Blocking on the merger of Huya and Douyu

Last year, Tencent Holdings Ltd. (“Tencent”) said it would merge Huya Inc. (“Huya”) and Douyu International Holdings Limited (“Douyu”). But recently, the government said it would block the merger on antitrust grounds. This is the first time that the Chinese government has blocked a union in the tech sector for antitrust reasons.

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Huya and Douyu are two of China’s biggest video game live-streaming companies. They have both stood listed in the US and have been invested in by Tencent, one of the biggest technology companies in China.

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According to the announcement of SAMR, Huya and Douyu, respectively, have more than 40% and 30% of the downstream live gaming market shares. This means that they are first and second in the market, respectively. If the two companies are combined, their total shares will reach 70%. In need of upstream online game operation services, Tencent has occupied more than 40% of the claims, ranking first in such market.

Huya, Douyu and Tencent are companies in the same market. To determine if this is bad for competition, they look at how much control these companies have over the market, how easy it would be for new companies to enter the market, and how this would affect consumers. If the merges between these companies will reduce competition, then SAMR will stop it.

As SAMR said, Tencent has already obtained exclusive control over Huya. If Huya merges with Douyu, Tencent will completely control the combined new company. This will make Tencent even stronger in the live gaming market.

Tencent’s merger with this other company will cause them to have a monopoly. This will mean that they can control the prices and limit competition, which is terrible for consumers and the market as a whole. The government rejected the merges because the commitment scheme proposed by Tencent was not thought to be enough.

When we read news about the merger between Huya and Douyu, we can see that Tencent had to report it to the antitrust authorities. This is important, even if the merges is approved. In 2021, many large companies were fined for not reporting their mergers to the authorities. The maximum fines were 500,000 yuan.

However, since the Antitrust Law was promulgated in 2007, the maximum fine has been deemed too low compared to the benefits of establishing a monopoly. Therefore, in 2020, the Chinese government published the draft of the new Antitrust Law, stipulating that the punishment mentioned above will be raised to represent 10% of the company’s annual sales. Consequentially, even though the merges between Huya and Douyu was blocked, the initial merges procedure still complied with the laws, and the relevant parties will not be fined for failure to report.

With the growth of Internet companies in China, monopolies are becoming more and more critical. The new Antitrust Law is being implemented to encourage companies to compete fairly. This includes punishments for not reporting merges and the blockage of unions that are not allowed.

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