee issued a 449- page investigation report on whether the four major technology giants Google, Amazon, Facebook, and Apple (GAFA) violated anti-monopoly laws. After the report was issued, the U.S. Department of Justice and the U.S. Federal Trade Commission successively initiated anti-monopoly lawsuits against Google and Facebook in December, in conjunction with state governments.
 
In Europe, following nearly three years of sustained and intensive anti-monopoly investigations and penalties against Internet platform, the European Union has recently adopted new legislation to further increase the regulatory requirements for Internet platform.
 
On December 15, 2020, as one of the major legislative initiatives in the EU's decade-long digitalization process, the European Commission launched the Digital Market Act (DMA) proposal, which imposes a series of additional, ex ante, prohibitive obligations to avoid engaging in certain unfair practices on Internet platform identified as "gatekeepers". Similar to the impact of the EU’s General Data Protection Regulation on global data privacy legislation, the Digital Market Act is also considered to have opened a new era of Internet platform regulation.
 
Reasons for the global tightening of anti-monopoly policies against Internet platform
 
Major law enforcement regions in the world, such as Europe, the United States, and China, are strengthening market regulation in the digital economy. There are common backgrounds and trends among different regions, as well as their own antimonopoly logic, objectives, and regulatory paths and methods.
 
In terms of commonality, the scale of the Internet platform and their influence in each region continue to increase. This "increase" is reflected in market capitalization and market concentration, as well as in the number of users and application areas. Twenty years ago, the companies with the highest market capitalization in the world were all energy and manufacturing-based companies, while the companies with the highest market capitalization in the world today are all networked and digital-driven companies. According to PwC's 2020 Global Top 100 ranking, 7 of the top 10 global market capitalization companies in 2020 belong to Internet platform companies (there are eight at the time of writing), and the markets of search, e-commerce, social, takeaway and online car-hailing are all oligopolistic market structures, and the platform is large in scale and involve many users. According to the World Bank, in 2019, the total number of global Internet users reached 4.1 billion, with a penetration rate of 53.6%. The Internet has penetrated into every aspect of life, completely changing the path of access to clothing, food, housing, transportation, information, social and entertainment, etc. More and more application scenarios result in information flow, data flow, capital flow and logistics gathering on the platform. With the development trend of "centralization" of platform, countries have realized that if not properly regulated, the negative externalities of super Internet platform may become increasingly serious and solidify the pattern of market interests, ultimately inhibiting innovation and dynamic competition and infringing on consumer interests.
 
In addition to the common background, the new anti-monopoly initiatives recently introduced by various countries have different logic and starting point.
 
Let's look at the United States first. In recent years, the outstanding capitalist characteristics of the U.S. economy have led to increasing polarization and inequality in its economy. On the one hand, the wealth held by capitalists and high-tech enterprises has been growing exponentially; on the other hand, the income growth of the general public has been stagnant. This polarization is further exacerbated by the current epidemic, and the polarization of the economy has led to a tearing apart of society that some blame on lax anti-monopoly law enforcement. The U.S. democracy is a voter-pandering type of politics, so the U.S. House of Representatives held the "world's most expensive" online video live broadcast of lawmakers interrogating the CEOs of online platform to the entire public, which also has some political overtones of catering to the public's emotional demands. However, the antimonopoly law enforcement attitude of the United States is still unclear. It depends on the final results of several lawsuits just initiated by the US Department of Justice and the Federal Trade Commission.
 
Then let’s look at Europe. The European Union has become a recognized leader in global digital economy rules. Whether it is the General Data Protection Regulation, the Digital Market Act or the Digital Services Act, they have pushed digital economy regulation into a new era with an innovator's attitude. Behind the clear policy is a relatively single value orientation, and the considerations behind its legislation reflect the protection of the EU's unified large market, the protection of local industries and the development of small and medium-sized Internet enterprises, as well as the sovereignty of the digital economy and other dimensions.
 
Finally, let’s look at China. The speech by Han Wenxiu, head of the Office of the Central Finance and Economics Commission, at the 2020-2021 China Economic Annual Conference on December 19, 2020, clearly articulated the special problems of China's Internet platform and the multiple objectives of competition regulation: "In recent years, China's platform economy has developed rapidly, and Internet platform enterprises have grown rapidly, making positive contributions to satisfying consumer needs. However, at the same time, the problems of market monopoly, disorderly expansion and barbaric growth have become increasingly prominent, with a series of problems such as restriction of competition, winnertakes-all, price discrimination, leakage of personal privacy, damage to consumers' rights and interests, and accumulation of risks and hidden dangers, with regulatory lags and even regulatory gaps. China supports the development of platform enterprises to enhance international competitiveness. At the same time, it should develop in accordance with the law, improve institutional rules, perfect laws and regulations, strengthen the regulation of monopolistic behavior and enhance the regulatory capacity. Many businesses of the platform economy are financial in nature, and some of them exploit the regulatory loopholes. The Central Economic Work Conference made it clear that China supports the innovative development of platform enterprises, enhances international competitiveness, and supports the joint development of the public and non-public economies, while regulating development and improving digital rules in accordance with the law."
 
Special anti-monopoly issues faced by Internet platform
 
Different from traditional enterprises, as a new species and new space spawned by technology, Internet platform have their own new logic and new characteristics. They also bring new problems and new situations that have not been considered during the formulation of the current anti-monopoly law, bringing new challenges to anti-monopoly enforcement in the platform economy.
 
The traditional static and unilateral anti-monopoly analysis framework is difficult to apply to the traditional anti-monopoly law produced in the industrial era of the variable, dynamic, and cross-border platform economy. The identification and punishment of the anti-competitive effects of operators often begin with market definition. The development of enterprises in the industrial era is often driven by products, and the parameters defined by the market are relatively single. Whether it is design and development, cost control, large-scale standardized production, or stimulation of demand and output, they are all based on products. The determination of competitors mainly depends on the substitutability of their products. With KFC competing with McDonald's, Pepsi competing with Coca-Cola, and Fuji competing with Kodak, the market boundaries are very clearly defined.
 
Unlike traditional anti-monopoly law, the platform economy involves bilateral or multilateral related markets and requires consideration of network externalities between individual markets. The development of the platform is driven by data, technology and models. In order to compete for user’ time and traffic access, platform will carry out continuous cross-border innovation based on data analysis and insights, and cross-border competition leads to the blurring of market boundaries, and the scope defined for the relevant markets should be more flexible. In the era of network economy, the relationship between the Internet and users is not a single, direct and one-time relationship in which one party provides products and the other party pays for them, but a multilateral, highly viscous and deeply interactive relationship. The traditional static and unilateral anti-monopoly analysis framework are hardly applicable to the multilateral, dynamic and cross-border digital economy era.
 
Traditional market share, price level, supply quantity, and other factors that assess market power are less applicable in the digital economy era.
 
In the industrial era, enterprises innovate around products, guided and matched by product prices and quantities, and under the influence of the survival of the fittest and the mechanism of supply and demand, so that resources are optimally allocated to improve economic efficiency and social productivity. The anti-monopoly law has a hypothesis: high market share of products means high market dominance, as well as the possibility of using that position to set prices and profit margins below or above the competitive level, to provide a supply of products below or above the competitive level, to distort the market, and thus the possibility of harming the interests of consumers.
 
In contrast, under the platform economy, in order to maximize positive network externalities, platform can influence the other market by focusing on one side of the market, subsidizing the side that generates more externalities, with the price of services at one end often being zero and the quantity supplied being completely unlimited. Prices and quantities supplied below or above competitive levels have limited reference value for determining market dominance. Pricing below cost is not necessarily motivated by anti-competitive motives.
 
The platform itself as a whole is both a market rule maker and a market participant.
 
Platform economies are both managers of platform markets and providers of platform products. The platform can set rules of behavior for the parties on the platform, decide the transaction rules, access conditions and resource allocation of the market within the platform, establish an online dispute resolution mechanism and autonomously deal with disputes on the platform. Keeping the platform open and fair is an objective need, essential and minimum requirement for the operators stationed on the platform, and an important reason for strengthening anti-monopoly measures.
 
The core elements of anti-monopoly platform economy
 
The network economy and digital economy have become the core driving force of this era. The core of the rapid development of the digital economy and digital enterprises lies in their ability to use big data and algorithms to optimize the allocation of resources on a large scale within a very short period of time, to meet people's personalized demands more efficiently, and to greatly accelerate the speed of wealth creation. The correct handling of the two core elements of "data" and "algorithm" is also crucial to the anti-monopoly of the platform economy.
 
Data elements
Data is the basis for demand insight and demand prediction, as well as the basis for providing more new products and personalized products and services. The platform achieves consumption insights through positive data feedback, therefore being able to run in small steps, constantly feedback and revise, and reorganize resources quickly, so as to improve enterprise productivity and resource allocation efficiency. Data is undoubtedly the mainstream and core driving force of this era. We must make good use of data, but we also need to pay attention to the impact of data on competition. The positive interaction between data holdings and network effects can perpetuate market dominance. In addition, data may be relevant to competition in multiple markets at the same time, allowing companies to extend their dominance into other markets. The control of specific data by a platform may become a barrier for new entrants. In order to enable the optimal allocation of data resources that are essential for the development of public services and social innovation, law enforcement agencies and stakeholders in various countries expect to eliminate data hegemony through anti-monopoly measures. At the same time, the challenges of the digital economy to consumer welfare are focused on information tracking and privacy protection degradation for users as consumers.
 
Elements of algorithms and rules
As mentioned earlier, platform economies are both managers of platform markets and providers of platform products, which leads to the possibility that different competitors within the platform may monitor competitors' pricing through pricing algorithms and provide a basis for their own pricing decisions, thus achieving the result of restricting competition through technical means. At the same time, given that the participants of the platform have different degrees of dependence on the platform, this dominant and dominated relationship leads to the platform being prone to abuse of the platform management power, using algorithms and rules to unreasonably limit the merchants' transaction objects and contents ("twofor-one" model), differential treatment, preferential treatment of self-operated business and other typical behaviors suspected of monopolistic violations.
 
The core contradictions to be dealt with in the anti-monopoly platform economy
 
The balance of anti-monopoly and industrial development
The consumer Internet, which has been driven by population growth for the past two decades, has reached a bottleneck in growth, while the demand for Internet and digital technology on the supply side is getting stronger. With the development of 5G, artificial intelligence, cloud computing and other technologies, Internet technologies and concepts are expanding to various industries, promoting the upgrading of the supply side of the industry. On April 7, 2020, China’s National Development and Reform Commission and Cyberspace Administration of China jointly issued the Implementation Plan for Promoting the Actions of “Migrating to Cloud, Using Digital Tools and Enabling Intelligence” and Fostering the Development of New Economy, further clarifying China's industrial digital economy strategy.
 
U. S. Attorney General William Barr once pointed out: “Scaling is not a bad thing, because in some industries, the market may be so fragmented that no company has enough scale to promote innovation.” Therefore, platform anti-monopoly laws should focus on less competitive business markets and monopolistic practices that lack innovation. For example, in certain excessively competitive markets with small, scattered, and low-concentration business entities, price wars often lead to precarious companies and long-term low quality of products and services. In the digitalization process of this type of industry, the leading enterprises in the industry often become the pioneers and core driving force of innovation, therefore driving the digital transformation of the whole industry. By building industrial Internet platform, they use data, technology and networks to restructure industrial elements in a centralized manner and launch largescale collaboration at the industrial level, thus promoting industrial upgrading, quality improvement and efficiency improvement. Therefore, when analyzing the competitive impact of the industrial Internet platform, it is necessary to distinguish it from the traditional consumer Internet and consider the competition of the entire industry and the driving factors of industrial development.
 
The balance of anti-monopoly and innovation and efficiency
In The Third Wave, Toffler proposed, " In agricultural society, production is for its own consumption; in industrial society, production is for exchange; in the network era, production and marketing are integrated to highly satisfy individualized needs." In the era of digital economy, it is necessary to give full play to the driving force of network, data and algorithm elements for innovation, scale and efficiency, to meet people's personalized demands more efficiently, and to further enhance the country's competitiveness in the new generation of industrial revolution through the transformation and upgrading of production methods.
 
How Internet platform should carry out anti-monopoly compliance work
 
The most core elements of anti-monopoly in the platform economy are data and algorithmic rules. The challenges to consumer welfare in the digital economy are mainly focused on information tracking and privacy protection degradation of users as consumers. The combination of personal data and advanced algorithms may create the problem of algorithmic discrimination against consumers and operators. The competition and compliance of platform companies need to revolve around data and algorithm rules, to ensure the accuracy of data in the collection, use, and integration of "data to platform", users’ right to know and consent, and the neutrality, fairness and transparency in the process of platform's reaction to individuals, society and country through algorithms.
 
The platform should establish a culture and system of data privacy compliance In terms of data compliance system and culture, the platform needs to continuously consider privacy protection throughout the life cycle of products and services, as well as in the process of data interaction and data integration in different business lines and different enterprises; it should make sure that privacy protection planning is synchronized with business cover story planning, and privacy impact assessment and privacy protection measures are put online simultaneously with high-risk data processing actions; it needs to establish a top-down data privacy protection organization and a bottom-up data privacy protection culture to ensure that everyone has the awareness and ability to guarantee data privacy compliance and nonabuse when data processing actions occur.
 
The platform should maintain algorithm and rule neutrality, fairness and transparency
In terms of the system of algorithms and rules, the platform need to have red-line and bottomline awareness, not to abuse the management right of the platform, not to restrict transactions with preferential treatment of self-owned business, and not to implement behaviors that exclude or restrict competition. The safeguard mechanism of competition compliance should be implanted in the nodes of competition risk occurrence such as investment and M&A strategy formulation, business model design, cooperation plan negotiation, document landing and behavior execution.
 
The platform should strengthen its selfgovernance ability and take the initiative to assume social responsibility
The platform must maintain a sense of reverence, rather than being arrogant, and fully understand the conscience and responsibility that the platform should maintain, and should take the initiative to evaluate and eliminate the negative effects that may be caused to ecology, social welfare and consumer welfare in the process of development, and take the initiative to assume social responsibility, eliminate negative effects and actively contribute to the community, employment and environmental protection on top of compliance obligations.

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