(By You Yunting) Over the past few days, the writer shared two essays concerning the administrative punishment ordered against Mao Tai Company and Wu Liang Ye Company, the top distilleries in China, over the accusation that they violated the Anti Monopoly Law by concluding monopoly agreements restricting or fixing retail prices (the “monopoly agreements”) with their dealers. The writer has received heated comments and arguments from the subscribers and followers of his Weibo and Blog. Many of these comments support the punishment, but some friends have expressed concerns over the issue. Today, the writer will share his opinions on whether the punishment will influence the normal commercial order.
I. Some friends have stated that the white spirit (白酒 baijiu) industry is open for competition. So, if a manufacturer fixes the retail price, dealers can choose not to be its agents, and consumers can refuse to purchase its product. For this reason, both the dealers and consumers voluntarily engage in this “game.” Furthermore, Mao Tai and Wu Liang Ye take the commercial risk for their business strategy, and therefore the State should not meddle in this voluntary market transaction.
The writer’s opinion: Everyone can understand the government punishing sellers who conspire with their competitors to fix retail prices in the market because this kind of conspiracy unreasonably sets prices and damages consumer interests. The market economy is developing step by step in China, and the laws governing the economy, including the Anti Monopoly Law, have been informed by the rules of developed nations with years of market economy-focused legal experience. The aforesaid rules hold that pricing monopoly agreements entered into between a supplier and dealers will damage consumer interests.
Once a pricing agreement is concluded and then implemented by a supplier and dealer, it could ultimately lead to a pricing cartel, as different dealers sell the same product at the same price to consumers. It could also lead to market segmentation among the competing manufacturers through the price fixing; when a dealer act for different factories’ product, the pricing monopoly agreement could the transfer to the restriction on competition to the manufacturers. In brief, if the manufacturer jointly works with the dealers, it will be unfair to consumers, who will undoubtedly pay more money to purchase the same product. At the same time, it will be extremely unfair to new competitors entering the market.
II. Do the articles of the Anti Monopoly Law prohibiting pricing monopolies have any preconditions? Based on the wording of the articles, having a pricing monopoly agreement is illegal, but this creates two problems. First, in practice, large brands almost all fix pricing with their dealers. If Mao Tai and Wu Liang Ye are punished this time, will other companies also be punished or will the law excuse the violation because it is so widespread? Second, start-up companies need pricing protection to some extent during the initial period of brand construction. If price contracts signed with dealers are banned, it would jeopardize start-ups’ competition with the other companies running large, mature brands, which would also conflict with the basic rules of the market oriented economy.
The development of market economy in China does not have a long history, but the country already has serious problems with all kinds of monopolies. China’s Anti Monopoly Law came into effect in 2008, but thus far there have been no cases implementing the law’s pricing monopoly clauses. This has led everyone to violate the law and created a vicious circle where no one is punished because there are too many violators. The strict enforcement of the law would have a strong guiding effort in practice; if Mao Tai and Wu Liang Ye are punished severely for their pricing monopoly, it will have a strong impact on other businesses. At that time, the companies will reevaluate the legal risk, weigh the advantages and disadvantages under the regulations in law, and accordingly adjust their commercial strategy to make sure their operations are legal. Otherwise, if the law is not actually implemented after its promulgation, no one will respect it, and no formal operation will be seen.
On the other hand, from a technical perspective, there is support for starting application of anti monopoly policies with the white spirit industry because the public has hated this industry for being linked with corruption. From there, implementation can be extended to other monopolized industries, foreign invested companies, private entities, and etc.
For the start-up companies and the new products, giving some room for free operation to these entities is also the practice worldwide. The National Development and Reform Commission could learn from that experience developed in advanced countries and provide a limited exemption for such pricing monopoly agreements .
III. In practice, there are already some industries that set an expressly marked prices for their products by the upstream companies. For example, in the publishing industry, almost all publishing houses print prices on their books. Is this then a kind of pricing monopoly?
The prices on books and magazines are actually the suggested retail price. The dealers can certainly sell the books at different prices, and the publishing house or distributer will not punish them. With the emergence of the Internet, the main problem faced by books and magazines is not the pricing monopoly, but unfair competition because most websites are selling books at a discounted prices or even below the cost price.
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You Yunting：86-21-52134918 youyunting@debund.com/yytbest@gmail.com
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