China’s biggest encyclopaedia website, Hudong.com, has requested an anti-monopoly review of Baidu, the leading Chinese internet search engine. Hudong.com is asking the State Administration for Industry and Commerce (SAIC) to fine Baidu a total of Rmb79 million.
This is not the first complaint about monopolistic behaviour by Chinese internet enterprises. In November 2010 the SAIC received a request for a review of internet service portal Tencent and sought submissions regarding Tencent’s abuse of dominance. However, just as the online marketplace differs from the traditional economy, unfair competition issues are perceived differently in the fields of conventional business and e-commerce. The development of China’s internet industry and the ongoing abuse of market dominance by the country’s oligopolies have made the definition of a ‘monopoly’ a hot issue.
The Tencent investigation revealed that at the end of 2010, the company’s share of the instant message software market was around 76.5%, making it unquestionably dominant in statistical terms. Tencent was alleged to have abused its market dominance mainly through bundled sales and the exclusion or restriction of transactions. Baidu’s market share in the search engine software market at the same time was around 72%; however, the accusations of market dominance against Baidu relate primarily to alleged discriminatory treatment and the conclusion of monopolistic agreements.
Article 3 of the Anti-monopoly Law defines ‘monopolistic conduct’ to include:
monopoly agreements between operators;
abuse of market dominance; and
elimination or restriction of competition by concentration among operators.
Under Article 19, market dominance is presumed to exist if:
one operator’s market share represents one-half of the relevant market;
two operators have a combined market share of two-thirds of the relevant market; or
three operators have a combined market share of three-quarters of the relevant market.
Under these provisions, internet companies such as Baidu and Tencent could be presumed to enjoy market dominance. However, in the field of e-commerce, market dominance should not be assessed purely on the basis of market share; rather, assessing an operator’s position requires a synthesis of elements, including technical standards and barriers to market entrance. The internet industry has a number of special characteristics: rapidly changing technologies, low barriers for market entrants and general cooperation between enterprises. Arguably, these characteristics could be used to demonstrate that enterprises with a high market share do not necessarily enjoy market dominance in the conventional sense. In online commerce and related high-tech industries, old technologies are constantly updated or replaced; as a result, an internet enterprise may break up (or at least alter) its market share in the course of its business development. It makes little sense to determine market dominance in the same way as in traditional sectors and the anti-monopoly legislation in this field still has room for refinement.
This is not the first complaint about monopolistic behaviour by Chinese internet enterprises. In November 2010 the SAIC received a request for a review of internet service portal Tencent and sought submissions regarding Tencent’s abuse of dominance. However, just as the online marketplace differs from the traditional economy, unfair competition issues are perceived differently in the fields of conventional business and e-commerce. The development of China’s internet industry and the ongoing abuse of market dominance by the country’s oligopolies have made the definition of a ‘monopoly’ a hot issue.
The Tencent investigation revealed that at the end of 2010, the company’s share of the instant message software market was around 76.5%, making it unquestionably dominant in statistical terms. Tencent was alleged to have abused its market dominance mainly through bundled sales and the exclusion or restriction of transactions. Baidu’s market share in the search engine software market at the same time was around 72%; however, the accusations of market dominance against Baidu relate primarily to alleged discriminatory treatment and the conclusion of monopolistic agreements.
Article 3 of the Anti-monopoly Law defines ‘monopolistic conduct’ to include:
- monopoly agreements between operators;
- abuse of market dominance; and
- elimination or restriction of competition by concentration among operators.
Under Article 19, market dominance is presumed to exist if:
- one operator’s market share represents one-half of the relevant market;
- two operators have a combined market share of two-thirds of the relevant market; or
- three operators have a combined market share of three-quarters of the relevant market.
Under these provisions, internet companies such as Baidu and Tencent could be presumed to enjoy market dominance. However, in the field of e-commerce, market dominance should not be assessed purely on the basis of market share; rather, assessing an operator’s position requires a synthesis of elements, including technical standards and barriers to market entrance. The internet industry has a number of special characteristics: rapidly changing technologies, low barriers for market entrants and general cooperation between enterprises. Arguably, these characteristics could be used to demonstrate that enterprises with a high market share do not necessarily enjoy market dominance in the conventional sense. In online commerce and related high-tech industries, old technologies are constantly updated or replaced; as a result, an internet enterprise may break up (or at least alter) its market share in the course of its business development. It makes little sense to determine market dominance in the same way as in traditional sectors and the anti-monopoly legislation in this field still has room for refinement.