Reasons, Goals and Future Trends of Anti-Monopoly on Digital Platform

By Yin Fenglin,[Anti-Monopoly]

 
Although the platform economy is a new thing, it is by no means an extra-legal place for anti-monopoly. As the scale of the digital economy continues to expand, platform competition has become the core area of anti-monopoly regulation. In the future, the concentration of undertakings, monopoly agreements and abuse of dominant market position in the platform field will all receive focused attention from the anti-monopoly policy.
 
 
 
Nowadays, information network technology and artificial intelligence technology have increasingly become fundamental tools for scientific and technological research and development, production and manufacturing, and living and consumption, and new economies and new business models such as the digital economy and sharing economy are flourishing. In this context, a digital platform that integrate data and resources from producers, sellers, and consumers are emerging. Driven by the network effect and concentration effect of the digital economy, some digital platforms have rapidly developed into super platforms. The influence and role of these super digital platforms on the national livelihood and market economy competition are becoming more and more significant, therefore, countries have started to pay special attention to the anti-monopoly issue of digital platform in recent years.
 
Reasons for anti-monopoly on digital platform
 
The flourishing development of the digital industry cannot be separated from the market environment of fair competition, and it is the competition that creates the ever-changing platform economy. The competition in the platform economy is not a disorderly competition, but it must be fair competition within the scope allowed by law. Although the platform economy is a new thing, it is not a place outside the law of anti-monopoly. At present, strengthening anti-monopoly in the field of the platform economy has its historical logic, realistic logic and theoretical logic.
 
The historical logic of anti-monopoly on digital platform lies in the need for more lenient anti-monopoly policies in the early stages of platform economic development. The anti-monopoly law is the constitution of the market economy, and it is of great significance to prevent aggressive companies from abusing their dominant position in the market. Anti-monopoly law is the constitution of the market economy and is important for preventing the abuse of dominant market position and other acts of brutal competition by dominant enterprises. Any new industry or economic mode needs a more lenient anti-monopoly policy in order to cultivate and form the dominant enterprises in the industry, and then drive the development of the whole new industry. The platform economy started in the 1990s. With the birth and rapid development of the Internet, various digital service platform such as portals, search engines, e-commerce, social networks, video sharing, operating systems, cloud computing, etc. have emerged and grown rapidly with the support of lenient anti-monopoly policies and capital markets.
 
The realistic logic of anti-monopoly on a digital platform is that some digital platforms have become giant enterprises in the market economy, and the national economy and people’s lives are increasingly dependent on these digital platforms. According to a PwC report, the top ten listed companies with the highest market capitalization in the world in 2020 are: Saudi Aramco, Microsoft, Apple, Amazon, ALPHABET, Alibaba, Facebook, Tencent, Berkshire Hathaway and Johnson & Johnson. [1] Among the above ten companies, at least seven of them belong to platform companies. Thus, it can be seen that along with the rapid development of the online economy, some digital platform companies have acquired a large amount of investment and resources and have become the leading companies in the global market. At the same time, these large digital platforms hold key data on the identity, products, services and transactions of hundreds of millions of consumers and a large number of small and medium-sized enterprises, government agencies, research institutions, etc., and provide aggregation and services for transactions between various market players. Therefore, it is no longer consistent with the development reality of the platform economy to enforce lax anti-monopoly policies on these super digital platforms today.
 
The theoretical logic of anti-monopoly on digital platform lies in the fact that with the innovation of antimonopoly theories, theories such as multilateral markets and hub-and-spoke agreements have received increasing attention in the practice of anti-monopoly in the digital economy. The significant difference between the platform economy and the traditional economic model is that the platform market involves multiple parties, with complex business types and variable competition dynamics. The multilateral market nature of the platform economy is one of its most distinctive features, which also poses an unprecedented challenge to the traditional definition of the relevant market. Therefore, in the field of anti-monopoly law, it is of outstanding importance to give a clear positioning to the Internet multilateral platform and to update the competition rules in a timely manner according to its characteristics. [2] Thanks to the continuous innovation of anti-monopoly theories, platform anti-monopoly legislation and enforcement practices have continued to move forward steadily.
 
Goals for anti-monopoly on digital platform
 
Anti-monopoly on a digital platform is not intended to restrict the development of the digital platform or the digital economy. Its fundamental purpose is to prevent and stop monopolistic behaviors in the Internet platform economy, protect fair competition in the digital market, safeguard consumer interests and social public interests, and promote the digital economy, and thus promote the sustainable and healthy development of the digital economy. Specifically, anti-monopoly on the digital platform should strive to achieve the following three goals:
 
First, to create a fair competitive market environment
Although the platform economy is still an emerging industry, as it gradually enters a stage of steady development, the anti-monopoly policies, basic systems, regulatory principles, and analysis framework that are mainly applicable to traditional industries and traditional fields should also be applied to all market players in the platform economy without discrimination. At the same time, it should also strengthen competition analysis and legal argumentation in the digital market according to the development status, development rules and its own characteristics of the platform economy, continuously strengthen and improve anti-monopoly regulation, and anti-monopoly law enforcement should be more targeted and scientific. To strengthen anti-monopoly enforcement in the platform economy, it should especially focus on preventing and stopping monopolistic behaviors of super digital platform that exclude and restrict competition, maintaining a fair competition and open and inclusive development environment in the platform economy, lowering the market entry barriers for the small and medium-sized digital platform and small and mediumsized operating enterprises, and promoting more entities to enter the market to participate in the competition in a fair and orderly manner.
 
Second, to stimulate the innovation and creativity of market players
In the field of platform economy, the platform economy should be used to efficiently match the supply side and the demand side through anti-monopoly regulation, so as to reduce transaction costs, develop emerging markets, which in turn will promote resource allocation optimization, technological progress and efficiency, and support and promote the development of the real economy. At the same time, it should also pay close attention to the new trends and problems emerging in the market, focus on preventing the risk of disorderly competition caused by super digital platform with the advantages of data, technology and capital, encourage super digital platform to play and assume their roles and responsibilities as market gatekeepers, guide and motivate platform operators to spend more resources on technological innovation, quality improvement, service enhancement and model innovation; prevent illegal monopolistic practices from inhibiting the innovative development and economic vitality of the platform economy, effectively stimulate the innovation and creation power of the whole society, and build new advantages and new momentum for economic and social development.
 
Third, to safeguard the legitimate interests of all parties of the platform
The development of the platform economy involves multiple parties, including super digital platforms, small and medium-sized digital platforms, operators within the platform, consumers and so on. The anti-monopoly on platform economy is by no means to suppress the normal development of super digital platforms, but to prevent the disorderly and brutal development of super digital platforms and the abuse of market dominant power. Therefore, for super digital platforms, it is necessary to strengthen anti-monopoly enforcement to make them operate and develop within the framework of the law, and at the same time, to give them the necessary relevant rights as market gatekeepers according to their own characteristics, so that they can cooperate with relevant government departments to jointly maintain a level playing field in the market. Small and medium-sized digital platform are new entrants to the platform economy and play an important supplementary role to the market competition in the platform economy. Therefore, when conducting anti-monopoly regulation, on the one hand, it should prevent monopoly agreements or collusion between the small and medium-sized digital platform and super digital platform, and at the same time, it should pay more attention to preventing super digital platform from using their dominant position to illegally suppress small and medium-sized digital platform. Operators within the platform are highly dependent on the digital platform, especially the super digital platform. The anti-monopoly policy should fully consider this special characteristic and focus on safeguarding the legitimate rights and interests of the operators and consumers within the platform, so that the whole society can share the fruits of technological progress and economic development of the platform and realize the harmonious and healthy development of the overall ecology of the platform economy.
 
Future trend for anti-monopoly on digital platform
 
The monopolistic acts regulated by the anti-monopoly law mainly include three types of acts, such as monopoly agreement, abuse of dominant market position and concentration of undertakings with the effect of excluding or restricting competition. As the scale of the digital economy continues to expand, platform competition has become the core area of anti-monopoly regulation, and the concentration of undertakings, monopoly agreements and abuse of dominant market position in the platform field will be the key focus of anti-monopoly policy in the future. Specifically, the digital platform anti-monopoly will likely have the following development trends:
 
First, in terms of concentration of undertakings, the mergers and acquisitions of super digital platforms will be subject to anti-monopoly regulation
In fact, one of the main competitive strategies of super digital platforms against their competitors with which they have a competitive relationship and are in a weaker position is acquisition. In July 2020, one of the main issues in the US Congress’s anti-monopoly inquiry against Facebook was the company’s acquisition of its competitor, Instagram. According to the evidence presented by Congress, when Facebook was discussing the acquisition of Instagram, CEO Zuckerberg stated in an internal email that Instagram could be "very disruptive" to Facebook and was a potential Facebook competitor, which was a major motivation for Facebook to acquire Instagram.[3] 
 
In December 2020, China’s State Administration for Market Regulation imposed administrative penalties on three cases of concentration of undertakings, including Alibaba Investment Ltd.’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. One important reason why the above penalties have attracted widespread attention is that for the first time, the anti-monopoly enforcement agencies have explicitly included the Internet Variable Interest Entity structure (i.e. VIE structure) into the regulatory framework of concentration of undertakings. Through the VIE structure, an offshore company can become the actual beneficiary and asset controller of a domestic company by signing a series of agreements with domestic business entities based on the wholly foreignowned enterprises invested by them. [4] The VIE structure is a common way for large Internet enterprises in China to acquire other enterprises. China's anti-monopoly enforcement department did not have a clear attitude towards the concentration between enterprises involving VIE structure before this; and China’s State Administration for Market Regulation, through this punishment of Alibaba, China Literature and Shenzhen Hive Box, has clarified the scope of concentration of undertakings that should be declared and reviewed, which is of great significance to strengthen the anti-monopoly regulation of digital platform M&A.
 
Second, in regulating the abuse of market dominance, the determination of market dominance will be more flexible and more in line with the actual needs of anti-monopoly of digital platform
With the rapid development of the digital economy, there are more and more acts of super digital platform using their dominant position in the upstream market to suppress similar competitors in the downstream market. According to the traditional anti-monopoly theory, the prerequisite for regulating the abuse of market dominance is defining the relevant market and identifying market dominance. However, since the platform economy usually belongs to the multilateral market, if the relevant market is accurately defined and the market dominance is specifically determined according to the traditional theory, it often encounters insurmountable obstacles and thus cannot timely and effectively combat the abuse of market dominance by the super digital platform.
 
To address this situation, in recent years, countries and regions have proposed targeted measures to facilitate the crackdown on anti-competitive behaviors of super digital platforms. In December 2020, the EU presented the Digital Markets Act (Draft), whose main objective is to ensure fair competition in the digital marketplace by regulating super digital platform with gatekeeper status. The draft provides that a digital platform is presumed to have gatekeeper status if it provides services to more than three EU member states and has an annual turnover of more than €6.5 billion or a market capitalization of more than €65 billion, and has 45 million monthly active end users and more than 10,000 annual active commercial users in the EU. The draft defines super digital platforms with gatekeeper status through specific quantitative indicators, thus avoiding to a considerable extent the difficulties related to market definition and market dominance determination.
 
In November 2020, China’s State Administration for Market Regulation announced the draft Guidelines for Anti-monopoly in the Field of Platform Economy (Draft for Solicitation of Comments). The draft has also adopted a flexible attitude towards the determination of market dominance. According to the provisions of the draft for comments, the basic method for defining the commodity market in the field of the platform economy is substitution analysis. When conducting demand substitution analysis to define the relevant commodity market in a case, it should focus on the substitution factors related to platform functions, business models, user groups, multilateral markets, offline transactions, etc. In particular, the structural relationship between the platform in question and the relevant market should be considered from the perspective of end users. At the same time, the draft also specifically provides that in a particular case, if the direct factual evidence is sufficient, the act that can only be carried out by relying on the dominant market position has lasted for a considerable period of time and the damage effect is obvious, and the conditions for accurately defining the relevant market are insufficient or very difficult, the relevant market can be not defined and the operator in the platform economy can be directly found to have committed monopolistic acts.
 
Third, in terms of monopoly agreement regulation, the anti-monopoly policy will focus on monopoly agreements or behaviors with platform economy characteristics such as hub-and-spoke agreements
A hub-and-spoke agreement is a special form of monopoly agreement. It compares the behavior of the parties to a bicycle wheel, which includes a hub and multiple spokes. The hub and spokes are not at the same level of the market, but are often upstream and downstream, and the spokes are competitors of each other, but there is no direct meaningful contact between the spokes. The horizontal connection between them is linked by the vertical relationship between each spoke and the hub. [5] 
 
In a certain digital platform, there are usually multiple competing operators on the platform. These intra-platform operators are in business competition with each other, but they all obtain end users through the platform and conduct transactions and store related product and transaction information on the platform, while the digital platform can benefit from the act of providing the aforementioned services that help transactions. Under such circumstances, multiple operators with competitive relationships may reach a hub-and-spoke agreement with horizontal monopoly agreement effect through the vertical relationship with the platform operator, or organized and coordinated by the platform operator.
 
In the platform economy, since the digital platform as the "hub" holds the transaction data, product information and other key resources of the operators in its platform, and to a certain extent, reduces the competition among operators in the platform, it can attract other operators to join the digital platform and rapidly expand the number of end users, thus making the platform profitable. Thus, typically, digital platforms have both the ability and incentive to design or facilitate hub-and-spoke agreements within their platforms. Objectively speaking, in the early stage of platform economy development, due to the modesty and careful design of the digital platform, some intra-platform hub-and-spoke agreements have played an important role in reducing market transaction costs and improving transaction efficiency, achieving multiple wins among platform, intra-platform operators and end-users. However, with the expansion of certain digital platforms and their gradual development into super platforms, the influence of the hub-and-spoke agreements formed within these platforms on the relevant markets has become more and more significant, and the hub-and-spoke agreements formed with the help of digital platforms using their dominant position organizations are more and more likely to have anti-competitive effects, therefore, the hub-and-spoke agreements in the field of the platform are gradually attracting the attention of anti-monopoly policies in various countries. China’s State Administration for Market Regulation has not only clearly put forward the concept and applicable rules of hub-and-spoke agreements in the draft Guidelines for Anti-monopoly in the Field of Platform Economy (Draft for Solicitation of Comments), but also added the regulation of organizationassisted monopoly agreements in the Draft Revisions of the Anti-Monopoly Law (Public Comment Draft) published by the State Administration of Market Regulation, which is of great significance for effectively responding to and resolving the hub-and-spoke agreement issues in which platform companies play pivotal roles, which are ubiquitous in the platform economy. [6]
 
 
 
 
 
[1] 2020 Global Top 100 Market Capitalization Released, Microsoft and Apple Give Up Top Spot, Ali and Tencent Enter Top 10 [EB\OL]. https://baijiahao.baidu.com/s?id=1671524200454933976&wfr=spider&for=pc.
 
[2] Wu Qidi. Research on The Application of Competition Rules In The Internet Industry Under The Conditions Of Multilateral Market: Centering On The Definition Of Relevant Market[J]. Journal of Beijing Academy of Political Science and Law, 2017(02):87-93.
 
[3] Brian Fung. Congress grilled the CEOs of Amazon, Apple, Facebook and Google [EB\OL]. https://www.cnn.com/2020/07/29/tech/tech-antitrust-hearing-ceos/index.html.
 
[4] Rong Qian. A Preliminary Investigation of VIE Structure In Overseas Listing [J]. Citizenship and Law (Law Edition), 2013(07):62-64.
 
[5] Jiao Haitao. The Legal Nature of Hub-And-Spoke Agreement In Anti-Monopoly Law [J]. Journal of Graduate School of Chinese Academy of Social Sciences, 2020(01):25-36+2.
 
[6] Dai Long. On the Regulation of Organization-Assisted Monopoly Agreements——Also on The Revision of China’s "Anti-Monopoly Law [J]. Law Review, 2021, 39(01):105-114.

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