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Special> Boao Forum for Asia 2015> Opinion
UPDATED: September 22, 2014 NO. 39 SEPTEMBER 25, 2014
The Game of Monopoly and Anti-Monopoly
It's time for the developing world to take action to defend its own market
By Mei Xinyu

According to figures from China's National Bureau of Statistics, the ratio of profit to cost of industrial enterprises in the sector of computer, telecom and electronic equipment manufacturing was 4 percent or so in 2012 and 2013, ranking a poor 36th among China's 41 industrial sectors.

At the same time, Qualcomm has harvested 49 percent of its revenue from China's cellphone-making industry. In 2013, the company accounted for 54 percent of the global cellphone chip industry, and its market value in 2012 hit $123 billion, going so far as to exceed the GDP of Angola, a southwest African country with a 21-million population.

Evidently, profits accrued from monopolies come at the expense of consumers and outside enterprises. According to statistics, since 1990, the average rate of excessive pricing by domestic cartels has been 22 percent, and that of international cartels has been 25 percent.

The anti-trust investigations into global cartels being carried out by developing countries will promote equity from an international perspective. At present, all of the international companies punished in anti-monopoly probes run businesses in both developed and developing countries and they seize more profits from developing markets through monopolistic practices. However, most of the investigations have been launched by developed countries, which have also collected the fines. According to WTO figures, in the 1990s, a total of 39 cartel investigations were launched worldwide, involving 31 countries, of which eight were developing countries. Most of these cases were investigated, and the guilty parties subsequently fined, by the United States and the European Union, which lined their pockets with billions of dollars, often leaving victimized developing countries uncompensated. However, the fines were calculated based on global sales of monopoly companies. Developed countries' anti-monopoly authorities seized the funds that should belong to developing countries, thereby further intensifying global income disparity.

Just like any other type of supervision, anti-monopoly oversight is a never-ending process. A huge quantity of professionals and financial resources is needed to enforce the Anti-Monopoly Law in practice. As a developing country, China has been somewhat at a disadvantage when carrying out anti-monopoly supervision, because most involved multinationals come from the developed world and have rich experience and resources to evade supervision and punishment.

For some developing countries, this gap in resources and experience between them and entities from developed countries may be insurmountable. This is not the case, however, in the world's second largest economy. From the LCD panel case at the beginning of 2013 to the recent wave of anti-monopoly investigations, narrowing the gap is only a matter of time for China.

Legal Definition

The Anti-Monopoly Law of the People's Republic of China identifies three types of monopolistic behavior: monopolistic agreements between entities, abuse of dominant market position by entities, and concentration of entities that may eliminate or restrict competition.

Common practices of monopoly include:

Price fixing: Competitors agree to maintain the price of products or services at a certain level by reaching price agreements or restricting the output or sales of products. (A case in point for the latter is the Organization of Petroleum Exporting Countries' imposition of oil production quotas on its members.)

Collusive tendering: Product and service suppliers fix the minimum price in bidding for a project.

Market division: Competitors reach a consensus to divide up their sales market by targeting different sets of customers and differentiating their product ranges in a complementary fashion.

Joint boycott: A number of enterprises take concerted actions, in order to eliminate competition and seize a monopoly advantage.

Fixing resale prices: Business operators restrict the price for reselling to a third party when supplying products to other business operators.

Predatory pricing: Enterprises sell products below cost price, in order to squeeze other competitors out of business and then monopolize the market.

Price discrimination: Enterprises sell products at a lower price in a certain region, in order to squeeze other competitors out of business, or unjustifiably apply discriminatory treatment in pricing when selling to parties with whom they have equal standing.

Exclusive dealing: Manufacturers require parties to conduct transactions exclusively with them.

Bundle sales: Manufacturers implement tie-in sales. (An example of such is Microsoft's bundle sale of its Windows systems and Internet Explorer.)

Restricting resale price: Manufacturers require parties that buy their products to sell them above a certain price.

The author is an op-ed contributor to Beijing Review and a researcher with the Chinese Academy of International Trade and Economic Cooperation

Email us at: yushujun@bjreview.com

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