An extract from The Dominance and Monopolies Review - 7th edition
Market definition and market power
The approaches for defining the relevant market and assessing market power presented in the black letter law of China are consistent with other major antitrust regimes.i Relevant market definition
The basic principles related to abuse of dominance in the AML are similar to those of Article 102 of the Treaty on the Functioning of the European Union and Section 2 of the Sherman Act. The specification of market definition is stipulated in the Guidelines on the Definition of Relevant Market (Guidelines). In accordance with the Guidelines, the basic approaches for defining the relevant market are analysis of demand-side substitutability and supply-side substitutability.
Article 8 of the Guidelines provides that the following factors may be considered when defining the relevant market from the demand side:
- evidence of switching to other products when the price or other factors of the product concerned are changed;
- the appearance, characteristics, quality, technical features and functionality of the product;
- price variance between products;
- the distribution channel; and
- other factors.
Article 9 of the Guidelines provides the following factors to be considered when defining the relevant geographical market from the demand side:
- evidence of turning to other regional products when the price or other factors of the product concerned are changed;
- the cost and characteristics of transportation;
- the region in which the majority of customers purchase the product in practice, and the regional distribution of major business operators' products;
- trade barriers, such as tariffs, regulations and environmental and technical factors; and
- other factors.
The Guidelines also mention the 'small but significant and non-transitory increase in price' method, a tool frequently used by both EU and US antitrust regulators.ii Market dominance
Market dominance under the Chinese antitrust regime is defined in Article 18 of the AML and further clarified by the implementing rules. It refers to a market dominant position held by one or more undertakings that enable the undertakings to:
- control the price, volume or other trading terms in the relevant market; and
- block or affect the ability of other undertakings to enter the relevant market by impeding or delaying other undertakings' entry into the market, or substantially increasing other undertakings' entry costs, so that the competitors cannot compete effectively post-entry.
As illustrated in the table below, Article 19 of the AML specifies the market-share thresholds that are regarded as preliminary evidence of market dominance.
|Number of undertakings||Aggregated market share in the relevant market|
The preliminary evidence of market dominance can be rebutted by proof showing lack of sufficient market power despite high market share. In addition, under the preliminary evidence, if any of the undertakings has a market share of less than 10 per cent, this undertaking shall not be deemed to have a dominant position.iv Factors for assessment of dominance
The AML has further elaborated the factors by which market dominance should be assessed in Article 18, including:
- market share in the relevant market;
- the competition situation in the relevant market;
- the ability to control sales markets or raw material purchasing markets;
- the financial status and technical conditions of undertakings;
- the degree of dependence of other undertakings;
- entry to the relevant market by other undertakings; and
- other factors related to finding a dominant market position.