The game of monopoly and anti-monopoly
- By Mei Xinyu
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E-mail Beijing Review, September 26, 2014
A typical case of a price-fixing agreement came to light at the beginning of 2013, which involved six LCD panel makers. From 2001 to 2006, companies including South Korean makers Samsung and LG Display and AU Optronics, Chimei Innolux, Chunghwa Picture Tubes Ltd. and HannStar Display Corp. from Taiwan took turns to host a total of 53 meetings with the explicit purpose of exchanging market information and manipulating prices. Their price manipulation in the Chinese market severely infringed the legitimate interests of their rivals and consumers. The number of LCD panels sold by the six companies on the Chinese mainland amounted to 5.15 million, with an illegal gain of 208 million yuan ($33.87 million).
Usually, monopoly companies acquire a dominant market position by virtue of their advantages in production and circulation. As the modern intellectual property system becomes increasingly established and sometimes rigid, hordes of monopoly companies have begun to make use of their intellectual property rights to consolidate their monopoly position, to hinder their rivals' development and capacity to innovate, and to charge exorbitant prices of their customers.
Such moral hazards have been a major side effect of the modern intellectual property system. China, the largest manufacturing country in the world, has really become the largest victim of price manipulation arising from patent ownership.
The food packaging and processing multinational Tetra Pak used to engage in a cluster of monopolistic behavior such as bundle sales under the pretext of patents, thus preventing emerging companies from penetrating its exclusive supply chain. It was not until 2007 when China's Anti-Monopoly Law was passed that Tetra Pak began to cease these practices and its rivals such as Shandong Tranlin Group have since started to experience high-speed growth.
The patent charging model practiced by Qualcomm, the world's largest cellphone chipmaker, is even more egregious. It has had its patent-based business model in place since the third-generation (3G) of mobile telecom technology came into being in March 2001. All 3G-related manufacturers and marketers have since been obliged to sign patent licensing contracts and pay a certain share of the selling price to the chip maker.
As a result, Chinese consumers have been overcharged. Prices of 3G cellphones using the WCDMA or CDMA2000 systems are 200-300 yuan ($33-49) higher than they should be. Almost half of the profits earned by China's 3G cellphone makers have found their way into the pockets of Qualcomm in the form of patent fees.
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