Reconsidering anti-monopoly regulation in platform economy

　　Strawberry selling through live streaming, one of the most popular platform economies, in a greenhouse in Rugao City, Jiangsu Province  Photo: Xu Hui/CNS

With the rapid development of the internet industry, one of the pillars in China’s economic development is the platform economy. We are witnessing the tendency for commerce to increasingly move towards and favor digital platform business models. According to recent statistics, the platform economy accounted for nearly 40% of the Chinese GDP in 2020. However, as it develops in both depth and width, there are widely growing and disordered capital trend. To deal with this issue, China made the decision to strengthen anti-monopoly efforts and prevent the disorderly expansion of capital by the end of 2020. This legislation aims to mitigate the negative effects of platforms while continuing to encourage their role in boosting economic growth.

Anti-monopoly enforcement

So far, anti-monopoly regulation of the platform economy has been implemented for more than one year. According to the official website of the State Administration for Market Regulation, 72 law enforcement actions were conducted against platform enterprises from December 2020 to December 2021, including three cases about abuse of dominant market roles. The total fines exceeded 21.7 billion yuan. Among these actions, the two most important cases were against Alibaba, which was fined 18.228 billion yuan, and against Meituan, which was fined 3.442 billion yuan. These two cases are the archetypes of anti-monopoly rulings which target online platforms, and their hefty fines have a strong warning effect that regulates the orders of competition between platforms.

The national attitude toward platform enterprises changes due to law enforcement efforts—this is not a phenomenon unique to China. Globally, there have been similar changes in platform regulations in Europe and the US, during three specific periods of time. Generally speaking, the Europe and the US also adopted an initial “laissez-faire approach” in terms of the platform economy before 2017, which was similar to the “inclusive and prudent” policy adopted by China. From 2017 to 2020, Europe and the US also noticed a disordered expansion of platform capital trend and began to regulate platform enterprises by strengthening anti-monopoly law enforcement. Google, Amazon, Apple, Facebook, and other platforms have been consecutively penalized through anti-monopoly investigations. Google has been continuously regulated, more than 10 times by EU countries, with total fines of more than 10 billion euros. From the end of 2020 on, Europe and the US entered the third phase of platform regulation, which was to formulate regulation legislation specially for the platform economy. The European Commission proposed draft legislation of the Digital Markets Act in December 2020. The draft was adopted by the European Parliament in December 2021 by a vote of 642 in favor to 8 against, with 46 abstentions.

Reconsidering the limitations

The European Commission spoke highly of previous anti-monopoly work, but it then pointed out that while EU competition law can solve some problems in the internet sector, it cannot effectively solve all the problems caused by platforms, since many problems are not directly related to abuse of the market’s role. The main cause of these problems is that platform enterprises have dual roles in specific circumstances.

The repositioning of platforms by Europe and the US is worth future consideration. China has always regarded business platforms as market operators. But aside from providing services as intermediaries through information gathering, the platforms also undertake a large number of market management functions. For example, China allows online operators to apply for business registration through platforms. The implementation of these mechanisms has allowed platforms to expand beyond generic operation and endowed them with market management functions similar to the government or social agents. In the process of undertaking this dual role, platforms and the sellers managed by the platforms both closely cooperate and intensely compete with each other. Due to such conflicts of interest, platforms may misuse their market management function to carry out behaviors that are beneficial to themselves but infringe on the interests of sellers. In this sense, the infringement is not necessarily a result of monopoly, so the anti-monopoly law is often powerless and cannot restrict these behaviors.

By realizing both the advantages and limitations of anti-monopoly laws as the chief way to regulate these platforms, we also need to be aware that the regulations neither mean suppression of platform enterprises nor a denial of the platform economy, but simply a containment of its side-effects on economic development. Only by solving this issue properly can we take a step closer to achieving common prosperity.

Hou Liyang is a professor from the Koguan School of Law at Shanghai Jiao Tong University.