Monopoly Marketing: A Glimpse on the Basic Rules and Principles with Specific Reference to Chinese Law
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(This paper is jointly written by Jaymangal Prasad and Kasturi Jaiswal of, School of Law, Heiliongjiang University, Harbin, China . nyayapalika.com is pleased to publish here for the Nepali Readers. – Editor)
Monopoly can be defined as a market structure characterized by a single seller, selling the unique product with the restriction for a new firm to enter the market. This basically follows the principles of restriction and dominance of single seller on respective products. It can be otherwise also understood as a form with due presence of a single seller selling a particular commodity for which there are no close substitutes and lacks a specific visible competitor in market. In this work, monopoly marketing with reference to Chinese law has been made. The article argues that, Chinese Law on Monopoly marketing as regards its substantive principles reflects the core principles in EU competition laws such as the illegal per se rule and rule of reason. This is due to the fact that the drafting team largely studies EU laws to craft suitable legislation applicable to Chinese context.
Keyword: Monopoly law, Competition Law, Illegal per Se Rule, Rule of Reason
Monopoly is considered as one of act happening in open market, subject to multiple restrictions and actions. There are various perspectives to define this concept in order to regularize the business transaction of market. It is noted that from legal perspective Monopoly can be defined as a market structure characterized by a single seller, selling the unique product with the restriction for a new firm to enter the market. This basically follows the principles of restriction and dominance of single seller on respective products. It can be otherwise also understood as a form with due presence of a single seller selling a particular commodity for which there are no close substitutes and lacks a specific visible competitor in market. This definition has given two defining features of monopolistic market: Frist, The firm has full control over the supply of a product. Second, the firms can influence the price of a product and hence, they are makers, not the price takers.
It is recorded fact that monopoly had always become one of key act that a market force has witnessed. It developed in line with the development of merchants, commerce, international transaction, business and open market, free access of good and services and other in course of development of human civilization. Tracing back in England, a monopoly originally was an exclusive right that was expressly guaranteed by King in parliament to one person or class of persons to provide some services or goods. The holders of such rights usually dominated the market. By the early 17th century, the English courts began to avoid monopoly as interfering with free trade. In 1623, the parliament of England enacted the Statues of Monopoly. While in the United States, during 19th century, monopolies were prosecuted under common law and by Statutes as market interference offences. Later the Interstate Commerce Act, 1887 came in existence for the regulation of monopoly marketing.
- Characteristics of Monopoly
Out of several defining features of monopoly marketing, the following summarize the basic ones according to Posner.
2.1 Sellers are price makers
As there is only one seller in the market, it can influence the market price by its own production decisions. If the market demand curve is downward sloping then the monopoly firm faces the same demand curve, the price falls as the amount of output sold rises. So the firm can increase the market price by selling less.
2.2 Buyers are price takers
Each buyer is sufficiently small in relation to the overall market that they can’t influence the market price by the amount they consume.
2.3 Sellers do not engage in strategic behavior
When a firm makes its own output decisions, it does not take into consideration the response of other firms – because there aren’t any.
2.4 No new firms can enter the market
The monopoly firm faces no threat of entry from potential rivals. When you have a market that has only one firm producing, but the firm is producing at a lower price than you would expect it to, this could suggest that it is fearful of rivals entering and so is trying to deter entry through keeping the price down. Sometimes you will have a situation where there appears to be only one firm in the market, but it is not really a monopoly – the threat of entry will erode its market power.
- Principles of Monopoly Marketing
As matter of rule, Monopoly is considered as anti-competitive commercial practice and therefore, it is sanctioned under the laws of all countries. This however does not mean that all sorts of monopolies are illegal. Monopolistic behavior which is characterized by the features which are discussed above are illegal and punishable both in civil and criminal laws of many countries. From this, it follows that, monopoly can be legally allowed.
3.1 Illegal Vs. Legal monopolies
The mere fact that a company is a sole producer of products or services is not enough to label that company as a monopoly trader, it has to be confirmed that the company has acted in an anti-competitive manner. Such as buying up all of the competition or actively controlling the entire supply of a critical raw material, or in one way or another put barriers against other traders or potential investors to leave the market . This is called Anti-Competitive Monopolization. As an illustration, anticompetitive monopolization violates federal antitrust law, notably the Sherman Antitrust Act , and is prohibited by state antitrust law, including the Cart wright Act in California.
Under federal and some state laws, private parties (businesses or consumers) who were harmed by anticompetitive conduct can bring antitrust lawsuits seeking damages (in some instance treble damages) and injunctive relief.
3.2 Legal Monopoly
Legal monopolies are companies the government has sanctioned to be the only one to provide a certain service in a certain area. This tends to be things like utilities (water, buses, and electricity), although it can be almost anything. These companies can still make a small profit, but are strictly regulated .
3.3 Anti-Monopoly Law in China
The Anti-Monopoly Law (AML) of China in a wider sense refers only to the Anti-Monopoly Law of the People’s Republic of China, passed by the National People’s Congress on 30 August 2007, and implemented as of 1 August 2008.
In a broad sense it refers to the anti-monopoly legal system of China, including not only the AML, the post-AML ancillary legislative and legal documents for the purpose of enforcing the AML, but also all pre-AML legislative and administrative documents with an anti-monopoly nature, as well as regulatory or administrative enforcement, private enforcement and judicial procedures.
- Analysis of Monopoly Marketing under the rules of AML
The “per se illegal” and “rule of reason” principles need to be understood for better examine and understand the position of AML.
Per se illegal refers to a restraint of trade that is explicitly anticompetitive such as an agreement controlling the price of goods . These practices by their nature are not pro-competitive and thus a court of law to which these facts are proved will not accept any justification for such activities as they are naked restraints of trade.
Rule of reason applies to a restraint that is not deemed a naked restraint, for instance, Under Section 1 of the Sherman Act 1890, every contract, combination or conspiracy is illegal if it constitutes undue or unreasonable restraint of trade . The test of reasonableness concerns whether the challenged contracts or acts unreasonably restrict competitive conditions in the market or industry.
4.1 “Illegal per Se Rule” and “Rule of Reason” in the AML of China
The doctrines of “illegal per se rule” (“per se rule”) and the “rule of reason” are two landmark and the most important legal theories in the history of anti- monopolistic law and development of the anti-trust law not only in its country of origin but also in many other countries and jurisdictions all over the world. The doctrines make a clear and straightforward definition in legal theory and can be efficiently and effectively implemented in practical enforcement.
Literally, the doctrines of “per se rule” and the “rule of reason” can be found in the AML context as well as in the Supreme Court Judicial Opinion of China as well as in several court judgments.
During the processes of the AML legislation, the AML drafting team had not only studied and referenced to the greatest extent the statues of the EU competition law, legislation as a result the basic structure and contents of the AML are as close and similar as the EU competition law. The team has further studied the US antitrust legal theory and cases and consulted the US antitrust legal experts. As such, the spirit of the doctrines of “per se rule” and the “rule of reason” indeed exists or influences the creation of the AML.
In the legislation, as far as the literal provisions of the AML is concerned, it is found that horizontal agreement, vertical Agreement and abuse of dominant market position as one category using the literal word “prohibit” without any pre -ondition, while there is a condition of “reasonable cause” for the “prohibition” in abuse of dominant market position without justifiable cause as another category, as a result making literal difference that there should be different legislative purposes and intents as well as different legal meanings in the AML between the above two categories: with regard to the unconditional prohibition in the first category on one hand, any agreement or conduct breaching unconditional prohibition will then constitute a violation of law without regard to the result or effect caused by the violation, as such these unconditional prohibitions can be treated or argued to have the nature or character of “illegal per se” and accordingly it is an alternative expression of “illegal per se rule” in the AML; with regard to Articles 17(2) to (6), on the other hand, the literal words “reasonable cause”, given its obvious literal meaning, will then be an alternative expression of the “rule of reason”.
In the Supreme Court Judicial Opinions on Several Issues Concerning the Application of Law in Proceeding Anti-Monopoly Civil Dispute Cases (Soliciting Comment Version) Circulated by the China Supreme Court on 25 April 2011 (hereinafter the “SCJO SCV”), unlike in the literal provisions of the AML, it seems to draw no distinction as between Articles 13, 14 and 17(1) as one category Articles 17(2) to (6) as another category as initially drafted as in Article 8 of the SCJO : “The victims of the monopoly agreements shall have burden of proof against the alleged monopoly agreements for the effects of the exclusion or restriction of competition. The victims shall not have burden of proof against such monopoly agreements for the effects of the exclusion or restriction of competition if the monopoly agreements fall within the scope of Articles 13(1) to (5) or Articles 14(1) and (2), except for if the alleged undertakings to the said monopoly agreements are able to prove otherwise by the contrary evidence.” which could be read as that both Articles 13(1) to (5) or Articles 14(1) and (2) are subject to effect examination (rule of reason).
Nonetheless the above, however, in the administrative enforcement, it appears that the NDRC is rather apt to apply the doctrine of “illegal per se rule” directly to the first category (i.e., AML Articles 13, 14 and 17(1)) because of the low difficulty and costs and easy proceeding to apply the “per se rule” in the administrative enforcement of the AML. This is evidenced by several cases that NDRC announced during January to August 2013 because neither examination nor analysis on the “reason” or “reasonable cause” had ever been made to the effects of restriction or exclusion of competition by the alleged monopolistic conducts. Albeit this has been questioned, NDRC appears to follow and carry on the strategy and tactics that were adopted in the US in the early stage of the enforcement of Sherman Act at the turn of 19th and 20th centuries to put a direct “illegal per se” effect to the AML Articles 13 and 14. This makes very important sense because it is drawing a boundary line as between the “illegal per se” conducts and agreement and those conducts an agreement with “reasonable cause”.
The basic structure and framework of the anti-monopoly law of China include legislations and the implementing legal documents such as the post-AML ancillary legal documents, the pre- AML laws and legal documents which are still in force, and those laws and legal documents that are still in the processes of either drafting or soliciting opinion.
During the processes of the AML legislation, the AML drafting team had studied and referenced the statues of the EU competition law legislation. Consequently, the basic structure and contents of the AML largely similar with the EU competition law. Furthermore, the drafting team had studied the US antitrust legal theory and cases and consulted the US antitrust law experts. However, until the Supreme Court clearly interprets this important issue by further judicial opinions or rulings, whether or not the unconditional prohibition in Articles 13 and 14 would equally have similar nature of “illegal per se” and how to distinguish Articles 13 and 14 them from the “reasonable cause” in Articles 17(2) to (6), still remain as an interesting topic in the anti-monopoly legal system in China.
– Jaymangal Prasad and Kasturi Jaiswal
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