What would be a fine for monopoly acts carried out by giant e-commerce platforms in the People's Republic of China?
Different cases may provide different answers. For the food delivery business platform Meituan, the fine imposed was 3.4 billion RMB, 3% of the annual sales; for Alibaba the fine was 18.2 million RMB, 4% of the annual sales; and, more recently, the Chinese academic database platform CNKI provides a new answer: it just received a fine notice for 87.6 million RMB, 5% of the amount of its recent year's annual sales.
After a 7-months investigation, on December 26, 2022 the (P.R.C) State Administration for Market Regulation (SAMR) issued a fine of 87.6 million RMB to CNKI for its monopoly behavior, amounting to 5% of its annual sales in 2021.
How did CNKI get into trouble with the Antitrust laws and authorities, and why should we care about this case?
CNKI stands for “China National Knowledge Infrastructure”, which is the main database platform controlling over 95% of the Chinese academic resources.
Its business model is similar to the one of Elsevier, that is collecting published academic resources by signing the exclusive agreement with the author or publisher with little monetary consideration, then providing the database service for users including colleges, universities and individuals with “high” fees. Under such mode, CNKI almost blocks other competitors from sharing the market on the one hand, then leaves users with few choices for such database on the other hand.
With the word “national” in its name, CNKI is usually considered an institute supported by governmental departments, so many colleges and universities cooperate with CNKI and buy its service. However, it is in fact a for-profit corporation owned by a public listed company.
As stated in the investigation report of SAMR, over 90% of college students and scholars use CNKI to prepare their essays or papers, thus CNKI requires them to give the exclusive right to publish and use relevant works after their essays or papers are completed.
It is no doubt that CNKI has acquired a dominant position in the market and its business practices have become more and more aggressive towards the users in recent years.
In April 2022 one of the top universities in China announced its intention to stop using the service provided by CNKI as the annual fees had reached 10 million RMB, drawing wide attention of the public. Then another university reported that the service fee of CNKI rises around 19% each year, and that in 6 years the service fees paid have risen by 132.86 %. The SAMR then decided to initiate an antimonopoly investigation on CNKI.
What may be deemed as monopoly in the P.R.C?
Following a thorough investigation, the SAMR found that the market concentration status shown by the Herfindahl-Hirschman index (HH index)1 of CNKI reached 5488 points, which is near the HH index of Meituan (5854 points).
Under the same investigation, the SAMR also found that CNKI held two monopoly behaviors, as complained by the university users:
1) continuing to rise its service fee with unjustifiable reason, and
2) obliging the authors to sign exclusive cooperation agreement to restrict the authors' authorization to other platforms. Such a situation lead to the fine imposed on CNKI.
The “P.R.C Anti-Monopoly Law” provides for 3 situations of monopoly. Apart from the “abuse of dominant market position” of CNKI mentioned above, the other two monopolistic behaviors include: “conclusion of a monopolistic agreement”, such as “coordination of prices”; and “concentration of undertakings that eliminates or restricts competition or may eliminate or restrict competition”. Such business behaviors are not rare to witness in our daily life.
How can the anti-monopoly law improve our future?
Consumers are harmed by monopolistic behaviors, and the cases of CNKI, Meituan and Alibaba well illustrate such situation.
If the monopolistic behaviors are not limited, the market competition is restrained; then consumers will have no other choice than to use the services of enterprises operating as monopoly. This situation is economically unhealthy and unfair for both the consumers and other small-scale businesses wishing to enter or fairly compete in the market.
Thus, the anti-monopoly law aims at protecting the legitimate rights of the entities in the market, by improving and levelling the playing-field conditions, and the consumers which should benefit from a fairer competition between the market players. Influential cases like CNKI becoming more and more familiar to the public, both the consumers and the business entities will more easily notice how anti-monopoly laws tend to protect their rights.
What to do for the compliance?
The compliance responsibility mainly falls onto the business owners with significant market shares, especially when exceeding 30% percent. Such business entities should therefore avoid to fall into the three situations where their conduct may be deemed as monopolistic.
In general, business operators should keep in mind the following directions:
- when they are operating in a dominant position in a relevant market, not to abuse of such position,
- refrain from entering into monopolistic agreements, and
- check compliance with the antimonopoly laws before any mergers, acquisitions of shares or actual control over other commercial entities with similar business operation.
We understand that many details lie in the three situations, so the compliance check shall be a case-by-case procedure, and if you are interest in more details, please do not hesitate to reach us for further elaboration.
1 The index measures the size of companies relative to the size of the industry they are in and the amount of competitiveness. The HHI is calculated by squaring the market share of each firm competing in a market and then summing the resulting numbers. It can range from nearly 0 to 10,000, an HHI of 2,500 or greater is highly concentrated.
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