Turning Monopoly into a Duopoly?–Chinese Ride-sharing Business Enters the Path of Competition, again

In a monopoly, customers will pay more than they would in a competitive market.

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Turning Monopoly into a Duopoly?–Chinese Ride-sharing Business Enters the Path of Competition, again

After acquiring Uber’s business in China in 2016, Didi has been the dominant hegemon in the Chinese ride-sharing industry. Yet as the monopoly controls millions of users and service providers, namely private car drivers and cabbies, users’ discontents and service quality deterioration become more and more obvious in Didi’s operations. From the suspected price discrimination to the lack of passengers’ safety protection, Didi is suffering from more and more criticisms in its monopolistic position in the market as well as in its lack of respect to ordinary users’ rights and needs.

However, complaints and negative news coverages are nothing itching for the ride-sharing hegemon. Didi’s dominance in the taxi and ride-sharing scene leaves users no choice but to continue to act as the exploited victims of Didi’s monopolistic services.

However, a new player’s entrance to the ride-sharing service might put an end to Didi’s long-standing monopoly. Since earlier this year, Meituan-Dianping, another Chinese tech hegemon, and the world’s largest O2O lifestyle e-commerce platform, entered into the ride-sharing business. In the two only cities – Nanjing and Shanghai – where it currently operates officially, according to its founder WANG Xing, the Beijing-based company has successfully dented Didi’s business by quickly snapping up over 30 percent of the market share, reminding people of the fierce competition among Didi, Kuaidi and Uber from few years ago.

Competition is always good

Didi Chuxing.

It takes less than one economic course in university to understand the differences in competition and monopoly. Aside from the dead-weight loss and inefficiency that monopoly can bring to the society, customers should always remember one thing about a monopolistic market: In a monopoly, customers will pay more than they would in a competitive market.

Furthermore, with Didi’s well-equipped user data and abundant business resources, Didi is more than capable of practicing price discrimination. Whether Didi will engage in such activities or not, the ride-sharing firm has the capacity of figuring out the users’ willingness to pay, and charge the maximum possible price available for all individual users. With the help of big data, users’ spending habits, travel routine, and preferred locations are services are all available for the profit-seeking company to implement more strategies to increase its potential revenue, claiming most of the economic surpluses to its own benefit.

The incoming competition from Meituan will certainly change the current market status to a more consumer-friendly scene: the existence of a competitor will force the firms to make strategies based on the competitors’ move. If one firm initiates a price-war by lowing its charged price, the market price will ultimately decrease to the point where it equates the firm’s cost of production.

Regardless of the final outcome between Didi and Meituan’s battle in ride-sharing, at least the consumers will benefit from the two firms’ competition. Expenses of hailing a ride will be reduced. And if one particular user is not happy with the service offered by one ride-sharing firm, he or she now has the other firm to go to. Long-term exploitation will no longer be possible for Didi.

Meituan’s flaw in its strategies

Image credit to Visual China Group. Modified by KrASIA.

Despite being the firm challenging Didi’s dominance in ride-sharing, Meituan’s strategies in grabbing Didi’s customer base seem to be radical and risky.

To attract users and drivers to join Meituan, Meituan charges zero commission fee for all joined drivers for a limited period of time. Drivers will not be charged any fees from the platforms in the first three months. On the contrary, Didi charged 27% of the driver’s earned revenue. The free-of-charge commission fee is certainly a strategy to attract and recruit drivers. However, it is simply not sustainable and may face huge backlashes.

With no revenues from providing a ride-sharing platform, Meituan is not making any significant revenues from entering the ride-sharing competition, making such business model not likely to sustain. Operating in losses and has no clear path to profit, Meituan is literally ‘burning money’ for market shares. It would be difficult to imagine Meituan’s future intent to its ride-sharing business: Is Meituan happy with entering the market, or is Meituan trying to replace Didi to become another monopoly hated by ride-sharing service users and providers.

Charging free commission fee is not only a bad economic decision, but also a psychological burden for both Meituan and its users. Users are likely to take the zero commissions for granted and are more likely to get pissed when the firm jacks up the price. For Meituan’s investors, their investment might end up going nowhere. For the worse part, Meituan may potentially do an even more awful job than what Didi does. The thirst of winning a competition and to monopolize the market may turn this commonly-seen hero into a bad-looking demon.

For users, they definitely do not want another monopoly to exploit the economic surpluses that used to belong to them. It would be ideal for the two firms to realize the importance of reaching that market equilibrium for the benefits of both firms, and the users who are still in the market. Perhaps they need to look further: their enemy is not only the other ride-sharing firms, but the other transportations available for people to travel.

Just think about it: What’s wrong with taking a cab to go places anyway?

Chauncey Jung works with a unicorn Internet firm based out of Beijing. His professional experience pays him off an insider perspective over China’s internet industry. Completed his bachelor and master education in Canada, Chauncey is obsessed with trending technologies and economic developments across Asia. He can be reached at [email protected]

Editor: Ben Jiang