On August 1, 2016, which happened to be the eighth anniversary of the Anti-monopoly Law, Didi announced its merger with Uber China. The Ministry of Commerce (Mofcom) has not yet launched any investigation into operator concentration, but the merger has sparked heated debate.
Debate over self-declaration
As provided in Article 3 of the Provision of the State Council on the Declaration Threshold for Concentration of Undertakings, if during the previous fiscal year, the total global turnover of all business operators participating in the concentration exceeded RMB10 billion (or RMB40 million in mainland China), and at least two of the operators each had a turnover exceeding RMB400 million within mainland China, a declaration must be lodged in advance before the concentration is implemented. However, relevant provisions fail to further specify “turnover”.
As to the merger of Didi and Uber China, one argument holds that it should be gross turnover, including all fees customers paid on Didi and Uber’s platforms. A different opinion holds that turnover should be net income, excluding fees paid on such platforms as pass-through in light of Didi and Uber’s special business models.
Nevertheless, while the requirements for self-declaration may be unclear, Mofcom can still initiate a monopoly investigation based on Article 4 of the Provision if it judges that the merger would eliminate or restrict competition. However, Article 4 has remained a dormant clause since its effectiveness.
The question of monopoly
Although it is unclear whether an investigation will be launched in this case, heated debate has arisen on whether the merger will in essence constitute a monopoly. To reach the conclusion, it is necessary to first determine the relevant market.
The traditional viewpoint is based on the Guidelines on Relevant Market Determination promulgated by the Anti-monopoly Commission of the State Council, which relies on demand-side substitution, hypothetical monopolist test, etc to determine relevant market.
The Guidelines pointed out that price factor can be considered in the demand-side substitution test. In light of the merger of Didi and Uber China, the choice of transportation vehicles is often driven by different consumption demand with different price sensitivity. For traditional public transportation vehicles, prices are subject to regulatory control and thus are below the price of car-hailing services, which are subject to the market price and provide differentiated services. Consequently, car-hailing constitutes an independent market from the market of public transportation vehicles.
Hypothetical monopoly test
The hypothetical monopolist test starts with the assumption that the business operator is a monopolist (the “hypothetical monopolist”). Provided that the sales conditions of all other products remain unchanged, if the hypothetical monopolist can continuously increase the price of the target product by a small rate while the business is still lucrative, the target product will be deemed as constituting a relevant market. Apparently, Didi and Uber China currently increase the price continuously at a small rate. If its business is still lucrative, such service shall be deemed as a relevant market.
To sum up, the traditional viewpoint is inclined to hold car-haling services as a relevant market. However, the modern market viewpoint thinks differently.
The modern market viewpoint is borne of the internet age. It holds that large internet companies whose major function is to facilitate deal making should be defined as a market. To take a step further, if the large internet company is defined as a market, it would also be unnecessary and unfeasible to determine the relevant market that is being monopolised.
As to Didi and Uber China, although they are established under company names, they are more like markets for deal making. Rather than being operators in the marketplace, they may constitute a market. Take Taobao for example. There is little debate on whether Taobao is a monopoly. From the market viewpoint, it is because the mass society has already viewed Taobao as a market, rather than an operator. Like Taobao, if Didi and Uber China each constitutes a market, their merger will be a merger of two markets, rather than operator concentration. Thus, investigation of the merger would be unnecessary and it would not constitute a monopoly.
As seen from the above, it is debatable on the merger of Didi and Uber China. In light of the macro environment, the internet platform industry still enjoys a policy bonus, which may be one of the considerations that explains why Mofcom has not yet launched an investigation. Nevertheless, as this industry matures, it will be necessary to promulgate detailed regulation to address the above debate and avoid ambiguity.