China’s Antimonopoly Law Enforcement in the Digital Economy

• DOI: http://doi.org/10.1177/0003603X221126141
• Published date: 01 December 2022
• Date: 01 December 2022
• Subject Matter: Articles

https://doi.org/10.1177/0003603X221126141

The Antitrust Bulletin

2022, Vol. 67(4) 562 –578

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DOI: 10.1177/0003603X221126141

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Article

China’s Antimonopoly Law

Enforcement in the Digital Economy

Xiaoye Wang* and Yajie Gao**

Abstract

The year 2021 was the first remarkable year of Chinese anti-monopoly law enforcement in the digital

economy. Against the macro backdrop of strengthening anti-monopoly and preventing the disorderly

expansion of capital, China has closed high-profile cases and enacted relevant guiding documents,

implying that competition in the digital economy is undergoing a revolution in China. However, with

the strengthening anti-monopoly enforcement in the digital economy, China has also been confronted

with new challenges. For example, how to make sure that the interconnectivity between platforms and

data interoperability do not interfere with data security, personal privacy, and consumers’ legitimate

rights and interests? How to balance the curbing of almost unconstrained digital ecosystems and the

enhancement of economic efficiency? With the emergence of digital giants, profound changes are

taking place in the competitive relationships between various market participants, while the advantages

and disadvantages of capital growth have become increasingly prominent. We propose competition

authorities worldwide to learn from and cooperate with each other to solve monopolistic problems

in the digital economy, considering it is a global matter.

Keywords

digital economy, anti-monopoly regulation, merger control, e-commerce, data interoperability

I. Digital Economy Has Become the Priority of Anti-Monopoly

Enforcement

A. Challenges Brought by the Digital Economy to Anti-Monopoly Regulation

Generally, digital economy refers to economic activities based on big data and Internet technologies.

Therefore, the digital economy is also referred to as Internet economy or platform economy. Digital

economy has more than twenty-year-history in China, considering that China’s access to the web started

in 1994 while Tencent and Alibaba were established in 1998 and 1999, respectively. New information

technologies built on big data, artificial intelligence, and the Internet have enhanced productivity and

improved people’s daily lives in the forms of wider access to education, medical services, and job

*Distinguished Professor, Shenzhen University, Shenzhen, China; Law Professor, Chinese Academy of Social Sciences, Beijing, China

**Adviser (Advisory and International Affairs), Hong Kong Competition Commission, Hong Kong, China

Corresponding Author:

Xiaoye Wang, Distinguished Professor, Shenzhen University, Huawei Xili Building 8-1-704, Chaoyang District, Beijing 10021,

China.

Email: wangxiaoye88@live.cn

1126141ABXXXX10.1177/0003603X221126141The Antitrust BulletinWang and Gao

research-article2022

Wang and Gao 563

opportunities, for example. China has more than 1 billion netizens. Digital economy accounts for more

than 38.6 percent of China’s gross domestic product (GDP).1 Digital economy has become an essential

engine for China’s economy development and wealth growth.

Even if digital economy, especially search engine, social network, and e-commerce, has brought

convenience and innovation to consumers, it also triggers huge challenges to the anti-monopoly regula-

tion considering the following characteristics: (1) Two-sided platform:2 digital giants are normally

two-sided platforms, connecting users from both sides with differentiated needs.3 (2) Direct and indi-

rect network effects: the former refers to the phenomenon that the benefits a consumer could obtain

from a platform strengthen with the increasing number of other consumers. The latter means that

increasing number of the consumers from one side of the platform boosts the values that the platform

could provide to the consumers from the other side. In other words, one side does not exist without the

other side.4 (3) Economies of scale: taking online advertising as an example, top Internet platforms

have much stronger search ability in support of more personalized ads, while the cost for each click is

minimal. In other words, as for online platforms’ ability to manage data, marginal cost is close to zero.5

(4) “Zero” price: quite often, the business model of platform operators is subsidizing consumers who

are more price sensitive on one side with ads revenue generated from consumers on the other side

whose demand is less price elastic.6 As a result, household consumers get “zero”-priced products. In

short, digital economy inclines to become monopoly or oligopoly, because of huge market entry barri-

ers erected by direct and indirect network effects, data accumulation and integration, economies of

scale and close to zero marginal cost. Top online platforms make huge contributions to social welfare

on one hand; while on the other hand, they have also brought various problems such as those in relation

to data security, privacy, and consumer protection. Established online platforms engage in anti-competitive

conducts to maintain their marker power and foreclose competitors, to the detriment of competition. In

this scenario, people from all walks of life call for more intensive anti-monopoly enforcement in the

digital economy, no matter it is in China, the European Union (EU), or the United States.

B. 2021 Was the First Remarkable Year for Anti-Monopoly in China’s Digital Economy

Anti-monopoly law enforcement in China’s digital economy lags that in the EU and the United States.

For a long time, China’s academic circle used to hold that traditional anti-monopoly law does not apply

to the digital economy since it is the new dynamics driving the economy and bears the characteristics

of cross-sector competition, network effects, and two-sided platform. Academia has widely discussed

“whether online platforms have broken anti-monopoly law.” Some argue that “established online plat-

forms are chosen by consumers, while anti-monopoly law should not interfere competition” and that

“the boundary of relevant market in the digital economy is not so clear as that in the traditional sectors,

and the market share is less indicative. The authority should think twice before reaching the conclusion

of monopoly.”7 Under the influence of this trend of thought, China’s competition authority took a

1. China aCademy of information and CommuniCations teChnology, White Paper on Digital Economy Development in

China (2021), http://www.caict.ac.cn/kxyj/qwfb/bps/202104/P020210424737615413306.pdf.

2. Thomas Eisenmann et al., Strategies for Two-Sided Markets, Platforms and Ecosystems, harvard Business review Press.

15 (2021).

3. Michael Vogelsang, Dynamics of Two-Sided Internet Markets, 7 int. eCon. eCon. PoliCy. 129 (2010).

4. Richard Schmalensee & David S. Evans, Industrial Organization of Markets with Two-sided Platforms, 3 ComPet. law int.

151 (2007).

5. Justus Haucap & Ulrich Heimeshoff, Google, Facebook, Amazon, eBay: Is the Internet Driving Competition or Market

Monopolization? 11 int. eCon. eCon. PoliCy. 49 (2014).

6. Paul Belleflamme & martin Peitz, the eConomiCs of Platforms—ConCePts and strategy 140–84 (CamBridge

university Press, 2021).

7. Traditional Anti-Monopoly Tools Do Not Apply to Internet and Other Dynamic Economies, CNR, Aug. 31, 2017, http://

news.cnr.cn/native/gd/20170831/t20170831_523927711.shtml.