China ups regulation of tech giants with price dumping and monopoly

When the Internet giants were engaged in fierce competition in the community group-buying field, it was not expected that the regulatory aimed at preventing monopolistic behavior by internet platforms would land within a year.

On December 22, the State Administration for Market Regulation (SAMR), along with the Ministry of Commerce, summoned representatives from China's internet giant to regulate the order of community group-buying, including Alibaba Group, Tencent, JD.Com, Meituan, Pinduoduo, and Didi Chuxing, according to the People's Daily.

New regulations of "Nine No'S" about community group-buying were launched. It required Internet platform enterprises to strictly abide by the rules, involving nine aspects, such as not abusing independent pricing power for vicious price competition, abusing market dominant position, false propaganda and commercial slander, big data "killing", damaging competition order by using technical means, illegally collecting personal information of consumers, and selling fake and inferior commodities.

The nine regulations point to the classic industry phenomenon of community group-buying, and it can be seen that the regulator has a "cold shoulder" attitude towards community group-buying.

 

Beware of price dumping + monopoly

Eggs trigger the war in the community group-buying.

As one of the few "standard products" in the fresh food category, eggs are a powerful tool used by almost all community group-buying platforms to attract offline consumers. 9.9 yuan of eggs has the same mission as some e-commerce platforms' pop-up thinking - using low-cost pop-ups to attract users to the platform and bring traffic for other products.

Internet giants involved in community group-buying have prepared ample "ammunition" for this new offline traffic entrance, representing a platform that can use subsidies to make most fresh goods appear on the platform at below-cost prices, as "pop-ups" to attract users. Now, this tried and the true trick has faced regulatory challenges.

According to the "Nine No'S", the first is that it should not abuse the power of independent pricing by means of low-price dumping, price collusion, bid up prices, price fraud, and other means. At the same time, it should not use its capital advantage to launch substantial price subsidies, disturbing market price orders.

The ultimate goal of community group-buying is to achieve "C2M" on-demand customization of fresh produce and other products by concentrating demand, but the notices also make clear requirements for this.

Shall not unlawfully enter into or implement any form of monopoly agreement such as fixing or changing the price of goods, restricting the number of goods produced or sold, or dividing a sales market or a raw materials procurement market.

Shall not implement predatory pricing, refusal to deal, tying, and other abuses of dominant market position without justifiable reasons.

At present, Freshippo (Alibaba's brick-and-mortar supermarket chain), Meituan (the on-demand delivery giant), Pinduoduo (China's third-largest e-tailer), Chengxinyouxuan (operated by Chinese ride-hailing giant Didi Chuxing), and Xingshengyouxuan (a startup supported by Tencent and JD.com), are the major competitors in the sector.

At a time when the regulator is focusing on "anti-monopoly", investment and mergers and acquisitions in community group buying are also mentioned in the "regulation": no illegal implementation of operator concentration to exclude or restrict competition. If the concentration of operators reaches the declaration standard set by the State Council, it should be declared in advance, and no concentration shall be implemented if it is not declared.

 

The problems have already appeared

Regarding community group-buying, a central media article was published two weeks ago, calling on Internet companies to pay more attention to technological innovation rather than "a few bundles of cabbage for the common people". As the community group-buying business of Internet giants continues to 'open up cities' in China, the question of whether community group-buying will replace vegetable vendors has started to rise on the internet.

At the same time, in order to launch more "low-priced pop-ups", the platform tends to let suppliers supply at lower prices, which has led some suppliers to issue announcements and formally voice their resistance to supplying to the community group-buying platform.

Previously, the Nanjing Market Supervision Bureau launched a community group-buying compliance notice, requiring the platform to "in particular, not to implement low-price dumping at below-cost prices, crowd out competitors to monopolize the market and disrupt normal business order.

A high-level national meeting two weeks ago proposed guidelines to "strengthen anti-monopoly" and "prevent the disorderly expansion of capital". Subsequently, the General Administration of Market Supervision imposed an "anti-monopoly" top-level penalty of a 500,000 yuan fine on three companies, Alibaba, SF Express, and China Literature, for conducting undeclared mergers and acquisitions.

In the era of mobile internet, the method of burning money for the market has become the industry mindset after the "classic battles" such as the Battle of Hundred Groups and the Battle of Sharing Travel. The same thinking is guiding the community group-buying wars, but in the current regulatory tightening, this already partially overheated competition may have to temporarily cool down.