China Moves to Curb Algorithm-Driven Price Manipulation with New Draft Rules

The draft outlines eight emerging risks linked to the use of advanced technologies, including coordinated algorithmic pricing among rival platforms, pressure on merchants to sign exclusive agreements, and tactics such as disproportionate subsidies or unjustified refusals to let merchants operate stores. Per South China Morning Post, regulators are seeking to build clearer rules to limit the ability of dominant players to use algorithms to undermine fair competition or restrict consumer choice.

One of the explicit prohibitions in the draft bars dominant platforms from deploying “application-layer or network-layer blockade or exclusion measures” against business partners. Such measures were characteristic of earlier “walled garden” practices among major tech companies like Alibaba Group Holding, Tencent Holdings and ByteDance. These barriers—such as preventing links, payments or content sharing across platforms—began to loosen last year, but SAMR’s proposal aims to prevent a resurgence of those tactics.

The regulator also called on platform operators to strengthen internal oversight of their algorithmic systems. SAMR urged companies to carry out targeted reviews of pricing models, recommendation mechanisms, rankings and advertising systems to spot potential discriminatory design, unfair dealings or excessive price shifts. According to South China Morning Post, the agency emphasized the need to detect uniform pricing promotions and other practices that could harm consumers or squeeze out competitors.

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Public feedback on the draft rules will be accepted until November 29.

Read more: China Unveils Draft Antitrust Guidance for Internet Platforms

Li Qiangzhi, an expert with the government-backed China Academy of Information and Communications Technology, noted in an official interpretation that “Internet platforms commonly use algorithms to regulate two key factors in commercial operations and market competition: traffic and pricing.” He added that while big data and AI bring efficiency gains, they “also carry the risk of being misused in scenarios involving collusive communication, information exchange and minimum price restriction.” Li stressed that anti-monopoly enforcement “does not oppose price competition, but rather goes against excessive price competition.”

The issue has taken on greater urgency following months-long price wars in China’s food delivery sector earlier this year. Meituan, the country’s largest platform, faced a wave of aggressive discounting from JD.com and Alibaba, with all three companies offering free or heavily subsidized meals. After SAMR intervened, the platforms pledged in August to end what regulators described as irrational competition.

Concerns over algorithmic manipulation extend beyond pricing. China’s internet watchdog, the Cyberspace Administration of China, urged companies in November 2024 to address problems related to algorithms that create “echo chambers,” encourage addictive usage, or enable discriminatory pricing strategies targeting specific user groups.

The latest draft guidelines build on a broader crackdown on monopolistic behavior in the tech industry that began in 2020. Alibaba was fined US$2.8 billion for abusing market dominance through coercive merchant policies, while Meituan received a 3.4 billion yuan (US$478 million) penalty for similar practices that forced merchants to choose between platforms.

Source: South China Morning Post