Cyberlaw Reading Group Session 34 of the Renmin Law and Technology Institute was held in Room 725, Mingde Law Building, Renmin University of China on December 10, 2019. During this reading session, faculty members and students delivered thematic presentations and held discussions centered on two literatures, namely Competition Policy in Modern Retail Markets and Information, Innovation, and Competition Policy for the Internet.

Thematic presentations:

Theme: Competition Policy in Modern Retail Markets

Presenter: Wu Hao, Juris Master, Class of 2018, Renmin University of China Law School

Theme: Information, Innovation, and Competition Policy for the Internet

Presenter: Zhang Minghua, PhD Candidate, School of Law, University of International Business and Economics

Free Discussion:

Ding Xiaodong, Associate Professor, Renmin University of China Law School:

      The two papers discussed today each have distinctive merits. In the first paper, the two authors actually adopt a skeptical and even critical attitude toward European enforcement authorities. This point can be examined against the historical evolution of antitrust law. The normative framework of antitrust law was initially built on conduct regulation, imposing strict regulatory restraints on a wide range of commercial practices. After the rise of the Chicago School, however, greater weight was attached to analyzing whether regulatory rules align with market mechanisms. The analytical logic of this paper follows the Chicago School’s approach. The authors contend that various strategies adopted by enterprises to curb free-riding, such as resale price maintenance, may amount to nothing more than legitimate competitive conduct in the marketplace. In practice, the dividing line is sometimes hard to delineate, which constitutes one of the many viewpoints set forth in the second paper, which shares comparable analytical undertones. The so-called error cost of law enforcement authorities discussed in the second paper functions as a metric for gauging the extent of state intervention within market regulation. The common domestic adage that "excessive regulation paralyzes market activity while insufficient oversight leads to disorder" also reflects the effects brought by varying levels of regulatory intensity. In this context, both static welfare conditions (i.e., prevailing welfare status) and dynamic welfare conditions (i.e., long-term welfare prospects) ought to be considered simultaneously. Rigidly applying conventional review and regulatory frameworks may turn out to be overly interventionist, thereby incurring considerable error costs.

      Such calibration of regulatory intensity is equally pertinent to the exclusive dealing (the "choose one" practice). It calls for granular analysis to determine whether platform-imposed exclusive dealing qualifies as market conduct justified by legitimate objectives such as curbing free-riding and pursuing scale economies, or monopolistic conduct that restricts or eliminates competition. Under antitrust law, the review logic of both the per se illegality rule and the rule of reason proceeds on a case-by-case basis, leaving no room for blanket one-size-fits-all norms. Underpinning such analysis lies a meta-question: whether platforms merely constitute participants within the market, or amount to the market itself. If platforms are viewed merely as participants within the market, consumers still retain a certain range of alternative options. By contrast, if platforms possess sufficient power to act as de facto market organizers and thus qualify as public infrastructure, many of their practices that appear restrictive of competition when driven by commercial logic may be subject to stricter regulatory requirements for violating the principle of neutrality. A prevalent libertarian line of reasoning holds that platforms’ monopolistic positions will be displaced by emerging business models. Accordingly, even large-scale platforms remain under constant competitive pressure in an evolving market, rendering state intervention unnecessary. This viewpoint itself is open to debate. Although the iteration of business models can objectively bring about the replacement of incumbent monopolists, this neither means monopolies ought to escape regulation, nor proves that market competition is fully effective, still less demonstrates that markets with state intervention deliver inferior economic efficiency.

      These issues merit in-depth reflection. After all, China’s competition law practice is still relatively nascent compared with that of Europe and the United States, and relevant academic accumulation remains insufficient. Competition law is a sunrise field in China, and students are encouraged to conduct extensive research in this area.

Qian Qiqin, Juris Master, Renmin University of China Law School:

      The first paper offers us a monopolist’s perspective. Extending the analysis from this article, the tension between free-riding prevention and anti-competitive effects is analogous to the widely discussed exclusive dealing practice. Fueled by media narratives, people tend to instinctively evaluate such conduct from the standpoint of consumers or merchants and regard platform behavior as unreasonable. However, shifting to the platform’s perspective—taking into account its financial support and investment in merchants, as well as the exclusive contracts it signs to bar merchants from rival platforms so as to stop free-riding by competitors—enables a more comprehensive understanding of platform practices rather than one-sided condemnation. It remains extremely difficult to quantify and adjudicate, in concrete cases, whether a platform has abused its dominant market position or entered into vertical agreements with merchants without valid defenses. Platform conduct is by no means unimpeachable, and such factual and legal determinations rest with competent regulatory authorities. Even so, shifting analytical perspectives helps the general public develop a more holistic understanding of the issue.

Zhuo Lixiong, PhD Candidate, the Party School of the CPC Central Committee (National Academy of Governance):

      The issue of exclusive dealing involves the tripartite relationship among suppliers, distributors (online and offline), and consumers.

      There are four types of power dynamics between suppliers and distributors: powerful suppliers with weak distributors; weak suppliers with powerful distributors; powerful suppliers with powerful distributors; and weak suppliers with weak distributors. Of these four scenarios, the latter two have no adverse effects on competition, while only the first two do. The current so-called exclusive dealing disputes mainly arise from the situation where suppliers (merchants) are in a weak position and distributors hold dominant market power. Such exclusive dealing practices cannot be rashly characterized as monopolistic conduct by mechanically applying relevant provisions of competition law. The reasons are set forth as follows. First, platforms that adopt exclusive dealing usually provide a host of competitive advantages to settled merchants, and such exclusivity requirements serve as a means to urge fair competition among those merchants. Second, notwithstanding their market strength, these platforms face fierce competitive pressure from rival platforms. Exclusive dealing itself reflects vigorous inter-platform competition and constitutes a reluctant commercial choice made by platforms to attract more high-quality merchants and consumers. Third, platforms’ exclusive dealing policies do not materially impair market fairness and efficiency, nor do they harm consumer interests, since both merchants and consumers still have alternative market options available. This market is fully competitive and open. If a platform truly constitutes a monopoly and captures excessive gains, new competitors will inevitably enter the market and forge new competitive models. Under such circumstances, regulators should not hastily subject these platforms to monopoly-based regulation. Such regulatory intervention may well be well-intentioned yet counterproductive, stifling innovation and market advancement.

      Beneath differing attitudes toward platform exclusive dealing lies a fundamental divergence: whether to adhere to market libertarianism or place reliance on governmental regulation. I personally incline toward market-based solutions, believing that robust market competition can resolve such disputes. China’s market economy remains underdeveloped and far from attaining full free competition. The practice of exclusive dealing among internet platforms merely represents an embryonic manifestation of market economy operations. Hastily labeling such platform conduct as monopolistic and tightening regulatory oversight at this nascent stage will readily dampen enterprises’ incentives for development and hinder the advancement of a free market economy. Therefore, with regard to the practice of platform exclusive dealing, I hold that the optimal current approach is to allow free competition among all platforms. Governments ought not to mechanically apply relevant provisions of traditional antitrust law to conclude that such enterprises constitute monopolies. If a platform leverages monopolistic power in competition to undermine fair market competition and infringe upon consumer rights and interests, new competing platforms will eventually emerge to replace it, thereby achieving a dynamic equilibrium. Should governmental regulation prove necessary, it must be confined to case-specific assessments rather than general statutory regulation applicable across the board.

Editor:Xu Liuya

Reviewer: Zhu Peiwen