Didi Beijing’s price increase： will it become new evidence of anti-monopoly review？
On July 9, 2019, Didi Chuxing announced through the client side that it would adjust the price of online car-hailing in Beijing from July 11 of the same year, causing widespread debate among netizens. On the one hand, the main urban area of Beijing and the suburbs are priced differently, distinguishing between working days, rest days, peak hours, and peak hours. Such refined pricing has the effect of incentivizing online car-hailing drivers to drive; however, on the other hand, taking the main urban area of Beijing where online car-hailing companies are more concentrated as the cut, the starting price of non-peak hours is increased from 13 yuan to 14 yuan, an increase of about 7.69%, which also shows the pricing power of Didi in the regional market. It is worth asking how the price adjustment will affect the antitrust review of Didi’s acquisition of Uber’s China business, which has been pending for three years.
Three-year pending antitrust review
On August 1, 2016, on the eighth anniversary of the entry into force of the Antimonopoly Act, and shortly after the Ministry of Transport published the regulations for the ride-hailing industry, Didi announced the acquisition of the Chinese business of Uber China, its main competitor in mainland China. Didi not only paid Uber Global $1 billion in cash in the deal, but also gave the latter a 5.89% stake in Didi, equivalent to a 17.7% economic interest in Didi. The remaining Chinese shareholders of Uber China, including Baidu, will receive a combined 2.3% economic interest in Didi. Subsequently, Didi, which has investments from Alibaba, Tencent and Baidu, received two rounds of investment from SoftBank in late 2017 and early 2019. The latter also invested in Uber Global, South East Asia ride-hailing company Grab and Indian ride-hailing company Ola. In the same period, Didi, which once invested $100 million in Lyft, Uber Global’s main competitor in the United States, has also actively expanded its overseas business in other countries, including investing in Grab with SoftBank, and the latter acquired Uber Global’s ride-hailing business in the Philippines, Vietnam and Singapore, but was banned by the antitrust enforcement agencies of these countries.
Compared with these dazzling global mergers and acquisitions of online car-hailing companies, Didi’s acquisition of Uber China, which is a key part of it, has not passed the review of our country’s anti-monopoly law enforcement agencies.
On August 2, 2016, August 17, September 2 and July 27, 2017, the Ministry of Commerce, which was then responsible for the anti-monopoly review of the concentration of undertakings, publicly stated to Chinese and foreign reporters at the regular press conference on four occasions that the Ministry of Commerce is continuing to investigate the Didi series of mergers and acquisitions. In 2018, after two consecutive cases of Didi Hitch drivers raping and murdering female passengers, the socialization of Didi Hitch’s business, sexually suggestive advertisements, insufficient passenger safety measures, and customer service outsourcing once again aroused public attention to the suspected violation of the Antimonopoly Act in the Didi series of mergers and acquisitions.
On September 5, 2018, after the inspection team of the Ministry of Transport settled in to investigate Didi, it disclosed that Didi had problems in nine aspects such as operation safety management and product compliance. The ninth aspect of the problem was "suspected industry monopoly". On November 16 of the same year, the State Regulation for Market Regulation Anti-Monopoly Bureau, which was established through institutional integration, disclosed that it was still investigating the merger of Didi and Uber China in accordance with the Antimonopoly Act and relevant regulations, but did not disclose whether it had officially filed a case against Didi’s acquisition of Uber China business.
According to the provisions of Article 6, Paragraph 2 of the Ministry of Commerce’s Interim Measures for the Investigation and Handling of Failure to Declare the Concentration of Operators According to the provisions of Article 6 of the Ministry of Commerce, "If it is a failure to declare the concentration of undertakings according to law, the Ministry of Commerce shall conduct further investigation and notify the operator under investigation in writing. The operator shall suspend the implementation of the concentration." However, the integration of Didi and Uber’s China business has never been "suspended" in the past three years. It is inferred from this that so far, our country’s anti-monopoly law enforcement agencies have not determined that Didi’s acquisition of Uber’s China business is a "concentration of undertakings that has not been declared according to law."
The "hypothetical monopolist test" and raising the starting price of online car-hailing in the main urban area of Beijing
Even if Didi’s acquisition of Uber’s business in China in 2016 did not meet the reporting standards stipulated in Article 3 of the "Regulations of the State Council on the Reporting Standards of Concentration of Business Providers", which states that "the combined turnover of all business operators participating in the concentration in the last fiscal year exceeded 10 billion yuan worldwide, and the turnover of at least two of them in the previous fiscal year exceeded 400 million yuan in China", it is still not ruled out that the anti-monopoly law enforcement agency should conduct an anti-monopoly review of the merger in accordance with Article 4 of the administrative regulation. The latter stipulates: "If the concentration of business operators does not meet the reporting standards stipulated in Article 3 of these regulations, but the facts and evidence collected in accordance with the prescribed procedures show that the concentration of business operators has or may have the effect of excluding or restricting competition, the competent commerce department of the State Council shall investigate according to law.
If, before the Ministry of Transport and other competent departments settled in Didi to supervise rectification in September 2018, Didi’s unilateral pursuit of valuation improvement, the introduction of strangers in Hitch, and the neglect of driver and passenger safety measures did not constitute the negative consequences of excluding and restricting competition in the sense of the Antimonopoly Act, then price increases are one of the intuitive evidence for analyzing the impact of mergers and acquisitions on the competitive environment.
In fact, according to media reports, as early as August 2016, on the eve of Didi’s acquisition of Uber China, Didi had already reduced subsidies for passengers in some cities, and after the merger, it reduced subsidies for drivers. It also increased the platform’s commission by changing the pricing method in disguise, and once caused dissatisfaction from all walks of life because of exaggerated dynamic price adjustments. In contrast, on July 9, 2019, Didi announced an overall increase in the starting price of the main urban area of Beijing, which, although small, is significant for anti-monopoly review.
First, Didi divides Beijing into five regions, including Dongcheng, Xicheng, Haidian, Chaoyang, Fengtai, Shijingshan, Changping, and Mentougou districts with the same billing standard; Shunyi, Tongzhou, Daxing, and Fangshan districts with the same standard; Miyun, Huairou, and Yanqing and Pinggu districts with different standards. It can be seen that the online car-hailing market cannot be generally defined by the national market as a regional market, and it is even likely that the relevant regional markets need to be divided according to consumption habits, rather than simply according to administrative divisions or the jurisdiction of the authority in charge of issuing online car-hailing licenses.
Second, Didi raised the starting price of the main urban area of Beijing by 7.69% uniformly, which is exactly in line with the range stipulated in Article 10 of the "Guidelines of the Anti-Monopoly Commission of the State Council on the Definition of the Relevant Market". The test "The question to be analyzed is whether the hypothetical monopolist can raise the price of the target commodity slightly (usually 5% -10%) for a long time (usually 1 year) while the sales conditions of other commodities remain unchanged." If such a small but sustained price increase is profitable, then it means that either the goods (including services) that the hypothetical monopolist has raised the price constitute an independent relevant market, or the hypothetical monopolist has in fact had a market dominance in the relevant product market to which the goods (including services) that have raised the price belong. Because according to the provisions of Article 17 (2) of the Antimonopoly Act, the ability to "have the ability to control the price of commodities in the relevant market" is one of the distinctive signs of market dominance.
In other words, Didi has gained market dominance at least in the main urban area of Beijing after acquiring Uber China, its most important competitor in China’s ride-hailing business and related financing market. Even though there are many taxi companies and ride-hailing companies providing ride-hailing services in the main urban area of Beijing, in the context of rising demand and strict regulations on ride-hailing licenses and driver licenses, these competitors are difficult to pose effective competitive constraints on Didi in terms of the number of ride-hailing and ride-hailing drivers, services or costs.
By analogy, in more than 130 cities with online car-hailing platform operating license drops, in those small and medium-sized cities with few online car-hailing competitors will be even more lack of effective competition constraints, so it is possible that as early as August 2016 after the completion of the merger of Uber China, the pricing level of online car-hailing has been raised to a level beyond effective competition constraints (see my article "Antimonopoly Act Dimension of Didi Acquisition of Uber China", 2016-08-08, surging news). And in the degree of competition is not as fierce as the main urban area of Beijing’s network about the car regional market, it is not ruled out that Didi will in order to improve the valuation and profitability before listing, the same choice to increase the starting price, and even cause other competitors to follow the trend of price increases, especially in the past and Didi carried out short-term subsidy competition, but in September 2018 after the listing stopped subsidizing the net about the car Meituan and Didi are also heavily invested by Tencent (see the article "anti-monopoly stick when to dance to the scenery of Internet Tech Giants", 2018-09-20, surging news).
Similarly, the mileage fee for the morning peak (6:00-10:00) in the main urban area of Beijing rose by 12.5% from 1.6 yuan/km to 1.8 yuan/km, and the duration fee remained at 0.8 yuan/km; the mileage fee for the night to early morning (21:00-6:00) rose by 33% from 1.6 yuan/km to 2.15 yuan/km, and the duration fee was reduced from 1 yuan to 0.8 yuan/km, which was the same as the morning peak. The price increases during these popular periods of online car-hailing calls also demonstrate Didi’s ability to control prices, which is conducive to improving platform profits on the one hand, and consolidating its market dominance in the online car-hailing driver market on the other hand, attracting more online car-hailing drivers to take orders on the Didi platform or accept financial services such as car loans.
Similarly, during the peak hours (10:00-17:00), Didi maintained the starting price of 13 yuan unchanged, the mileage fee was reduced from 1.6 yuan/km to 1.45 yuan/km, and the time fee was reduced from 0.5 yuan/km to 0.4 yuan/km; while during the evening peak hours (17:00-21:00), the starting price of Didi Express increased from 13 yuan to 14 yuan, the mileage fee decreased from 1.60 yuan/km to 1.50 yuan/km, and the time fee was still 0.8 yuan/km. These lower price adjustments occurred during periods when passengers’ demand for the car was not so urgent. During these periods, passengers were more patient to wait for other platforms with a small number of online car-booking and far-flung platform orders to be dispatched. By modestly reducing mileage or time fees, Didi aims to maintain a competitive advantage during these periods, striving for more order volumes and higher listing valuations. This will also help Didi’s platform consolidate its market dominance on the passenger side and the driver side.
The future of antitrust scrutiny is uncertain
In the article "Anti-Monopoly Three-in-One" published on December 3, 2018, Caixin Weekly interviewed Professor Huang Yong of the University of International Business and Economics, a member of the Expert Advisory Group of the Anti-Monopoly Committee of the State Council. The latter argued: "For the new Internet business model, it cannot be ruled just because it has grown big. It is necessary to professionally evaluate its behavior and impact. This requires a process, and it is a professional and technical process. The emergence of new Internet business models such as ride-hailing in recent years has played a great role in solving the problem of urban development. In this case, whether to’let the bullet fly for a while ‘or directly intervene in the new business model early is a question that needs to be considered."
It will take "three years" to see the "bullet" of Didi’s acquisition of Uber China. In addition to the vicious safety incidents caused by Didi’s online ride-hailing platform’s neglect to ensure the safety of drivers and passengers, three years after Didi’s acquisition of Uber China, Didi’s price adjustment in Beijing has been presented to the public and anti-monopoly law enforcement agencies as an important evidence. In the past ten years, our country’s anti-monopoly law enforcement agencies have successively banned two concentration of undertakings cases and approved 40 concentration of undertakings cases with restrictive conditions, and these 42 cases are all foreign-led mergers and acquisitions. Then, whether the Anti-Monopoly Bureau of the State Administration of Market Supervision will use Didi’s increase in the price of online car-hailing in the main urban area of Beijing as clues and evidence to officially open an investigation into Didi’s acquisition of Uber China remains to be seen.
But it is obvious that if the case is publicly investigated, then Tencent, Alibaba and other Internet companies that have not made prior declarations of mergers and acquisitions, joint ventures and other business concentration businesses in accordance with the Antimonopoly Act in the past 11 years will also face anti-monopoly review (for related cases, see my article "Anti-monopoly law enforcement should not condone Internet oligarchs", 2018-08-29, surging news).
Improving the competitive environment for the development of the Internet economy is a systematic project. For 11 consecutive years, our country’s anti-monopoly law enforcement agencies have not reviewed the mergers and acquisitions of Chinese Internet companies. In addition to accelerating the accumulation of wealth by the entrepreneurs involved, and allowing more market segments to achieve unshakable market leadership through mergers and acquisitions, it has also accumulated a lot of negative external effects.
With the help of new evidence, it is important for the Anti-Monopoly Bureau of the State Administration for Market Regulation to expedite the review of the Didi-Uber China merger and acquisition case that has been pending for three years. But more importantly, the whole society can reflect on whether our country should, like other market economy countries that rule by law, strictly review Internet economy mergers and acquisitions in accordance with the Antimonopoly Act like other industries, and protect the market competition order to stimulate innovation and protect consumer welfare. (The author Liu Xu is an adjunct researcher at the Intellectual Property and Competition Law Research Center of Tongji University Law School)