ANTI-MONOPOLY REGULATION ON GAME DEVELOPERS IN ONLINE GAME LIVE STREAMING INDUSTRY
Yang Ming
TABLE OF CONTENTS
I. INTRODUCTION
II. HUADUO V. NETEASE: INTRODUCTION OF ANTI-MONOPOLY REGULATION IN LIVE STREAMING OF ONLINE GAMES
III. RELEVANT MARKET AND ITS ATTRIBUTES OF ONLINE GAME LIVE STREAMING
A. Analysis of Game Service Market
B. Analysis of Regional Market
IV. THE IDENTIFICATION OF MARKET POWER
V. THE ANALYSIS OF COMPETITIVE EFFECT OF GAME DEVELOPERS’ CONTROL OF LIVE STREAMING MARKET BEHAVIOR
A. Behaviors of Game Developers
B. Pass-on Effect of Game Developer’s Behavior
C. Other Harms that Game Developers May Cause by Abusing Market Dominance
VI. CONCLUSION
The massive market profits produced by the live streaming of online games inspired copyright owners to use their right to control the live streaming market. How to crack the restriction and exclusion imposed by copyright owners on online games live streaming is closely related to the well-developed game market and those business innovation activities based on platform services. The developer of the online games owning relevant copyright does not mean that anti-monopoly laws cannot be applied to regulating their controlling behaviors. In accordance with the notion of the relevant market definition, determination of market power, analysis on the competitive effect of behaviors, developers whose online games produce lock-in effect should be regulated by the anti-monopoly law for imposing restriction and exclusion to the live streaming market of online games.In recent years, the Chinese online games industry has been growing rapidly, both in terms of total size and developing speed, surpassing any other country in the world. According to the statistics of 2017, the actual-sale revenue of China’s game industry has reached 203.61 billion yuan, increased by 23 percent from the same period last year, and the total number of game players reached 583 million. The rapid development of the online game industry inevitably leads to fierce market competition. This phenomenon is not only reflected on the online game developers and operators but also in the emerging business models that constantly derive from online games, such as online games live streaming. Online games live streaming is a new format combining online games and webcasting. As of 2018, the size of China’s living streaming market of online games has reached 7.7 billion yuan, increased by 100 percent of the previous year. The APP downloads of Huya and Douyu, which are the two most famous live streaming platforms, reached about 700 million. The rapid development of the online games live streaming industry inevitably makes developers and operators of online games feel the threat of competition. They are naturally reluctant to see that great benefits produced by the online games are ‘easily taken away’ by the live streaming platforms. They advocated that the copyright owners should control the distribution of interests among them. Therefore, there has been a fierce debate between the theoretical and practical fields regarding the issue of control over copyright and the distribution of interests. People who oppose to the full control of copyright are worried that it may not be beneficial to the development of the live streaming industry if online games are completely subject to copyright owners. The author argues that, as the after-sale market of the online games industry, if the online games live-streaming market is completely controlled by the game copyright owners, such an arrangement cannot always meet the goal of maximizing social welfare. It shall be determined on a case-by-case basis, and the way to break the restriction is naturally by anti-monopoly regulation. In view of this, this article aims to discuss that of what ideas and methods judges should use to analyze the competitive effect of the controlling behaviors of online game copyright owners in anti-monopoly regulation, and draw convincing conclusions.II. HUADUO V. NETEASE: INTRODUCTION OF ANTI-MONOPOLY REGULATION IN LIVE STREAMING OF ONLINE GAMESLive streaming of online games is the most popular sector in the current pan-entertainment industry, not only because of its fast-growing market size but also because of its competition with developers and operators of online games. There is no doubt saying that the emergence of living streaming of online games leads to diversified distribution modes of online games, and consequently increases the benefits from spreading those works. Therefore, how to allocate this part of the increased benefits becomes an issue that must be addressed at the institutional level. Otherwise, disputes that constantly emerge in judicial practice cannot be appropriately resolved, as reflected in the first anti-monopoly case concerning the developer and live streaming platform: Huaduo v. NetEase.The fact of the case is as follows: The plaintiff, Huaduo Company claimed that the defendant NetEase Company was in the dominant position in the market of the online games service due to the game Fantasy Westward Journey II, and had been using the dominant position to prohibit online users from conducting the live streaming of Fantasy Westward Journey II. At the same time, the defendant used the market dominance of Fantasy Westward Journey II to bundle the game with its live streaming application, causing the transmission of the dominant position of game’s service market to the living streaming market of online games. Thus, the plaintiff filed a lawsuit on the ground of civil infringement based on monopoly and unfair competition.Live streaming of online games is conducted based on online games products, and the massive profits produced by the online games live-streaming market inevitably make the copyright owners of the online games (including the operators) seek control over this market. They can only acquire such control by means of copyright. So the nature of the aforementioned institutional problems can be interpreted as whether the profits generated by online games should be inevitably, completely and indisputably controlled by the copyright owners of online games. The first thing that needs to be clarified is that the live streaming of online games certainly constitutes dissemination of the copyrightable works contained in online games. Whereas the underlying notion of copyright law is to control the dissemination of works, thus copyright owners ought to take control over the means of live streaming of online games; the question is to what extent this control shall be accorded.In practice, considering the huge profits generated by live streaming, online game developers (copyright owners) and the operators who cooperate with them usually deploy the contract mechanism (i.e. copyright licensing) to set the entry threshold for the online games live-streaming market. Any unauthorized live streaming of online games will be subject to litigations based on copyright infringement. Due to the role of copyright, live streaming platforms seem to be unable to get rid of the copyright owner’s control over the live streaming market. But the author believes that besides licensing negotiations, live streaming platforms can actually rely on two different institutional paths to break the threshold limitation: one is the application of the fair use regime within the copyright system, the other one is the anti-monopoly regulation of the copyright owner’s market behavior. What must be seen is that the research of the two paths in the theoretical and practical fields is extremely inadequate. As a result, it is simply assumed that live streaming of online games should be controlled by copyright owners and online game live streaming behaviors should fall into the scope of the exclusive rights of copyright owners, and such behaviors should not constitute a limitation or exception of copyright in any circumstances.The occurrence of the case of Huaduo v. NetEase is an inevitable result of taking this assumption for granted. The background of this case is that prior to this anti-monopoly case brought up by Huaduo against NetEase, NetEase firstly initiated litigation on the ground of copyright infringement against Huaduo. NetEase prohibited gamers from disseminating the game Fantasy Westward Journey II on any third-party platforms by live-streaming or rebroadcasting. But it is found that on the live streaming platform operated by Huaduo Company, the game has been disseminated by means of live streaming, record playing and rebroadcasting. Therefore, in November 2014, NetEase initiated a lawsuit against Huaduo on the ground of copyright infringement and unfair competition. The anti-monopoly case of Huaduo v. NetEase mentioned above was brought up in the process of hearing of this copyright infringement case.The dispute concerning ‘copyright control’ and ‘redistribution of interests’ between the two companies drew immediate attention from both theoretical and practical fields, at the same time creating great controversies. Most people were surprised by the emergence of the case of Huaduo v. NetEase, believing that there should not be an issue of anti-monopoly regulation in question here because NetEase’s behavior, from its very nature, was not concerned with abuse of dominant position. Therefore, the dispute between the two companies remains essentially in the category of copyright infringement. However, the author believes that copyright infringement and anti-monopoly regulation are not contradictory. The two are not mutually exclusive. NetEase’s copyright infringement lawsuit does not prevent Huaduo from filing a separate anti-monopoly lawsuit. It does not mean that one should not file an anti-monopoly lawsuit until the end of a civil law infringement lawsuit, which has long been unquestionable in the patent field. Moreover, a misunderstanding must be clarified by claiming that the behaviors of excluding or restricting competition are ubiquitous in market competition, thus no market field is naturally ‘insulated’ from the Anti-Monopoly Law. The key to the problem is always that, in an appropriately defined relevant market, whether the behavior of the dominant market entity has produced anticompetitive effects. The timing from filing the anti-monopoly lawsuit by Huaduo does show a certain level of litigation skills. However, putting aside such litigation skills, whether there are any circumstances under which live streaming of online games needs to be regulated by anti-monopoly rules is indeed worthy of in-depth theoretical discussion. This is not only a response to those skeptical attitudes but also the original research intention of this article.It is worth to mention that the theoretical field has been constantly rethinking the analytical logic of anti-monopoly regulation in recent years. Specifically, it is mainly aimed at the ‘relevant market definition’ which is the first step of the analysis. It is always difficult to define relevant markets in platform-related anti-monopoly regulatory analysis. The accuracy of the definition will directly affect the validity and legal significance of the subsequent analysis. However, it also should be understood that the reflection on the analytical logic of anti-monopoly regulation is a review of the traditional ideas applied to an individual or a class of cases. Even if studying on the general question of when there will be a need to apply anti-monopoly regulation to online games, it is still necessary to analyze the relevant market definition, market power and competition effects. Therefore, the author will discuss the above issues to clarify the circumstances under which the game developers in the online game live streaming industry constitute behavior of excluding competition, and should be regulated by the Anti-monopoly Law.
III. RELEVANT MARKET AND ITS ATTRIBUTES OF ONLINE GAME LIVE STREAMINGDefining the relevant market is the common starting point for anti-monopoly analysis. Before the analysis, the relation between several markets needs to be clarified. There are several markets involved in the supply chain of live streaming from the game product market to the game service market and the online games live-streaming market. They are in the form of vertical and upstream-downstream market relations. If game products have a strong lock-in effect on consumers (network users), producers can then have a decisive impact on consumers’ decisions in the secondary market (service market). Furthermore, this dominant market position can be passed on further to the secondary online games live-streaming market, that is, producers have the power to limit users’ choice from choosing only the corresponding live streaming service (i.e. those have obtained the consent from the producer). Thus, it is self-evident that the analysis of the game service market, which stays in the middle of the supply chain, is of great importance.Generally speaking, ‘relevant market refers to a certain time and space range of similar products or closely substituted products which impose competition constraints on each other.’ According to article 3 of the Guidelines on Definition of Relevant Markets of the Anti-monopoly Committee of the State Council (hereinafter referred to as the Guide), in the practice of anti-monopoly law enforcement, the size of the relevant market mainly depends on the degree of substitutability of commodities (regions). Here, substitutability includes two aspects: demand substitutability and supply substitutability. The former refers to ‘determining the substitutability degree of different commodities from the perspective of the demander, in accordance with the demand for the functional use of commodities, the recognition of quality, the acceptance of price and the difficulty of acquisition, etc.’, while the latter refers to ‘determining the substitutability degree of different commodities from the perspective of the operator, in accordance with its facilities investment, risk, time to enter the target market, etc.’ In the context of the live streaming of online games, what needs to be analyzed is the impact of the matching behavior of copyright owners of online games on the live streaming service of online games. That is to say, the main object of anti-monopoly analysis is the copyright owners rather than the live streaming platforms. Therefore, the relevant market involved is the game service market, which has obvious attributes of the after-sale market. A detailed analysis is provided below.A. Analysis of Game Service MarketArticle 7 of the Guide points out that different methods may be used in the practice of anti-monopoly law enforcement according to the actual situation. When defining the relevant market, demand substitutability analysis can be carried out based on the characteristics, uses, prices and other factors of commodities, and supply substitutability analysis can be carried out when necessary. When the market scope of operator competition is not clear or uncertain, the relevant market can be defined according to ‘Small but Significant and Non-transitory Increase in Price (SSNIP) Test’, which is commonly called ‘Assumed Monopoly Testing Method’ in academic and practical fields in China.Based on the above analysis of the relation between several markets, it must be recognized that game service is an independent relevant market, which is completely separated from online games themselves. In the following sections, the author will explain this from two aspects: demand substitutability and supply substitutability. Finally, the SSNIP test will be used to provide further evidence.1. The ‘After Sale Market Attribute’ of Game Service Market. — Before analyzing the substitutability of demand, a basic qualitative analysis of the game service market shall be conducted. Generally speaking, both online game copyright owners and live streaming platforms are in the same online game industry. The competitive characteristics of such industries are the interaction and complementarity between the main durable products and the follow-up services. The online game products provided by the copyright owners themselves conform to the characteristics of durable products, thus belong to the main products. While the follow-up services provided by the copyright owners are complementary products (secondary products), which is a typical after-sale market.The basic meaning of the after-sale market is that when consumers buy durable products, they subsequently need to buy some complementary products. If at least one complementary product is purchased after the durable products are purchased, then the after-sale market will appear. Therefore, after-sale market has three core factors: first, consumers buy complementary products, which work simultaneously with the main product to form a product system to create value for consumers; second, these different products are purchased at different points in time; third, there is a certain degree of lock-in effect or sunk cost, at least some of the expenditures on early commodities will be unrecovered if consumers switching brands. Based on these characteristics, Bishop and Walker pointed out that ‘in the industry with after-sale market characteristics, consumers’ primary choice of goods will have a long-term, very important impact on their subsequent choice’. In other words, the choice of secondary products that are compatible with the main products is limited. For example, after choosing a car for a particular brand, buyers can only use the spare parts that meet the brand standard. For this kind of market, if the switching cost of consumers on choosing other goods is high enough, then merchants can engage in the anti-competitive practice. In fact, the Anti-monopoly Committee of the State Council expressed the above views in the Anti-monopoly Guidelines on the Automobile Industry (Draft for Comments) published in March 2016. It specifies that apart from the automobile 4S shop of each brand that belongs to the after-sale market, computer maintenance services, mobile phone communication services, etc., are all typical after-sale markets.Considering the online games industry, once online users (consumers) choose online games as the main product, they will inevitably choose the secondary product of the follow-up service. Obviously, the number of compatible follow-up services is very limited. Therefore, the user’s primary choice of online games will have an important and long-term impact on their choice of follow-up services. Based on the complementary relationship between the two, the author believes that the follow-up service market of online games is a typical after-sale market.2. Demand Substitutability Analysis. — Players of any online games include both old players and new players. A market survey can be used to distinguish the percentage of old players or new players. If the old players occupy the majority, it can totally explain how the primary choice of online games affects the subsequent choice of game services. On this premise, the author’s analysis will focus on the ‘after-sale’ nature of online games services.According to Bishop and Walker, in determining whether an after-sale market can be regarded as an independent relevant market, the main consideration is the level of switching costs. Unlike offline games, online games have many important features as network products. Lock-in effect and network externality are the two most important manifestations. These two features determine that online game players will have to pay a high switching cost when they switch to another game, which shows that other games can hardly replace the demand of the players.The demand substitutability analysis of the game service market includes two aspects: Firstly, if most of the players of an online game are old players, it can be argued that the online game has a strong lock-in effect, which results in high switching cost of the follow-up game service market.The lock-in effect of online games mainly comes from three aspects: the good positive feedback incentive mechanism built in the game; the sunk cost to engage in the game; and game addiction.Start with the positive feedback incentive mechanism. Real-time positive feedback mechanism in online games is one of the most important reasons to attract players. If a better feedback mechanism is built in an online game, the user stickiness of its players will be relatively high. Take the economic system of most online games as an example: the value of the equipment in the game will gradually rise along with game time, the middle-level players can control their game cost at a very low level, and the high-level players can even make profits out of the game. Once the game is abandoned, players can hardly receive similar returns in other games. This design provides a strong incentive for players to continue with the game, causing them to be locked in the game and hard to leave. Moreover, the longer the time they dedicate to the game, the lower the probability of them from leaving the game.Now turn to look at the sunk cost of the game. Preston McAfee, the current chief economist of Microsoft, pointed out in a paper in cooperation with the other two scholars that ‘people are apparently often influenced by sunk costs in their decision making. Once individuals have made a large sunk investment, they tend to invest more in an attempt to prevent their previous investment from being wasted.’ That is to say, when people’s sunk costs are high enough, it will have a strong lock-in effect on them. In the Huaduo v. NetEase anti-monopoly case, the online game involved is a large-scale game. The content of the game is substantially complex where the basic system includes more than 10 subsystems, which are faction system, combat system, trading system, social system and so on. Players can hardly learn the rules and techniques corresponding to the system unless they invest a significant amount of time and energy in the game. It is said that normal players will need to invest about 20 hours to learn the basic rules. And in order to reach the middle level of the game, players may need to invest more than 100 hours in it. It will also take them considerable time, money and energy afterward to upgrade their level. Therefore, users will not easily switch to other games after investing significant sunk costs. The same is true for using the ‘endowment effect’ to explain loss avoidance in behavioral economics.The last discussion of this aspect will turn to the issue of game addiction. In economics, ‘addiction good’ is a special commodity of which the utility increases with the increase of its use history. The demand for addiction good is significantly different from conventional demand because the substitutability of such demand is significantly lower than that of other products. Once players are addicted, the cost of switching to other commodities is extraordinarily high. According to the definition set out in the Standards for the Development of Online Gaming Anti-addiction System published by the General Administration of Press and Publication in 2007, the cumulative game time of less than 3 hours is ‘healthy’ game time, the next 2 hours following the cumulated 3 hours is ‘fatigue’ game time, any time after the cumulated 5 hours is ‘unhealthy’ game time. Although game addiction should be opposed and corrected, objectively speaking, it is highly unlikely for players who are addicted to one game to switch to other games.Secondly, online games have strong network externalities, which results in high switching costs in the follow-up game service market. ‘When people’s evaluation of the utility of a commodity depends on the total number of people using the commodity, the commodity has network externalities.’ By virtue of the different natures of network externalities, it can be divided into direct network externalities and indirect network externalities. Direct network externalities refer to the effect of the number of people using a product over the same category of consumers. For example, the utility of chat software depends directly on the total number of people using the same software. At this point, chat software shows direct network externalities. Indirect network externality refers to that, with the increase of the number of users of a product, more complimentary products become available in the market, which indirectly increases the utility of the product for the benefit of the users. For example, the more people using hardware, the more vendors will provide supporting software for the hardware, which will give hardware users more choices thereby improving their experience.Obviously, online games with a good reputation and a large group of players have both strong direct and indirect network externalities. On the one hand, the strong positive network externalities come from the good social attributes of online games, which determine that when players spend a certain amount of time playing games, they embed themselves into a huge ‘trap’. If a player wants to abandon the game and switch to other games, he needs to abandon all the social relationships he accumulated in the game, which determines the huge cost of switching when he abandons the game. On the other hand, the success of an online game can bring up a strong indirect network externality. Because for a successful online game, both the developers themselves and the operators will provide various supporting services for the game, such as related strategies, peer works, social activities, etc., and even develop related variety TV shows and animation works. They all bring huge indirect externalities for this online game. While such indirect externalities enhance the effectiveness of players, they also determine that the switching costs will be very high if the players choose to switch to other games. From these two aspects, it can be seen that with the complex system construction, the more popular the online games are, the stronger the lock-in effect and network externalities they will produce. This determines that the switching cost of the follow-up service market of such online games is high, while the demand substitutability is weak.3. Analysis of Supply Substitutability. — Generally speaking, for those online games with a large group of players (especially loyal players), the substitutability of game services is also weak, which is mainly determined by the following reasons:The first is the high cost of research and development (R&D). In economics, the amount of fixed cost input is an important factor in identifying market barriers. ‘When the fixed cost of manufacturing a commodity is high, the commodity will show the characteristics of natural monopoly and form a high barrier to entry for entrants.’ Online games with a good reputation and numerous players are often large-scale online games. Their development and follow-up services are extremely complex, and they set very high requirements for game planning and operation design. The time and cost of R&D of online games determine that it is difficult for other game developers to provide similar games and follow-up services.Secondly, it is difficult to acquire the relevant knowledge needed for development and operation. The sustainable attraction of a game to players takes a long time to establish, that in the absence of the above data and information, it is difficult for any manufacturer to develop and operate similar games. A successful online game requires a balance between entertainment, profitability and timeliness, which can only be adjusted and realized in the process of operation. Therefore, game manufacturers cannot enter the relevant market in a short time. On the other hand, the operation of any game must have a relatively fixed group of players to develop, but the development of specific game players requires a difficult and long process. Moreover, the developments of different groups corresponding to different games are not the same, so game developers themselves cannot launch alternative products in the short term. Based on the above reasons, the author believes the argument that many people hold that ‘the price and charging mechanism of different online games are similar’ is untenable.Thirdly, the experience of a particular game is hard to replicate. As mentioned earlier, large-scale online games usually have strong network externalities, and players’ experience of the game is largely determined by the number of players on the game platform. Therefore, this attribute determines that even if some developers develop games that are very similar in nature and share common characteristics with the previous online games, it is difficult to replicate the same experience as the previous online games thus difficult to substitute them. Many people think that ‘the preferences and dependencies of different online game players are the same’, but they are subjective assumptions and lack of objective basis. The element of game experience is neglected.The last point is related to copyright. The risk of copyright infringement greatly limits the possibility of supply substitutability. There is no doubt that the developers of online games can enjoy the corresponding copyright. The premise of copyright protection is that the works are original, and it is the original part of online games can often attract online users, which is usually reflected in the sense of game experience and player preferences, such as the pictures, equipment, plots of the game and the process of playing the game, etc. Therefore, for a game that has produced a lock-in effect to a significant amount of users, if the preferences of players do not change dramatically, any other games that seek to substitute it will inevitably plagiarize and copy the original part of the game. In China’s judicial practice, there are many copyright infringement cases involving plagiarism of online games. From the first such case in which Legendary World was accused of plagiarizing Legend of Blood, to the case in which QQ Hall game was accused of plagiarizing NEXON Bubble Hall game, until the recent case in which Legend of the Knife Tower was accused of infringing the copyright of World of Warcraft. When developers try to introduce alternative online games, they are faced with huge risks of copyright infringement (in fact, in many cases the infringement is indeed established).4. The SSNIP Test. — In anti-monopoly practice, the SSNIP test is an important method to help determine the scope of the relevant market when the market scope of operator competition is not clear or uncertain. In particular, it needs to be clarified that ‘market scope is not clear or uncertain’ is not a necessary condition for the application of the SSNIP test, but should be a sufficient condition; logically speaking, it does not mean that SSNIP test cannot be applied when the substitutability analysis can define the relevant market, even if the relevant market has been defined, SSNIP test can nevertheless be used to verify the accountability of the above substitutability analysis.The basic idea of SSNIP test is to assume that there is a monopoly enterprise of a certain product, and if the monopoly enterprise imposes a small but significant and non-temporary price increase on the primary market, only a few consumers transfer to other games, and it does not have a negative impact on the profits of the monopoly enterprise, then the initially delimited market is the relevant market. On the contrary, the Next-Best Substitute (NBS) should be added to the primary market, and the above test should be repeated until the price increase makes the monopoly profitable. At this time, the determined market scope is the relevant market. Once the basic idea of SSNIP is put forward, it has been widely used in the field of anti-monopoly practice. The anti-monopoly laws of Europe, America and China all explicitly introduce the SSNIP test as a recommended method.Because the SSNIP test is based on a hypothetical price increase, it is difficult to conduct in practice. If the data of the price increase rate and the churn?rate can be obtained from the game developers, it will provide an SSNIP test with a good chance of ‘natural experiment’. Based on the range of price increase and the ratio of user loss (or its substituted index), the range of revenue change caused by price increase can be calculated. The formula is as follows:
P、Q、R、ΔP、ΔQ、ΔR represents the price, the number of users, the revenue, and the increment of the three, so it can estimate whether the price increase brings the revenue growth and how much the increase is.It should be noted that the ‘seasonal trend’ has not been taken into account in the calculation based on the above formula, which means that if the price increase occurs in the off-season of the game, but the number of users of those online games which do not increase the price also decreases, and the extent of decline is even greater than that of the online games which increase the price, then if apply the ‘Difference-in-Differences’ method to eliminate the interference of trend factors, it may even be concluded that the price increase does not lead to a decline in the number of users, but rather a rise and the rising range is the difference of the users’ loss rate of different online games. Then the ‘treatment effect’ of price increases can be further calculated, which is the rate of increase in profits, and it will be more objective.If the price increase has led to an increase in the revenue of online game developers, then according to the SSNIP method, it is enough to prove that the follow-up service market of this online game should constitute an independent relevant market.5. Basic Conclusions on Game Service Market. — Based on the above analysis, the author draws a basic conclusion that: the follow-up service market of online games should be deemed as an independent relevant market, which has the attributes of the after-sale market, and the existing players on the platform are its main service objects; numerous related characteristics of online games determine that their existing players will face huge switching costs if they choose other games, so the demand substitutability of the market is low. At the same time, it is very difficult for new competitors to provide similar games, that is, the supply substitutability of the market is also low. In addition, the SSNIP test can support the conclusion of the above-mentioned substitutability analysis.B. Analysis of Regional Market Compared with the game service market, the definition of the regional market of service is much simpler: on one hand, as long as the network can be accessed, all players can play games at any time, and geographical factors will not have any impact on the game service; on the other hand, the relationship between online games and language, nationality and culture is very close, users in different countries have different needs for netizens. Considering these two aspects, the regional market of online games service should be defined as the national market.IV. THE IDENTIFICATION OF MARKET POWERMarket power is often expressed as a market dominant position. According to article 17 of the Anti-monopoly Law of China, ‘market-dominant position refers to the market position in which the operator can control the price, quantity or other trading conditions of commodities in the relevant market, or hinder or affect the ability of other operators to enter the relevant market.’ Accordingly, the market power of online game developers can be analyzed from the following aspects to determine whether they have pricing power beyond the competitive level so that the relevant market has a higher barrier to entry.The first is whether the market share is large enough. From the previous analysis, the game service market is a typical after-sale market. In practice, the follow-up service of online games is provided and operated by its developers and those operators who cooperate with them. Therefore, the share of online game developers in the after-sale market is basically 100 percent, and their market power is obvious.The second is whether the online game developers have pricing power beyond the competitive level. It can be assessed by comparing the range of price increase and the rate of users’ loss, and then estimate the change of the total revenue of online games according to the calculation formula of the ‘treatment effect’ mentioned above. If the price increase of a certain type of online game is very significant, while there is only a small loss of users, and the total revenue has also increased to a certain extent, then it can reflect that the ability of the developers to control the price of the online game is very strong.The third is whether it is relatively difficult to enter the relevant market (obvious barriers to entry). The entry of relevant markets should be timely, possible, and sufficient in quantity, characteristics and scope. In economics, the so-called ‘timely’ generally refers to two years, ‘possible’ means the entrants can make profits, while ‘sufficient in quantity, characteristics and scope’ refers to the ability to restore competition effectively. The author of this article argues that there exist market entry barriers if the following facts appear:a. Market size barriers: Because of the existence of ‘network externalities’, only large-scale online games can attract users, and in the case that a single online game has attracted a large number of relevant users, it is difficult for any new entrants to attract a sufficient amount of users.b. Development barriers are usually high: As mentioned above, in seeking to develop a large-scale online game that can attract many players, developers need to accumulate a large amount of player data and achieve a relatively high level of balance. If launching a game without good data support, such development will eventually fail.c. It is difficult to form a good game ecology: Large-scale online games need to form a matured player community, otherwise, it is difficult for the games to have vitality, and the formation of a higher level of a game community requires tremendous efforts and costs, so the entry of such games market is not easy.d. In fact, the existence of the risk of copyright infringement will increase the difficulty for new competitors to enter. The development of online game products is different from the creation of general literary and artistic works. Whether ideologically or in the form of expression, the room for originality is small or it is extremely difficult to create original content in the context of games (regardless of the R&D cost). In addition to the role of the lock-in effect mentioned above, a large number of disputes arise in practice concerning copyright infringement of online games. Obviously, potential new entrants should not ignore such legal risks.For a particular online game, if the above three considerations are positive, then there are reasons to believe that online game developers have a dominant position in the relevant market.V. THE ANALYSIS OF COMPETITIVE EFFECT OF GAME DEVELOPERS’ CONTROL OF LIVE STREAMING MARKET BEHAVIORA. Behaviors of Game DevelopersAs stated at the beginning of this article, in order to control the live streaming platforms from making profits from live streaming, online game developers usually use the contract mechanism in practice to prohibit the live streaming of online games on unauthorized platforms. In fact, the Huaduo case happened precisely because of the contractual arrangement of NetEase. In the user agreement of Dream Westward Journey II, NetEase clearly stipulates that: ‘Without the written consent of NetEase, users shall not perform the following acts (whether for profit or not): …… 6.2.2 to publicly display and broadcast all or part of the content of this product.’ Based on the above analysis of the market power of online game developers, how to identify this kind of behavior from the perspective of anti-monopoly law? Does it violate the provisions of paragraph 5 of article 17 of the Anti-monopoly Law of China, that is, ‘No other unreasonable transaction conditions shall be imposed on the transaction’?The author believes that the answer to the above questions should be considered from the following aspects: Firstly, whether the contractual arrangement between game developers and live streaming platform will hinder the normal communication between users and injure the legitimate interests of users. In terms of Huaduo case, if the above user agreement is strictly implemented in clause 6.2.2, users will not be able to communicate with other players about the relevant content of the game, which should be an important aspect of online games to attract consumers.In addition, will the contractual arrangement between game developers and live streaming platforms hinder the market development of creative industries and innovation? As an emerging market, the rapid development of online games live streaming has demonstrated the inherent vitality of innovation in the entertainment industry. If the developer must approve all the acts involved in communication in advance in writing, it will give rise to significant transaction costs, which are neither realistic nor efficient.Thirdly, will the contractual arrangement between game developers and live streaming platform inappropriately expand the boundary of copyright, thereby further enhancing the market power of copyright owners in the relevant market? The fair use scheme of copyright law already leaves certain space for people to disseminate works. If the copyright owners of online games is allowed to use the contract mechanism to realize all control over the dissemination of games and even the dissemination of some images or contents of the games, the boundary of copyright is enlarged, that is contrary to the purpose of copyright law (then there is no way to talk about so-called benefit distribution mechanism).Moreover, it is noteworthy that online game developers usually do not formulate such user agreement clauses aiming for an overall control when launching the game products. Instead, such clauses are usually inserted into the agreement when the game has produced a strong lock-in effect and network externality after several years of operation, resulting in locked-in users to be unable to make choices. In this way, the developers of online games show a clear intention to monopolize the adjacent market around this type of online game (the most typical is the online games live-streaming market). Therefore, the intervention of anti-monopoly regulation is necessary.B. Pass-on Effect of Game Developer’s BehaviorAs discussed above, the developers of online games that have strong lock-in effects often have the intention to monopolize the adjacent market. The process of realizing this intention is the process that developers passing their dominant position from the game service market to the online games live-streaming market. Adding control clauses in the user agreement is the passing on behavior implemented by developers.The reason why the pass-on effect can eventually occur is precisely because of the after-sale market attributes of the online game service market. In the judicial practice of anti-monopoly, the transmission effect is called the leverage effect. By reading classical literature, it can be seen that the leverage effect was first used to analyze the illegality of tying, but since the 1960s, this theory has been fiercely criticized by the Chicago School which believes that the theory is untenable. Later studies, however, ascertain the existence of the leverage effect. For example, it is pointed out in an article written by Salop and Schiffman that firms can extend their dominance in one market to another in direct or indirect ways. The direct way includes increasing competitor costs through government intervention, while the indirect way includes vertical integration and exclusive trades, etc.In the case of the online game service market and the online game live market, game developers can transmit their market power in the online game service market to the live streaming market. For the live streaming of online games, each platform tends to broadcast popular games. It is easier to attract attention and expand users by choosing such content. If a certain online game is representative and with great influence, while the lock-in effect is prominent, then the game is naturally one of the few choices for online live streaming; moreover, the stronger the effect is, the less substitutability the game will have in the entire live streaming market. In other words, the online game itself will form a certain market power in the live streaming market. At this time, if the developer, on the grounds of protecting his copyright, restricts and excludes the live streaming of the online game on various live streaming platforms which are not recognized by the developer, the monopolistic position of the developer in the game service market can be passed on to the online game live streaming market. In the long run, this will bring considerable economic benefits to the online game developer.C. Other Harms that Game Developers May Cause by Abusing Market DominanceThe abuse of the dominant position of online market developers will not only damage the interests of players on the game platform but also interfere with the development of emerging industries including the live streaming market. As reflected from the followed aspects:Firstly, from the perspective of logic, the developer’s ability to limit live streaming is fundamentally derived from the number of users owned by the online game. These users are the basis for the profits generated by live streaming. If the intention of control of the online game developers is not regulated, any company that gains market dominance based on an online game can limit the live streaming (excluding competition), which is not conducive to the cultivation and development of the online game live streaming market.Secondly, from the perspective of results, the online game service market is closely related to the live streaming market of the game. If the game has a large user base, the emerging business model of live streaming can survive and develop well. However, if online game developers impose various restrictions on live streaming, it will inevitably lead to a lack of sufficient competition in the live streaming market. This will not only damage the economic benefits of the live streaming platforms and network anchors but also hinder the subsequent development of the business model of live streaming.Thirdly, from the impact of industrial development and of development on business model innovation, if the behavior of online game developers is not regulated, it will hinder the business innovation activities based on platform services, which also departs from the national development strategy on platform economy (or the sharing economy). The emergence of the mode of live streaming is due to the lock-in effect that online games produced on users. However, if only a specific group of subjects can participate in a certain business model, it will inevitably produce a reverse incentive to the market, which is not conducive to the continuous development of a new business model based on online games.In summary, if online game developers in the market-dominant position can impose unregulated and arbitrary exclusions and restrictions over live streaming launched by the anchors who are not recognized by them, such exclusions and restrictions will severely hinder the development of the emerging business model. Not only such behaviors directly contravene the underlying notion of the copyright law, but they also violate the relevant provisions of the anti-monopoly law.This article attempts to study the anti-monopoly regulation of platform operators. The relevant market analyzed by the author has typical attributes of after sale market. In summary, if online game developers, based on the strong lock-in effect of their main products, limit the users from choosing products or services (i.e. live streaming) that are compatible to (i.e. those get their prior consent) the game, then the restrictive behavior of such developers clearly has the effect of eliminating competition in the relevant market.
