On October 8th, 2021, the State Administration for Market Regulation (SAMR), China’s top market regulator, imposed a fine of RMB 3.442 billion (USD 534 million) on food delivery giant Meituan for its monopolistic behavior. According to the statement of SAMR, the fine is equal to about 3 percent of Meituan’s total domestic sales revenue of 114.7 billion yuan in 2020.
SAMR claimed that since 2018, in order to hinder the development of other competitive platforms, further enhance, maintain and consolidate its market position, Meituan abused its dominant position in the service market of online catering takeout platforms in China, systematically and comprehensively implemented the behavior of “one out of two”. This behavior has prevented operators from cooperating with other competitive platforms and forced operators on the platform to exclusively conduct transactions with Meituan.
Such behavior has violated Article 17 of the Chinese Antitrust Law that an operator who holds a dominant market position is prohibited from engaging in the behavior of restricting trading counterparts to trading only with the said operator or its designated operator without justified reasons, which is deemed as abuse of its dominant position.
Service Market of Online Catering Takeout Platforms in China
Online Catering Takeout Platform Services refer to the online business premises, information release, location-based information matching, transaction matching and other Internet information services provided by the operator of the online catering takeout platform for catering operators and consumers for catering takeout transactions, including commodity information display, marketing promotion, search, order processing, distribution arrangement and scheduling payment and settlement, commodity evaluation, after-sales support, etc. The online catering takeout platform service belongs to the multilateral market and mainly serves catering operators and corresponding consumers.
Since the food delivery service provided by Meituan fulfills such requirement, the market where it is doing business is the Service Market of Online Catering Takeout Platform.
Dominant Position
Under Article 18 of Chinese Antitrust Law, whether or not an operator takes a dominant market position shall be determined based on the following factors”:
1. The operator’s market share in a relevant market, as well as the competition situation of the relevant market;
2. The ability of the operator to control the sales market or material purchase market;
3. The financial and technical ability of the operator;
4. The degree of reliance of other operators on the operator in terms of trading;
5. The degree of difficulty for market entry by other operators; and
6. Other factors relevant to the determination of a dominant market position of the operator.
As per the investigation and analysis of SAMR:
1. The market share of Meituan has exceeded 50%, which can be presumed to have a dominant market position. From 2018 to 2020, the service revenue and order numbers of Meituan accounted for more than 50% of the total service revenue and order numbers of the main online catering takeout platforms in China respectively;
2. Meituan has a comparatively strong market control. In business negotiations with catering operators, Meituan usually has a strong voice when it comes to pricing and has the ability to control the flow and sales channels of operators on the platform;
3. Meituan has strong financial resources and advanced technical conditions. From 2018 to 2020, the turnover of Meituan in China was 65.09 billion yuan, 97.34 billion yuan and 114.75 billion yuan respectively;
4. Other operators are highly dependent on Meituan in transactions. Meituan has a high recognition of operators and consumers in the service market of online catering takeout platforms in China and it is difficult for operators on the platform to migrate data accumulated on Meituan to other platforms;
5. Difficulty in entering the market. On the one hand, the service market entry cost of online catering takeout platforms is high, and a lot of funds are needed for platform construction, data algorithm systems, technology R & D and brand marketing. On the other hand, the online catering takeout platform needs to obtain enough consumers and operators on the platform to reach the critical scale and form positive circular feedback in order to achieve effective market entry;
6. Meituan’s associated market layout has consolidated and enhanced its market power in many fields such as in store catering consumption, life services, hotel tourism and travel, as well as upstream and downstream catering takeouts, bringing more trading opportunities to the online catering takeout platform.
Conclusion
Therefore, it can be assessed that Meituan has taken a dominant position in the Service Market of Online Catering Takeout Platforms in China. While Meituan takes such a position, its behaviors of forcing merchants to sign exclusive cooperation agreements, charging merchant deposits and employing technological tactics involving data and algorithms, pressuring those merchants to “pick one out of two” to exclude competitors and limit market competition have weakened the innovative dynamics and vitality of the platform, and harmed the interests of the platform merchants and consumers.
Group Holding, Tencent, JD and Suning.com, have been investigated or fined for alleged monopolistic behavior, while such moves should help Chinese companies boost their global competitiveness. Big internet platform companies shall realize that they need to take more care of their business policies to avoid antitrust punishment.
We at D’Andrea & Partners Legal Counsel constantly monitor the latest developments in the Chinese market. Please feel free to contact us at info@dandreapartners.com for more information.
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