Why is the marriage of "tiger fish" banned?

On July 10, 2021, the Anti monopoly Bureau of the State Administration of Market Supervision announced the anti monopoly review decision on the merger between Tiger Tooth Company and Beta International Holdings Co., Ltd. According to the decision, the Anti monopoly Bureau decided to prohibit the merger transaction between Tiger Tooth Company and Beta International Holdings Co., Ltd. This case is the third publicly announced case of prohibition of business concentration transactions since the Anti monopoly Law came into effect, and it is also the first case of prohibition of business concentration related to the Internet field in China, as well as the first case of prohibition of business concentration related to domestic enterprises in China. Therefore, this case has a very important enlightenment for both Internet companies and domestic enterprises in China.

The content of the decision letter published in this case is very concise, and many key information has not been further expanded. For example, in the relevant commodity market definition section, how there are significant differences in content, user groups, requirements for anchor skills, market entry, revenue sources, and major competitors among game live streaming, entertainment live streaming, and e-commerce live streaming, which each constitutes a separate relevant commodity market, has not been explained in this section; In addition, when analyzing Tencent's implementation of two-way blockades, there was no in-depth analysis of the main motivation for vertical blockades, namely, profitability. Based on the decision letter of this case published by the Anti monopoly Bureau, this article briefly analyzes several key points involved in this case:

1、 Why is it necessary to file an antitrust declaration in this case?

According to publicly disclosed information, Tiger Tooth, the merging party, is mainly engaged in interactive entertainment video businesses such as live gaming. Tencent has sole control of Tiger Tooth. The merger of the other party, Douyu, is mainly engaged in interactive entertainment video businesses such as live gaming; The team of Tencent and Chen Shaojie, the founder of Douyu, enjoy joint control over Douyu.

According to the relevant concentration agreement, Tencent plans to acquire all equity in Douyu through Tiger Teeth through a merger. After the transaction, Tencent will obtain independent control of the merged entity. Therefore, for Douyu, after the completion of the proposed transaction, its control will be transferred, that is, from the original joint control to separate control. Therefore, the transaction constitutes a concentration of operators in the sense of antitrust law. Due to the fact that the turnover of the two merging parties significantly exceeds the threshold for antitrust declaration, the Anti monopoly Bureau did not provide any explanation on the turnover data of participating concentration operators in the decision letter of this case.

2、 How to define the relevant market?

According to the review by the Anti monopoly Bureau, Tiger Teeth and Douyu have horizontal overlaps in the game live streaming, entertainment live streaming, e-commerce live streaming, and short video markets, while Tencent is engaged in online game operation services upstream of game live streaming. In this case, the Anti monopoly Bureau did not list all businesses that overlap laterally between Tiger Teeth and Beta as relevant commodity markets, but selectively listed the live game and short video segments as relevant commodity markets. In addition, Tencent's upstream online game operation services constitute another relevant commodity market.

When defining game live streaming as a relevant commodity market, the Anti monopoly Bureau has explained the definitions of game live streaming, entertainment live streaming, and e-commerce live streaming separately. On this basis, it believes that there are significant differences in content, user groups, requirements for anchor skills, market entry, revenue sources, and major competitors among game live streaming, entertainment live streaming, and e-commerce live streaming, so there is no substitute for demand and supply, The three constitute separate relevant commodity markets. As mentioned above, the Anti monopoly Bureau has not conducted a detailed analysis on how the three parties are not substitutable in terms of demand and supply. In addition, from the analysis of the Anti monopoly Bureau, it is learned that online live streaming itself is not suitable to be defined as a relevant commodity market alone, and there are significant differences between the segments of live streaming services.

When defining short video as a relevant commodity market, the Anti monopoly Bureau believes that there are significant differences between short video and live video in terms of real-time interactivity, content, duration, main user groups, production processes, entry barriers, and profit models, and there is no substitutability in demand and supply. Short video constitutes a separate relevant commodity market. We understand that there are significant differences in the production process between short videos and live streaming. Online game operation services provide licensing and platform support for downstream live streaming and short video services, forming a separate related commodity market.

The market analysis of relevant regions is relatively clear. The relevant businesses involved in this case need to obtain permission from Chinese regulatory authorities, and the services are aimed at domestic users, using Chinese production, as the relevant regional market is within China.

3、 How does this case have or may have the effect of excluding or restricting competition?

The Anti monopoly Bureau believes that this transaction has or may have the effect of excluding or restricting competition in the domestic game live broadcast market and online game operation service market in China.

First, the Anti monopoly Bureau believes that this transaction will strengthen Tencent's dominant position in the live game market in China, resulting in the elimination and restriction of competition.

Firstly, from the perspective of market share in relevant markets, the Anti monopoly Bureau believes that this transaction will lead to a loss of competitive relationship between the first and second largest game live streaming platforms in the game live streaming market. After concentration, the market share of entities calculated based on turnover, active users, and anchor resources will all exceed 60%. Therefore, this transaction will further strengthen the dominant position of the centralized entity market.

Secondly, the Anti monopoly Bureau has demonstrated that this transaction has the effect of eliminating and restricting competition from the perspective of high barriers to entry into the live game market, adverse effects on consumers, and damage to the interests of live game practitioners.

Secondly, the Anti monopoly Bureau believes that this transaction will enable Tencent to have a two-way blockade capability in the upstream online game operation service market in China and the downstream live game market in China, which may have the effect of eliminating and restricting competition.

Firstly, Tencent has strong market control in both upstream and downstream markets, and is capable of implementing a two-way vertical blockade. Tencent has strong market power in both the upstream and downstream markets. In the upstream online game operation service market in China, Tencent has a market share of over 40%, ranking first, while other competitors have a far lower market share than Tencent. In the downstream live game market in China, as previously mentioned, the market share of entities calculated by turnover, number of active users, and anchor resources after concentration exceeds 60%. The Anti monopoly Bureau has not conducted an analysis of how Tencent's 40% market share in the online game operation service market generates market dominance or control.

Secondly, entities are motivated to implement two-way longitudinal blockades after concentration. The Anti monopoly Bureau believes that, on the one hand, Tencent has the motivation to rely on the game copyright license owned by its upstream online game operation service provider to impose a blockade on competitors in the downstream live game business, making it difficult to obtain upstream inputs, thereby increasing the cost of downstream competitors, and ultimately strengthening its own competitive advantage in the downstream market, This is an anti-competitive input blockade that may arise from vertical mergers and acquisitions. On the other hand, Tencent has the motivation to use its controlled downstream game live streaming platform to impose a promotion channel blockade on competitors in the upstream online game market, thereby eliminating and restricting competition in the upstream online game operation service market. This type of blockade is a type of customer foreclosure that utilizes the market dominance of the downstream market to counter compete with the upstream market. Whether it is an input blockade or a customer blockade, the determination of its motivation depends on the extent to which the blockade may bring benefits. There is not much analysis in this regard in the decision issued by the Anti monopoly Bureau. For example, when implementing an input blockade, Tencent will form a vertically integrated entity in the relevant market after the transaction ends. When implementing a blockade, it needs to make some trade-off between the following two aspects:, That is, a trade-off between the profit loss in the upstream market caused by the implementation of an input blockade (by restricting downstream competitors from obtaining upstream inputs) and the profit gain from downstream market expansion, which ultimately depends on the extent to which Tencent can benefit from the lockout behavior.

4、 What inspiration does this case bring to Chinese internet companies?

As shown above, the prohibition of the merger of Tiger Tooth Company and Douyu International Holding Co., Ltd. is the first case in China where concentration of operators involved in the internet sector is prohibited, which means that mergers and acquisitions in the internet sector (especially in the platform economy sector) will be subject to increasingly strict antitrust scrutiny, while mergers and acquisitions in the oligopoly market with a high market share, The Anti monopoly Bureau is very likely to make a conditional approval or even ban on concentration decisions. In addition, this case is also the first prohibited case in a case of concentration of business operators between domestic enterprises, which also shows that the antitrust review of mergers and acquisitions between domestic enterprises is not necessarily a "walkthrough" process that is reassuring and absolutely certain. If a transaction has competitive concerns in the relevant market, it is necessary for the parties to the transaction to cooperate with the Anti monopoly Bureau in order to obtain a satisfactory approval result.

(This article is translated by software translator for reference only.)