Meituan: A Chinese Online Delivery Platform`s Unfair Business Practices

Meituan: A Chinese Online Delivery Platform`s Unfair Business Practices
Case Code: BECG179
Case Length: 15 Pages
Period: 2020-2021
Pub Date: 2022
Teaching Note: Available
Price: Rs.400
Organization: Meituan
Industry: Foodservice
Countries: China
Themes: Internet Platforms, Business Ethics,Digital Marketplace,Platform Model
Meituan: A Chinese Online Delivery Platform`s Unfair Business Practices
Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

The case discusses China’s online delivery and services on-demand company Meituan’s monopolistic practices wherein the company forced restaurants and merchants to enter into exclusivity agreements with it for listing on its online platform under a policy known as ‘pick one from two’. In addition to this, Meituan took deposits of several hundreds or thousands of Renminbi from merchants listing exclusively on its site. For non-exclusive merchants, Meituan charged a higher commission rate and deposit, the State Administration for Market Regulation (SAMR) reported.

Meituan’s unfair business practices came to light in 2020 when the Guangdong Restaurant Association (GRA) wrote an open letter to the company asking it to reduce the 26% commission fees it was charging restaurants for listing on its online platform. The restaurants were not making profits since they were not open to the public because of the Covid-19 pandemic. Meituan, however, denied the allegations that it charged heavy commissions and said that more than 80% of the restaurants listing on its platform paid commissions of 10% to 20% in 2019.

Industry analysts opined that the charges against Meituan came at a time when the Chinese government and the SAMR were cracking down on the country’s technology giants in a bid to ensure fair competition in the market. In April 2021, the regulator had levied a US$2.8 billion fine on Chinese multinational technology company Alibaba Group (Alibaba) for violating China’s anti-monopoly law by prohibiting merchants to list on other online platforms.

Meituan also came under immense scrutiny for reducing the wages of its delivery drivers who were gig workers employed as third-party contractors with no employee benefits or legal protections. The delivery drivers protested against Meituan’s new algorithm that reduced their pay per delivery. Consequently, in July 2021, the SAMR in association with six other government agencies issued an order to Meituan to raise the income of their delivery riders above the country’s minimum wage, improve their working conditions, and provide them with social security and insurance.

The SAMR conducted an investigation into Meituan’s alleged abuse of its market dominance, and in October 2021, the regulator slapped a fine of US$530 million on the company for antitrust violations. The SAMR instructed Meituan to return the deposits it had taken from the merchants to them and to correct its commission rules for its online platform. Meituan accepted the penalty and stated that it would strictly comply with the new anti-monopoly guidelines. The company also announced its plans to provide employment injury insurance to its delivery workers and make its delivery algorithms flexible since they controlled the wages of the drivers and showed them routes to use to fulfill their orders even if they were unsafe.

Some industry insiders pointed out that the anti-monopoly guidelines by the SAMR would add to the costs of Meituan. In addition to this, using a moderate algorithm would delay deliveries for users, ultimately hurting the company’s bottom line. Going forward, it remained to be seen how Meituan would curb its monopolistic business practices and compete fairly in the market while maintaining its growth momentum.

Issues

The case is structured to achieve the following teaching objectives:

  • Analyze the antitrust allegations against Meituan and the company’s response thereof.
  • Understand the importance of companies knowing the rules of fair competition.
  • Understand the market structure of online delivery platforms in China.
  • Understand the need for addressing labor rights at the workplace.
  • Discuss how Meituan was creating a monopoly in the online delivery market.
  • Explore ways in which the company can improve the working conditions of its delivery personnel.
  • Discuss the legal and ethical issues related to the case.

Contents

Keywords

Meituan; Wang Xing; State Administration for Market Regulation; fair competition; anti-monopoly law; community group-buying platforms; delivery algorithms; online delivery platform; car-hailing; bike-sharing; Guangdong Restaurant Association; Alibaba Group; commission rules; delivery drivers; minimum wage

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