Futu Research | "Guidelines on Anti-Monopoly in Platform Economy": Will the hammer fall, tightening or relaxing the margins?

Futubull, pay attention:

It took only about three months for the Platform Economy Anti-Monopoly Guidelines from the draft for solicitation of comments to the official version.

Indicatively, the official version of the guidelines did not show apparent tightening, and there were even marginal relaxations in some key details.

It is a good thing to clearly define the red lines for internet giants in the long term, providing a conducive environment for new platform innovations.

To identify the most internationally competitive industries in China in the 21st century, the platform economy must have its name.

Tencent, Alibaba, Meituan, PDD Holdings, Douyin... the top market cap and well-known internet companies are essentially building platforms to connect the supply side with commodities, content, or services, and the demand side with a massive number of internet users.

For the purpose of protecting innovation, for a considerable period of time, the internet platform economy seemed disconnected from the words 'anti-monopoly.' It wasn't until the end of 2020 that the anti-monopoly calls regarding the platform economy started to escalate, even reaching the top echelons. In the secondary market, anti-monopoly has become a major uncertainty for internet sector.

In November 2020, the 'Draft Anti-Monopoly Guidelines in the Field of Platform Economy' were released, targeting the criticized practices like 'price discrimination' and 'choose one out of two' in internet platforms. On the day the draft was introduced, the stock prices of mainstream internet platforms plummeted, showing the high importance given by the capital markets.

After nearly three months, on the evening of February 7, 2021, the 'Anti-Monopoly Guidelines in the Field of Platform Economy' were finally released, bringing the long-awaited 'big stick' down on the internet giants.

Compared to the previous 'Draft Guidelines,' the new document did not significantly tighten, showing some marginal relaxation in certain details.

Looking at the performance of today's Hong Kong internet giants' stock prices, the capital market's interpretation of the document is neutral to even slightly optimistic. This may indicate that a major uncertainty in the internet sector is starting to become clearer.

A detailed analysis will be conducted on the following important yet marginally changing areas:

Change 1: Low Price Subsidies for Customer Acquisition

Subsidizing at low prices or even free acquiring customers, followed by monopolistic price increases, can be considered a common practice among internet companies. In this official draft of the anti-monopoly guidelines, there is actually some relaxation compared to the consultation draft.

Official draft: It is stipulated that in the following situations, operators in the platform economy sector can sell below cost: ① Within a reasonable period to develop other businesses within the platform; ② Within a reasonable period to promote new commodities entering the market; ③ Within a reasonable period to attract new users; ④ Within a reasonable period to conduct promotional activities; other

Compared to the consultation draft, the official draft adds ③ and ④. As a result, this provides a window for low-price subsidies to acquire customers and massive discount activities similar to 'Singles' Day'. The changes from the consultation draft to the official draft show a certain relaxation in the regulatory attitude towards burning money to acquire customers.

From an impact perspective, it may benefit pdd holdings, Alibaba, Meituan, and other transactional platforms, as these platforms prefer to attract and promote businesses using discounts, low prices, and promotional events.

II. Change 2: Big Data Discrimination

Internet platforms hold multi-dimensional user data, which has previously led to the 'discrimination' pricing strategy, causing many consumers to complain. The anti-monopoly guidelines mainly reflect the 'differential treatment' clause regarding discrimination. The official draft mainly embodies the following legitimate reasons for differential treatment.

Official draft: ① Implementing different transaction conditions based on the actual needs of the transacting parties and in accordance with legitimate trading habits and industry practices; ② Offering promotional activities for new users within a reasonable period; ③ Implementing random transactions based on fair, reasonable, non-discriminatory platform rules; ④ Other

Compared to the consultation draft, the official draft excludes 'differential trading prices or other trading conditions based on big data and algorithms for new and old transacting parties' in the 'differential treatment' clause. In addition, it has also relaxed the description of promotional activities for new users: the consultation draft allowed for promotional activities for new customers in a reasonable period for the first transaction, while the official draft removes the word 'first,' essentially expanding the control range for new user benefits.

3. Change 3: The 'either-or' practice on e-commerce platforms.

'Either-or' is a common practice on typical e-commerce platforms. Previously, Alibaba and Vipshop had similar operations, aiming to control the exclusive sales of high-quality, cost-effective products from platform merchants within the platform.

Official text: The 'either-or' behavior has been included in Article 15 'Restricted Transactions.' The specific statement is: 'Require operators within the platform to choose between competitive platforms, or restrict transactions with counterparties to exclusive transactions.' The legitimate reasons include: ① necessary to protect the interests of counterparties and consumers; ② necessary to protect intellectual property rights, trade secrets, or data security; ③ necessary to protect specific resource inputs for transactions; ④ necessary to maintain a reasonable business model; ⑤ others

In the restricted transaction clause of 'either-or,' a legitimate reason for 'necessary to protect trade secrets' has been added, which does not further tighten the 'restricted transactions' marginally, showing a tendency towards relaxation overall.

Summary:

From a trend perspective, after the official release of the Antitrust Guidelines, the future anti-monopoly regulatory enforcement for the platform economy will become stricter. However, looking at the marginal changes from the consultation draft to the official draft, we can observe the following two trends: firstly, a clearer definition, which is a positive development for the platform economy to have clear boundaries; secondly, key details have not been marginally tightened, indicating the regulatory authority's stance.

Related companies:

Considering the clarity on 'either-or' and relaxation of low-price subsidies, there may be greater opportunities for relatively new e-commerce platforms, including PDD Holdings, Kuaishou E-commerce, JD.com, among others. In addition, under the overall trend of anti-monopoly, the diversification of e-commerce platforms may be the future trend. Under the trend of diversification, e-commerce SaaS companies like Youzan and Weimob may also benefit.
$BABA-W (09988.HK)$$Alibaba (BABA.US)$$JD HEALTH (06618.HK)$$JD.com (JD.US)$$PDD Holdings (PDD.US)$$MEITUAN-W (03690.HK)$ $KUAISHOU-W (01024.HK)$$Vipshop (VIPS.US)$$TENCENT (00700.HK)$

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