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 ANTI-MONOPOLY REGULATION ON GAME DEVELOPERS IN
ONLINE GAME LIVE STREAMING INDUSTRY

Yang Ming

TABLE OF CONTENTS

I. INTRODUCTION --------------------------------....................................................... 65
II. HUADUO V. NETEASE:
INTRODUCTION OF ANTI-MONOPOLY REGULATION IN
LIVE STREAMING OF ONLINE GAMES ---------- ---------..................................... 66
III. RELEVANT MARKET AND ITS ATTRIBUTES OF
ONLINE GAME LIVE STREAMING -----------------------........................................ 69
A. Analysis of Game Service Market ---------------------------......................................................... 70
B. Analysis of RegionalMarket ------------------------------............................................................ 78
IV. THE IDENTIFICATION OF MARKET POWER ---------------................................ - - -78
V. THE ANALYSIS OF COMPETITIVE EFFECT OF
GAME DEVELOPERS' CONTROL OF LIVE STREAMING MARKET BEHAVIOR --------- 79
A. Behaviors of Game Developers -------------------------------........................................................... 79
B. Pass-onEffect of Game Developer's Behavior ------------------................................................------ 81
C. Other Harms that Game Developers May Cause by Abusing Market Dominance --------------------------------- 82

VI. CONCLUSION ----------------------------------........................................................ 83

64
ANTI-MONOPOLY REGULATION ON GAME DEVELOPERS
IN ONLINE GAME LIVE STREAMING INDUSTRY

Yang Ming*

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 streamingis closely relatedto 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 marketpower, analysis on the competitive effect
of behaviors, developers whose online games produce lock-in effect should be
regulatedby the anti-monopoly law for imposing restrictionand exclusion to
the live streaming market of online games.

I. INTRODUCTION

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. 2 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

* Professor at Peking University Law School. This paper is the stage achievement of the general project of the National Social Science
Fund, entitled Research on the Basic Theory and OperatingMechanism ofIntellectualProperty Transaction(17BFX 116).
1 ANALYSIS ON THE CURRENT SITUATION AND DEVELOPMENT TREND OF CHINA'S ONLINE GAME INDUSTRY IN 2018,
at http://www.chyxx.com/industry/201806/647213.htm (Last visited on January 8, 2019).
2 ANALYSIS ON COMPETITION SITUATION OF GAME LIVE BROADCASTING INDUSTRY IN 2018, at https://www.qianzhan.
com/analyst/detail/220/180904-18c7c4c1.html (Last visited on January 8, 2019).

65
66 CHINA LEGAL SCIENCE 2020

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 GAMES

Live 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 . 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
Vol. 8 :64 ANTI-MONOPOLY REGULATION IN LIVE STREAMING INDUSTRY 67

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 gainers from disseminating the game Fantasy Westward

3 Guangzhou Intellectual Property Court Judgment (2015) No. 25.

4 The control here refers not to the ownership of interests which means that the interests arising from the live streaming of online games
do not entirely belong to the copyright owner; the control that the author said means that the live streaming of online games cannot be
carried out without the permission of the copyright owner, otherwise it constitutes copyright infringement.
5 Li Yang, CopyrightIssues in Online Games Live Streaming, 1 Intellectual Property 18-24 (2017).
68 CHINA LEGAL SCIENCE 2020

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 theAnti-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

6 Guangzhou Intellectual Property Court Judgment (2015) No. 16.

Vol. 8 :64 ANTI-MONOPOLY REGULATION IN LIVE STREAMING INDUSTRY 69

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 STREAMING

Defining 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

7 The traditional analysis of anti-monopoly regulation is to define the relevant market first, and then to analyze whether the
defendant's actions have anti-competitive effects on the basis of determining the market power. However, with the continuous development
of science and technology, great changes have taken place in economic form, industrial organization and market structure. Especially
with the advent of platform economy era, the definition of relevant market has become extremely difficult. Therefore, many scholars
began to reflect on the logical steps of traditional analysis, such as Prof. Kaplow, a famous American scholar. In his view, 'the traditional
way of defining the relevant market first and then analyzing the dominant position of the market is sometimes unreliable, and misdefining
the size of the relevant market will affect the results of subsequent analysis.' For this reason, he proposed that 'sometimes the relevant
market analysis can be combined with the analysis of market dominance and monopoly behavior, that is, the smallest market should be
considered first.' Analyze the behavior of enterprises in this market, and then deduce whether these enterprises are in the same relevant
market from their behavior. If the answer is no, repeat the above analysis in a larger market until the scope of the relevant market is
determined. See Louis Kaplow, Market Definition: Impossible and Counterproductive, 79(1) Antitrust Law Journal 363-364, 366-367
(2103). For the specific application of this analysis idea, Kaplow preferred to include Residual Demand Elasticity Method, Critical Loss
Method and so on.
70 CHINA LEGAL SCIENCE 2020

competition constraints on each other.' 8 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 Market

Article 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 MarketAttribute' of Game Service Market. Before
analyzing the substitutability of demand, a basic qualitative analysis of the game

8 LI HONG, RELEVANT MARKET THEORY AND PRACTICE: AN ECONOMIC ANALYSIS OF THE DEFINITION OF RELEVANT
MARKET IN ANTI-MONOPOLY, at 3 (The Commercial Press, 2011).
Vol. 8 :64 ANTI-MONOPOLY REGULATION IN LIVE STREAMING INDUSTRY 71

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 2016.12 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
9 SIMON BISHOP & MIKE WALKER, ECONOMICS OF EUROPEAN UNION COMPETITION LAW: CONCEPTS, APPLICATIONS
AND MEASUREMENT, at 255-256 (Dong Hongxia trans., People's Publishing House, 2016).
10 Carl Shapiro, After Sale Marketand Consumer Welfare: Making Sense ofKodak, 63(2) Antitrust Law Journal 483-511 (1995).
11 Id
12 ANTI-MONOPOLY GUIDELINES FORTHEAUTOMOBILE INDUSTRY (DRAFTFOR COMMENTS), PART TWO DETERMINATION
7 7
OF RELEVANT MARKET, at http://www.ndrc.gov.cn/gzdt/201603/t20160323 95 43.html (Last visited on August 20, 2017).
72 CHINA LEGAL SCIENCE 2020

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. DemandSubstitutabilityAnalysis. 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
13 SIMON BISHOP & MIKE WALKER, supra note 9, 258.
Vol. 8 :64 ANTI-MONOPOLY REGULATION IN LIVE STREAMING INDUSTRY

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.'1 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 . 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 Standardsfor 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

14 McAfee R.P., Mialon H.M. & Mialon S.H., Do Sunk Costs Matter?48(2) Economic Inquiry 323 (2010).
15 Endowment effect means that once an individual owns an item, his evaluation of the value of the item is much higher than before. See
Richard Thaler, Toward a Positive Theory of Consumer Choice, 1 Journal of Economic Behavior and Organization 39-60 (1980).
16 Becker G.S. & Murphy K.M, A Theory ofRationalAddiction, 96(4) Journal of Political Economy 675-700 (1988).
17 DEVELOPMENT STANDARD OF ANTI-INDULGENCE SYSTEM, at http://www.baike.com/wiki/%/E9o98%/`B2%/E6%/`B2%/89%/`E8 0
%

7 7 7
BFB %E %B3%BBE %BB%9F%/oE5%BC%80%E5%8F%91%oE6%A0O%87%E5%87%86(Last visited on September 10, 2017).
18 Katz M. & Shapiro C., Network Externalities, Competition and Compatibi(y 75(3) American Economic Review 424-440 (1985).
74 CHINA LEGAL SCIENCE 2020

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.'1
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

19 More introduction to Network Externality and Network Effects, See PAUL KLEMPERER, NETWORK GOODS (THEORY), in GARETT
JONES, THE NEW PALGRAVE DICTIONARY OF ECONOMICS, at 9436 (Palgrave Macmillan, 2018).
Vol. 8 :64 ANTI-MONOPOLY REGULATION IN LIVE STREAMING INDUSTRY 75

barrier to entry for entrants.' 20 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

20 Baumol W.J. & Willig R.D., Fixed Costs, Sunk Costs, Entry Barriers, and Sustainability of Monopoly, 96(3) Quarterly Journal of
Economics 405-431 (1981).
76 CHINA LEGAL SCIENCE 2020

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:

21 The direct data of user churn rate is usually difficult to obtain, so we need to find a better correlation of alternative data; for online games,
the number of players is generally considered to be proportional to the search index of the search engine, so the search decline of search
engine can be used to replace the user churn rate.
Vol. 8 :64 ANTI-MONOPOLY REGULATION IN LIVE STREAMING INDUSTRY 77

AR (P + AP)_(Q + AQ) - PQ

P, Q, R, AP, AQ, AR 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.

22 The basic idea of 'multiple difference method' is to divide the sample into two groups. One group is the target of a factor, that is, the
' action group', and the other group is the non-target of the factor, that is, the 'control group'. According to the relevant information
of the 'action group' and the 'control group' before and after the effect of the factor, we can calculate the change of an index (such as
income growth) before and after the action of the 'action group', and the change of the same index before and after the action of the
'control group', and then calculate the difference between the two changes, i.e. the so-called difference. Multiple difference value, see
Rubinfeld D., Econometric Issues in Antitrust Analysis, 166 Journal of Institutional and Theoretical Economics 78-82 (2010).
23 The formula for calculating the rate of profit increase is: (P+AP)(Q+AQ) -1.
78 CHINA LEGAL SCIENCE 2020

B. Analysis of RegionalMarket

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 POWER

Market 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
Vol. 8 :64 ANTI-MONOPOLY REGULATION IN LIVE STREAMING INDUSTRY 79

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 BEHAVIOR

A. Behaviors of Game Developers

As 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:
80 CHINA LEGAL SCIENCE 2020

'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
24 THE USER AGREEMENT, at http://xyq.163.com/introduce/newcomer/qtOO7.html (Last visited on September 15, 2017).
Vol. 8 :64 ANTI-MONOPOLY REGULATION IN LIVE STREAMING INDUSTRY 81

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 Behavior

As 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

25 One of the most representative criticisms, see Richard S. Markovits, Tie-ins, Reciprocity, and the Leverage Theory 76 Yale Law Journal
1397-1472 (1967); Richard S. Markovits, PartII: Tie-ins, Leverage, andAmerican Antitrust Laws, 80 Yale Law Journal 195-315 (1970).
26 Salop S.C. & Scheffman D.T, Raising Rivals' Costs, 73(2) American Economic Review 267-271 (1981).
82 CHINA LEGAL SCIENCE 2020

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. OtherHarms that Game Developers May Cause by

Abusing Market Dominance

The 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.
 Vol. 8 :64 ANTI-MONOPOLY REGULATION IN LIVE STREAMING INDUSTRY 83

VI. CONCLUSION

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.

(Revised by Robert D. Roderick)

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