In the past month or two, an array of antitrust investigations against foreign companies by Chinese authorities has attracted extensive attention worldwide. While some international business lobbyists have made complaints and spun these probes as constituting discrimination against foreign-funded enterprises, a few Western governments have also joined the camp.

As the Wall Street Journal reported on September 15, the U.S. Secretary of the Treasury Jacob Lew has written to Chinese Vice Premier Wang Yang, claiming that anti-trust probes targeted at overseas companies would undermine Sino-American relations.

Yet, should foreign companies be free of punishment in spite of their monopolistic behavior? Of course, the answer is No.

It's an objective law of market economy that free competition will lead to concentration of production and further to monopoly. Since the modern capitalist economy came into existence, its free market mechanism has inevitably led to the sprouting up of cartels and monopolistic behavior after experiencing a golden age in the 1860s and 1870s.

As a result, a variety of anti-monopoly rules and regulations have been formulated with the goals of restricting anti-competitive agreements, reducing the abuse of dominant market position, regulating corporate mergers and acquisitions, defending market order, protecting the legitimate interests of producers and sellers and the rights of consumers, and improving economic efficiency.

So far, more than 100 countries and regions around the world have formulated their own individual anti-monopoly legislation, which in developed countries are referred to as "economic constitutions."

Just like that of other major economies, 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 concentrations of entities that may eliminate or restrict competition.

A typical case of a price-fixing agreement came to light at the beginning of 2013, which involved six LCD panel makers. From 2001 to 2006, companies including South Korean makers Samsung and LG Display and AU Optronics, Chimei Innolux, Chunghwa Picture Tubes Ltd. and HannStar Display Corp. from Taiwan took turns to host a total of 53 meetings with the explicit purpose of exchanging market information and manipulating prices. Their price manipulation in the Chinese market severely infringed the legitimate interests of their rivals and consumers. The number of LCD panels sold by the six companies on the Chinese mainland amounted to 5.15 million, with an illegal gain of 208 million yuan ($33.87 million).

Usually, monopoly companies acquire a dominant market position by virtue of their advantages in production and circulation. As the modern intellectual property system becomes increasingly established and sometimes rigid, hordes of monopoly companies have begun to make use of their intellectual property rights to consolidate their monopoly position, to hinder their rivals' development and capacity to innovate, and to charge exorbitant prices of their customers.

Such moral hazards have been a major side effect of the modern intellectual property system. China, the largest manufacturing country in the world, has really become the largest victim of price manipulation arising from patent ownership.

The food packaging and processing multinational Tetra Pak used to engage in a cluster of monopolistic behavior such as bundle sales under the pretext of patents, thus preventing emerging companies from penetrating its exclusive supply chain. It was not until 2007 when China's Anti-Monopoly Law was passed that Tetra Pak began to cease these practices and its rivals such as Shandong Tranlin Group have since started to experience high-speed growth.

The patent charging model practiced by Qualcomm, the world's largest cellphone chipmaker, is even more egregious. It has had its patent-based business model in place since the third-generation (3G) of mobile telecom technology came into being in March 2001. All 3G-related manufacturers and marketers have since been obliged to sign patent licensing contracts and pay a certain share of the selling price to the chip maker.

As a result, Chinese consumers have been overcharged. Prices of 3G cellphones using the WCDMA or CDMA2000 systems are 200-300 yuan ($33-49) higher than they should be. Almost half of the profits earned by China's 3G cellphone makers have found their way into the pockets of Qualcomm in the form of patent fees.

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