Wednesday, February 1, 2012
Posted by D. Daniel Sokol
David Stallibrass (UIBE & RBB Econ.) & Jenny Xiaojin Huang (CASS) explain Brands, Consumer Protection, and Antitrust—Why China is Special.
ABSTRACT: From China's first and only decision to block a merger, involving the purchase of the Huiyuan juice brand by Coca-Cola, brands have been widely observed to be one of the important factors in Chinese merger control decisions. Brands are also at the forefront of Chinese industrial policy, with a clear focus from the State Council on the need for China to improve the quality of its brands. International commentators have noticed this, and have sometimes criticized the Ministry of Commerce ("MOFCOM"), the Chinese merger authority, for an excessive focus on protecting famous Chinese brands as a result of broader industrial policy.
This paper proposes a microeconomic justification for treating brands differently in Chinese antitrust analysis. It argues that, due to the weaker level of consumer protection in China, there are good reasons for thinking that a strong brand confers more market power in China than it does in other jurisdictions, but also that this market power may have greater beneficial side-effects than it would elsewhere. As a consequence, we believe that it is correct in general to place a relative emphasis on brands in Chinese antitrust analysis, though we do not discuss to what extent MOFCOM treats brands differently from authorities in other jurisdictions, or whether the treatment of brand mergers in China is more compatible with industrial policy, social policy, or microeconomic considerations. Instead, we conclude with a discussion of the ways the special nature of brands in the Chinese economy might lead to decisions that may differ from those in alternative jurisdictions. We focus almost exclusively on merger analysis in China due to the relative scarcity of relevant enforcement decisions in other areas of the law.