Chen Xiaohong, Enterprise Research Institute of DRC

Research Report No.157, 2004

II. Competition Policies: New Trend and Coordination with Industrial Policies

1. Competition policies for the information age

Competition policies, or anti-monopoly policies, are generally divided into structural policies and behavioral policies. Structural policies refer to those designed to ensure the competitiveness of the market structure through break-up, mandatory sale, acquisition and merger examination and other tools in light of the conditions of the market structure (degree of concentration). Behavioral policies are designed mainly to promote market competition among enterprises through restrictions on enterprises’ anti-competition behaviors, such as bundled marketing and improper differential treatment. In most cases, structural policies and behavioral policies support each other. For example, only when the concentration index that reflects the degree of the competitiveness of the market structure is very high will the regulatory departments care about whether the market behaviors of enterprises are restricting competition.

The new features of competition in the information industry pose many new issues to the competition policies, and therefore, the competition policies demonstrate some noticeable trends.

Structural regulation emphasizes acquisition and merger regulations. At the same time, regulatory factors are getting increasingly integrated and diverse and are incorporating the regulation of the technology innovation market. The main tool for structural regulation is corporate break-up and corporate merger. But in the information industry, the past policy to split enterprises simply due to their high market share has been rarely employed, because people are paying growing attention to the dynamic characteristics of market competition. But the regulations on the frequent corporate acquisitions and mergers in the information industry have not been liberalized. Take Microsoft for example. While the break-up policy has not been accepted, its repeated acquisition and merger applications have not been approved either. In the past, whether structural regulation should be conducted depends mainly on the state of the product market. Later, the conditions of the technology market began receiving attention. Later in the 1990s, the United States began paying equal attention to the innovation market. The so-called innovation market refers to the market made up of multiple research and development projects that are designed to acquire new products and new technologies. The review of this market is generally limited to the occasions that are related to research and development and specific corporate assets (intellectual property and related research facilities, specific assets). The review deals with the possibility of competition restriction, instead of the result of competition restriction. The review of the competitiveness of the innovation market is not targeted on the specific assets. In fact, it is more targeted on the future goods market of enterprises. The state of competition of the innovation market (for instance, the state of patent accumulation) has become a new factor that must be taken into account when conducting anti-monopoly policy reviews for corporate acquisitions and mergers. The guide published in 1995 by the U.S. Justice Department has preliminarily defined the procedures for the review of the competitiveness of the innovation market.

Competition policies care about the irregularities in the course of standardization. The issue of standardization is a complex issue, involving both technical policies and competition policies. There are three types of standards: factual standards, alliance standards and public standards. All the three types of standards involve competition policies.

Factual standards refer to the fact that an enterprise occupies a dominant position in the market and its standards have become the standards that other enterprises must comply with. Factual standards are conducive to industrial development, but they can become factors impeding competition and technological advance. The main problem that needs to be solved by the competition policies in this respect is whether and how they should be harmonized with the policies on intellectual property.

Alliance standards refer to the standards that are formed by enterprises independently through coordination. They can impede and restrict competition in many ways. The relevant competition policies mainly concern three situations. (1) Whether a standard cartel could appear when the market share of an alliance of enterprises is very large. (2) Whether an alliance is open to others. If the alliance is open, its restriction on competition will be relatively light. If the alliance is not open, a conclusion on whether it restricts competition still requires a specific determination in accordance with the principle of rationality. For example, if there exists competition between the standards of two or more alliances, the closeness of the alliances can also promote competition. (3) Intellectual property. The existence of the standard-related intellectual property of factor technologies has made the coordination between intellectual properties and standards extremely important. The issues concerned with competition policies include whether the relevant information should be made public to avoid misleading alliance participants, whether other people are allowed, under certain conditions, to acquire the access to the relevant intellectual properties and whether the prices offered do not contain unreasonable differential treatment. The U.S. standard alliance (VESA) on the connection between computer CPUs and foreign equipment requires that the participants must confirm in advance whether the newly developed VESA specifications are contradictory to their intellectual property rights. Dell confirmed there was no contradictory relation, but announced when the VESA specifications were successfully developed and rapidly popularized that these specifications infringed its own patent rights. The U.S. Federal Trade Commission (FTC) believed that Dell had taken advantage of the uncertainty of the VESA specifications and standards to force up the costs of the standard-using enterprises and therefore its behavior constituted unfair competition. The FTC ruled that Dell had violated Article 5 of the FTC Law.

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