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Antitrust actions have a long timeline

By John Gong | China Daily | Updated: 2021-09-27 07:33
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A child takes part in an art exhibition using virtual reality devices at an art museum in Hangzhou, Zhejiang province, earlier this month. [Photo by Long Wei/For China Daily]

Big antitrust actions have come at key moments in history-mostly on the heels of big technological breakthroughs, which the innovators have used to grab a larger share of the market leading to big profit windfalls.

When the United States Supreme Court ordered the dissolution of Standard Oil Company in 1911, because it was in violation of the Sherman Antitrust Act, the company controlled close to 90 percent of the refined oil flow into the US.

And when Harold H. Greene, a judge in the US District Court of the District of Columbia, presided over the execution of a consent decree in 1982 that resulted in AT&T's divestiture of its seven regional Bell operating companies for local telephony business, the company virtually had a monopoly in the US' telephone infrastructure.

Today digitally advanced economies, including China have reached a historic moment again. The US Department of Justice has initiated antitrust investigations against the four big tech companies: Google, Facebook, Amazon and Apple.

China has seen the development of its own share of big tech companies such as Alibaba, Tencent and Meituan, and the Chinese government also has initiated antitrust investigations against some of the big internet companies.

The basic argument of antitrust is premised on social welfare. That is, the lack of competition has resulted in extraordinary profits for the big tech companies, probably at the cost of smaller companies, and undermined social welfare. In the digital age, market concentration is expected in a winner-takes-all business environment given its immense economy of scale and network externality.

Hence, competition is cut-throat, and big Chinese companies could run afoul of Article 17 of the Anti-Monopoly Law, which deals with the abuse of dominant market position. For example, the use of "choose one from two" by Alibaba on its T-Mall platform is a type of such abuse. Alibaba was found to have forced brand owners who sell on its T-Mall platform to end their e-tail presence on other competing platforms, such as JD.

This is a form of exclusive dealing outlawed by Article 17 of the Anti-Monopoly Law, if the company involved enjoys a dominant market status, typically meaning holding more than 50 percent of the market share.

The competition regulatory authorities in China have levied a huge fine on Alibaba as penalty for such behavior, while JD has sued Alibaba for damages in court.

For a long time, the competition regulatory authorities had adopted quite an accommodating attitude toward the development of the internet, based on the Schumpeterian argument of dynamic competition. According to the argument, technology development can be dynamic enough to dethrone leaders after a few years by a new wave of innovators that revolutionize the market.

We have been waiting for over a decade for that to happen only to see the incumbents getting stronger by the day. From a purely antitrust point of view, the recent government actions are justified. But more importantly, there is another reason why it is important to take action now.

What big companies have been doing is more than just selling products and services online, they are also building a national infrastructure in the way AT&T Corporation was building a national telecommunications infrastructure 100 years ago.

This critical infrastructure includes a vast cloud network, a huge warehouse network, an enormous order processing network, an extensive fast delivery network, a massive payment network and a widespread consumer credit network, which jointly have the capacity of generating critical data on not just the minutest details of every consumer's shopping behavior but also how the country's economy is running-down to granular details.

In other words, the data they have accumulated concern national security, or at least national economic security. So protecting data security for national interests is necessary.

The author is a professor at the University of International Business and Economics and a research fellow at the Academy of China Open Economy Studies at the UIBE.

The article reflects the author's views and not necessarily those of China Daily.

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