The Obtaining And Maintaining Of Market Power Of Platform And The Monopoly And Regulation Of China Unionpay

The overall efficiency of monopoly depends much on the process of monopoly market structure. The economy transition of China leads to the evolution of monopolies with unique market structure. The monopolies got the market position with the administrative force before the transition, and captured the high monopolistic profit by market behavior after. Based on the two-sided market framework, this paper studies the UnionPay and the relevant payment card industry with a two-stage theoretical model. We take the critical-mass as the cut-off point, and make the research of platform’s market power into acquisition stage and maintenance stage. The model shows the differences between determinants of market power and competitive target in market power acquisition stage and maintenance stage. The model also provides an explanation for why UnionPay changed its identity from a financial institution to a commercial company. In addition, the platform in the maintenance stage, often takes measures to maintain the existing market power, as well as taking lateral entry strategy to extend its market power which will restrict competition in the normal competitive market. China UnionPay and its subsidiaries provide us with a good example.Due to the nature of the two-sided market, achieving critical-mass is the basic condition for the survival of platform, and competition in the early stages is essential for market performance of platform. At this stage, by the effect of cross-network externalities, the initial platform with a larger number of users will have more and more users, the users of a small platform will be less and less. After the achievement of the critical-mass, the market structure will stabilize, and maintaining market power of platform is much easier to obtain the initial market power. Therefore, at the acquisition stage of market power, platform’s competition target is the number of users. Obtaining enough number of users can enable the platform to achieve the original survival At this stage, platform tend to makes lower price or even subsidies to attract more users.In the maintenance stage of market power, market structure will stabilize, and the competing objectives of platform will change to users and profits. At this stage, platform can make profits by charging based on the user base and existing market power. In addition, platform will take measures to maintain the existing market power, as well as taking measures to expand their market power. However, monopoly platform take force of their monopoly power to get into the competitive market, which would limit the competition of the market and the development of other competitors. In our payment card market, China UnionPay’s identity change as well as siding into the competitive market by means of its subsidiaries is a good example of our study, monopolistic behavior lead to the inefficiency of our payment card industry.In the early stages of development, China UnionPay is based on the power of government to obtain the original size of the network, and skipped the initial toughest process in the acquisition of market power. While in the later, even without the executive power, UnionPay can also maintain its market power by market behavior. Platform in the maintain stage should achieve profits through pricing, and the commercialization identity of the UnionPay can cover the charging behavior to "marketing behavior", which help to escape the regulation. If incumbent monopolist’s market power is not obtained through the normal competitive process, we can’t guarantee the platform themselves and the industry’s overall efficiency. China UnionPay built its entry barriers through its market power and administrative forces, not only foreign payment card network, but also the "third-party payments" which rise with technological advances were blocked from the market. "Non-competing" in the past and monopoly now are making the future of Chinese payment card industry clear, which includes high rates of acquiring market, high usage of cash, slow technological innovation, low efficiency of the whole industry, as well as the increase of the cost ofthe whole socio-economic activities.