(By You Yunting) China’s two largest Taxi apps Didi Dache (“Didi”) and Kuaidi Dache (“Kuaidi”) confirmed merger on the Western Valentine’s Day, triggering the whole industry, which also lead to the suspicion of a monopoly. Afterwards, the Taxi apps Didi and Kuaidi responded this with much larger travel markets, and told that their merger does not lead to a monopoly, because mobile taxis only count a small proportion with lots of participators. As for whether their merger is accused of monopoly, there are hot discussions among legal professions. At present, third parties were tending to make anti-monopoly investigation from the Ministry of Commerce, and I am no exception. But after full consideration, I fell into confusion.

At the first interview by reporters, my opinion was that the Ministry of Commerce should initiate an investigation. According to the Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators, where a concentration of undertakings does not reach any of the thresholds specified in Article 3 herein, but facts and evidence collected in accordance with the prescribed procedures establish that such concentration effects, or is likely to effect, the elimination or restriction of competition, the competent commerce department of the State Council shall initiate an investigation in accordance with law.

But could anti-investigation stifle innovation and dampen the enthusiasm of venture capitalists? Upon why Didi and Kuaidi had merged, as the news stated, their senior managers thought it would be unable to continue the vicious competition with continuous calling subsidies on a large scale, which gave subsidies of more than RMB 20 billion in the competition among taxi applications in the end of 2013. (Chinese Link: http://news.163.com/15/0215/03/AIFDTBVB00014AED.html)

Both, Didi and Kuaidi, are new innovative business models, which transform the traditional taxi operation, and get rid of low quality, resulting from the monopoly of taxi companies. Besides, they also break regional information asymmetry for taxi services and solve the difficulties in taking a taxi. Except above innovation, they also popularize the mobile payment, which makes capitalists undertaking great ventures. When venture capitalists find it hard to continue their business model through money subsidies but be unable to stop their competition, it indeed to be wise to make merge, stopping vicious competition and finding another operation model. So with that being said, it is the market that pushes their merger. However, at this moment, if the Ministry of Commerce denies their merger by the reasons of its likelihood of restricting competition, or requires them to add a higher level of merger, will such delay enlarge the loss of capitalists? Could that delay hurt the enthusiasm of others innovators?

But then I thought of whether unregulated merger cause more damages, since the business model of Didi and Kuaidi itself is unhealthy. Because the main approach of Didi and Kuaidi to attract users is that subsidizing both, customers and drivers, aimed at rapidly exploring the market. But that approach, which is based on subsidizing money, totally broke the Article 11 of the Anti-Unfair Competition Law with the stipulation that a business operator shall not sell its goods at a price below the costs. They compete for subsidizing customers and drivers dependent on their deep pockets, and it is likely to the existence of cooperative behaviors, eliminating the other competitors by means of unfair competition acts.

According to the existing market research report, Didi and Kuaidi had been kept 99 percent market shares in the taxi booking market (Chinese link:  http://tech.gmw.cn/newspaper/2015-02/15/content_104609264.htm). After setup the taxi booking market, their competition had already been explored in the market of tailored taxi service. If governments cannot set some boundaries at the merger of Didi and Kuaidi, their merger might be resulting in a leviathan and then turn into unfair competition in the market of tailored taxi service, which even abuse their dominant market position and repeat the acts of excluding the competitor.

Based on the above reasoning, I had packed up my thoughts that the Ministry of Commerce should initiate an investigation on the merger of Didi and Kuaidi, and should take conditional approval on the premise of obeying the laws and regulations.

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You Yunting：86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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