How Monopoly Puts Chinese Millennials into Struggle

With the development of the Internet, Chinese youngsters can now enjoy convenient life services simply by installing several applications on their smartphones, such as renting apartments with housing platforms like Ziroom and riding with ride-hailing apps like Didi.

Perhaps it is the best of times, and the worst of times if these companies do not have any competitors.

The rising house prices in most major cities make it unlikely for Chinese millennials to be able to own a place any time soon. The online renting platform Ziroom helps young Chinese professionals rent well-furnished and decorated apartments in the city without having to deal with the landlords. These apartments offer a sense of comfort by providing young people with a cozy, personal space. In return, the company charges an annual service fee and prices its apartments at a premium, which grants a considerable profit.

Didi, a ride-hailing giant that has become very successful in the past decade, provides a similar sense of comfort and convenience as well. Instead of waiting and waving at cabs, the app allows people to get on the ride by simply inputting the pick up location and destination. The drivers also have an individual rating based on the average score given by customers. This was introduced to filter out disrespectful service providers.

Sounds great, doesn’t it? It certainly did, until these platforms got involved with serious backlashes as they lack powerful competitors. In other words, the monopoly that they boasted turned against themselves.

In the past few months, two rape-murder cases occurred during Didi rides. A former Alibaba P7 employee allegedly died from excessive inhalation of formaldehyde used by Ziroom while renovating apartments.

Both firms stood their grounds firmly against the allegations, but the situation was exacerbated instead.

The companies’ enormous sizes and power allowed them to make things very difficult for victims to seek punitive measures against their wrongdoings. Ziroom silenced all the negative voices about the air quality of its apartments with public relations efforts and prohibits any tests to be conducted in its apartments. Didi on the other hand counteracted against the latest scandals, and suspended its late night ride-hailing services, making riders unable to find rides at night.

It takes courage to admit fault. Unfortunately, monopolies rarely do so. The two companies have a similar mentality: the company has been big enough to take down all challenges.

There’s no specific barriers of entry in these markets. But monopoly has made it pricey for other players to act as a real threat to the existing hegemony.

Take the ride-hailing market as an example. Competitors like Meituan, Caocao and Dida Chuxing also exist, but they are unable to recruit drivers as easily as Didi, nor could they obtain operating permits in some cities where Didi operates. Lack of financial support and differences in economic scale are hurdles that prevent these players from getting market shares from Didi.

Competitors of Ziroom also face similar situations. The number of apartments available in a city are limited and exclusive, which means a landlord can only hand over their property to only one rental platform and cannot break the contracts without a price. Ziroom has secured too many properties that it doesn’t need to worry about losing its market share.

Ziroom apartment (source: Yicai Global)

Lack of competition has led to a dilemma where consumers hate but cannot stop using the services provided by the monopolies, at least with a low price. Riding bikes and walking home takes more time than riding with Didi, and renting from landlords often attracts a home of low quality and more trouble of finding maintenance and amenity services.

Unfortunately, however, China is hardly a place where Western movements like #deletefacebook can take place. Chinese netizens don’t have enough power to say no to these monopolized services that they have been relying on.

Authorities have failed to address the existing negative externalities in China’s rental house and ride-hailing markets. In fact, regulatory bodies acted against competitions instead of encouraging competitions as they fear to shoulder proper responsibilities of ensuring allocative efficiency, leaving a monopoly market where Chinese consumers are taken advantage of.

However, it’s not about posing restrictions on DiDi or Ziroom with more regulations. Existing legal systems in China is not yet helpful for constraining the monopolies. Monopolies can easily get around with most legal challenges they face.

The key to the constraint of these monopolies lies in competition. With strong competitors on board, monopolies such as DiDi or Ziroom will have their fears and will no longer neglect the needs from its users or public scrutiny: If they screw up, users will switch to the app next door in the blink of an eye.