Commentary: China’s Tech Price Wars Demand a Smarter Referee

In the summer of 2025, China’s major platform companies—JD, Meituan, Alibaba, and Ele.me—engaged in an intense “flash-sale war” focused on the instant retail market. This competition escalated when Taobao Flash Sale (Alibaba) pledged 50 billion yuan ($7.5 billion) in consumer subsidies, prompting rivals such as Meituan to launch “zero-yuan order” and free promotion campaigns. While these tactics drove market activity to new highs, critics argued that the competition had shifted from fostering actual market growth to a battle over existing users, fueled by capital burning and ultimately representing a case of irrational “involution”—wasteful, self-defeating escalation without increasing value [para. 1].

China’s State Administration for Market Regulation intervened twice, summoning the platforms to remind them of regulatory compliance and discourage destructive price wars. Official media echoed the regulator’s concerns, warning that no true winners emerge from price wars and calling on the industry to refocus on innovation and service-based competition [para. 2].

To comprehend the dynamics behind the “flash-sale war,” it’s necessary to consider demand-side economies of scale, or network effects. Rather than traditional production-based economies of scale, platforms thrive on increasing user participation, leading to a self-reinforcing cycle where more users make the platform more valuable for everyone. This effect often operates in two-sided markets—connecting merchants and consumers—where growing one side strengthens appeal to the other. However, the “chicken-and-egg problem” poses a barrier, which platforms overcome by cross-subsidizing one side (typically consumers) to attract the critical mass needed, after which they monetize on the other side (merchants) [para. 3][para. 4][para. 5].

Large-scale subsidies, therefore, are rational and even necessary for platforms aiming for market dominance and stimulating network effects. Yet, the recent “flash-sale war” shifted the focus from growing the market to cornering existing users, which threatens the market’s long-term health and prompted regulatory intervention [para. 6].

To address these challenges, regulation should focus on three areas: maintaining healthy competition, safeguarding social stability, and fostering high-quality development [para. 7]. Ensuring healthy competition in two-sided markets means promoting “multihoming”—the ability of users, merchants, and riders to switch platforms easily. Legal reforms, such as China’s Anti-Monopoly Law and Europe’s Digital Markets Act, target overt and subtle barriers that prevent switching. True low-cost multihoming empowers market self-correction by letting participants “vote with their feet” and preventing abuse [para. 8][para. 9].

On social stability, platform “wars” impact society profoundly, since platforms have become essential infrastructure in daily economic and social life. When capital-driven strategies destabilize merchant and rider incomes or degrade consumer experience, broader risks emerge. The EU’s Digital Services Act mandates risk assessments for large platforms, something China lacks in platform competition, despite piloting such measures elsewhere [para. 10][para. 11]. Regulators are advised to institutionalize preventative, collaborative approaches—requiring platforms to assess and report risks before launching potentially disruptive campaigns and introducing flexible, incentive-based compliance [para. 12].

Looking forward, to escape repetitive and unproductive price wars, platforms must shift toward creating new value—especially leveraging AI agents as the new locus of competition. Global and Chinese tech giants are integrating AI to transform user experiences and build the next generation of “super-portals.” Regulators must both prevent self-preferencing by dual-role platforms and support experimentation via regulatory sandboxes and “safe harbor” provisions that encourage responsible innovation without fear of punitive consequences for unforeseen outcomes [para. 13][para. 14][para. 15][para. 16].

In summary, the 2025 “flash-sale war” highlighted the need for proactive regulation that enables fair competition, safeguards broader social interests, and prepares for the transformative potential of AI, thus guiding China’s platform economy toward sustainable, high-quality development [para. 17].