Meituan faces second antitrust fine: what does this mean?

Oct 12, 2021 Food

 

Recently, the State Administration for Market Regulation (SAMR) issued an administrative penalty decision against Meituan with an amount of 3.4 billion yuan ($528 million). It orders Meituan to stop its illegal behavior and fully return 1.29 billion yuan to merchants on its platforms.

The fine equates to 3% of the company's domestic sales in 2020, the regulator said.

In response, the company issued a statement: "We have received the administrative penalty decision from the SAMR against Meituan. In this regard, we accepts the penalty with sincerity and are determined to ensure our compliance with the decision and its terms, and to end 'pick one from two' practice."

"We will take this lesson to heart, operate in accordance with the law, and consciously work to ensure fair competition in the industries we operate in," it added.

 

The "pick one from two" strategy

In April this year, the SAMR launched an antitrust investigation into Meituan in accordance with the Anti-Monopoly Law, focusing on vendors being forced to use its platform exclusively in China.

Six months later, the investigation results and the penalty decision were officially released.

The Decision shows that the punishment was mainly based on the provisions of Articles 47 and 49 of the Anti-Monopoly Law and took into account the nature, extent and duration of Meituan's illegal acts and made an administrative punishment decision against Meituan in accordance with the law.

Finally, the firm has been ordered to stop its illegal activities and fully return "exclusive cooperation deposit" to merchants on its platforms, worth 1.289 billion yuan ($199.9 million) in full.

The regulator also imposed a fine with an amount of 3.442 billion yuan ($533.8 million), which accounted for 3% of Meituan’s sales in China in 2020.

The Decision states that since 2018, Meituan has abused its dominant position in the Chinese online food delivery platform market. It has encouraged merchants to sign exclusive cooperation agreements by implementing differential rates and delaying the launch of businesses that applied for Meituan services. Meanwhile, it takes various punitive measures to secure the "pick one from two" practice by collecting exclusive cooperation deposits, and used data, algorithms and other technical means.

The "pick one from two" approach is to force merchants to use its services exclusively, which greatly restricts relevant market competition, weakens the innovation and development vitality of platforms and damages the legitimate rights and interests of merchants and consumers on the platform.

At the same time, the SAMR requested Meituan to improve its commission fee mechanism and algorithm rules, safeguard the legitimate interests of small and medium-sized restaurant merchants on the platform. It also required it to enhance its protection of delivery workers and submit a compliance report to regulators for three consecutive years.

 

What does the "3% penalty" mean?

Meituan is the fourth company to impose a "3% penalty" in the past six months.

Nearly two weeks ago, on September 27, 2021, Zhejiang Provincial Administration for Market Regulation publicized a decision of administrative penalty against Bull Group, a leading enterprise in civil electrical industry, on its website. Bull Group was fined 290 million yuan (approximately $46 million), equivalent to 3% of the company’s total sales, for engaging in resale price maintenance (RPM) in violation of China's Anti-Monopoly Law.

In addition, two other groups, Shanghai Sherpa's and Yangtze River Pharmaceutical Group, were previously fined the same percentage.

It is noteworthy that, although the same anti-monopoly law was violated for "pick one from two", Meituan's fine was only 3% of its 2020 annual sales, or 3.442 billion yuan, while Alibaba's fine was 4% of its annual revenue, or over 18.2 billion yuan.

Due to different sizes, Meituan's fine must be less than Alibaba's, but it's still less than the $1 billion previously reported by foreign media.

As for the different ratio of 1%, perhaps some clues can be found in the regulatory announcement.

The announcement from the SAMR shows that Meituan has taken the initiative to admit, provide evidence and fully investigate and rectify its behavior, so the above-mentioned decision was made.

In addition to Meituan's active cooperation with the investigation, the ruling also defines the regulatory standards that related to the online food delivery platforms.

In the case of the penalty imposed on Meituan, the SAMR defined the online food delivery market for platforms in terms of platform functions, market types, and user groups, respectively, by situation and category.

In the announcement, the SAMR clearly stated that "the relevant product market of online food delivery platforms such as Meituan is the service market of online food delivery platforms, which is different from the related commodity market as offline catering industry".

This means that the online food delivery platforms and the offline catering industry are not in a substitution relationship, and there is no direct confrontation and conflict between the two.

In fact, after the anti-monopoly crackdown on Meituan, the whole online food delivery economy will develop in a better and more compliant direction.

In addition to the "pick one from two" approach, Meituan has been criticized for the rights of its delivery workers. In the final administrative guidance, the regulator requested Meituan to enhance its protection of delivery workers and submit a compliance report to regulators for three consecutive years, which is somehow a protection for the sustainable and healthy development of the online food delivery economy.