China has enacted a new competition policy that seeks to boost innovation by stifling cutthroat price competition. Padding companies’ margins will enable collusion and regulatory capture rather than innovation, write Victor Jiawei Zhang and Yahui Song.
In February 2025, China’s e-commerce giant JD.com introduced a standalone food delivery application in China to compete with incumbent platforms Meituan and Alibaba’s Ele.me (now rebranded as Taobao Shangou). JD.com’s strategy has been unmistakably aggressive. It has taken advantage of merchants’ and delivery drivers’ grievances against the incumbents with pledges to pay social security fees for full-time delivery drivers and to waive one-year registration fees for new merchants. It has also rolled out generous subsidies for consumers.
The resulting competition among the three food-delivery platforms is suffocating. In a multisided market where network effects draw in more businesses and users and thus determine survival, the market bears the hallmarks of a natural monopoly: scale begets scale, and the winner takes all. That’s why platforms have huge incentives to court each side’s constituency by offering them more favorable terms.
The cost of this battle has been staggering. In only two quarters in 2025, the three food-delivery platforms burned through over 100 billion yuan altogether, roughly $14 billion. However, no one dominates the marketplace anymore. According to iResearch, the estimated market share in the fourth quarter of 2025 for Meituan, Ele.me, and JD.com was 48%, 33%, and 19%, respectively. Certainly, end users, delivery drivers, and restaurants have all benefited from the flood of subsidies and offers from competing platforms.
This is why many users and scholars welcome JD.com’s entry. More competition, they believe, expands user choice, increases consumer welfare, and disciplines entrenched incumbents.
However, that is not how Beijing sees it.In early January 2026, the Office of the State Council Anti-Monopoly and Anti-Unfair Competition Commission opened an investigation into the food-delivery market. Rather than applauding the price war, Beijing sees more harm than good.
Policy shift
As a populous developing country with a low per capita income, China’s economic and social agenda has long prioritized addressing the basic needs of low-income groups and creating more job opportunities. The rise of the digital economy has presented an unparalleled avenue toward these goals.
More affordable goods and accessible work offered by digital intermediaries have lifted people from subsistence, sustained economic growth, and reinforced social stability. As of 2023, over 10 million people had worked as instant delivery drivers and 545 million users had ordered food online. Valued at around 1.2 trillion yuan (around $167 billion), the food delivery industry has become a significant pillar of China’s consumption-driven growth, supporting restaurants, logistics, and a broad ecosystem of upstream and downstream businesses. This is why Beijing supported price-centric competition for the last decade.
However, Beijing reads this differently now. Since July 2025, Beijing has intervened to prevent price wars across a wide range of industries. The pure, naked price war, in Beijing’s view, is helpless—and even detrimental—in promoting long-term innovation.
The government believes that, compared with repetitive production and relentless competition that drive prices increasingly lower, innovation can ensure a more sustainable economic growth. Especially amid the China-United States trade war, China is betting on its Innovation-Driven Development Strategy to secure a lasting competitive edge.
This policy shift has been implicitly embedded in the newly revised Chinese Anti-Unfair Competition Law, which came into effect in October 2025. Most relevant are Articles 14 and 15, which read:
Article 14 – Platform operators shall not force or covertly force operators on a platform to sell goods at prices below cost in accordance with their pricing rules, thereby disrupting order in market competition.
Article 15 – Large enterprises and other operators shall not abuse their relatively advantageous position in terms of funds, technology, transaction channels, industry influence, etc., to require small and medium-sized enterprises to accept obviously unreasonable conditions for transactions, such as payment terms, methods, and conditions, liability for breach of contract, nor shall they delay payment for goods, projects, services, and other accounts owed to small and medium-sized enterprises.
Articles 14 and 15 impose tight constraints on price-setting and contractual freedom. Article 14 illegalizes any form of below-cost pricing dictated by platforms, regardless of whether operators on the platform receive subsidies or benefits from it. Chinese legislators seem to view heavy subsidies as a de facto form of compelled below-cost pricing. Similarly, Article 15 seeks to prevent large companies from passing competitive pressure onto dependent small businesses, ultimately creating an innovation-friendly environment that insulates these small entities from exploitation by incumbent tech giants.
Beijing’s ambition is to break the vicious cycle and redirect the digital economy away from endless price wars toward innovation-driven races. Margins saved from the price war, they hope, can translate into greater spending on research and development innovation. In this way, firms can gain competitive advantages in the market, due to their continuous, substantial innovation and providing heterogeneous products, rather than mere imitation and relentless discounting in pursuit of the short-term windfalls. The precise logic has not been articulated in government documentation, and what kind of specific innovation the government hopes in a market like food delivery is likewise unclear.
Anti-Involution competition policy
Since July 2025, Beijing has labeled the disorderly low-price competition as toxic “involution.” “Unlike healthy competition that drives innovation and efficiency, involution leads to nowhere and erodes industry health,” wrote People’s Daily Online, the official media outlet for China’s government.
Involution is a concept initially used in anthropology and economics to describe a condition in which a growth in inputs and the resulting increasing complexity within the system fail to generate external gains. It became a Chinese buzzword in 2020, referring to an excessively homogenized, repetitive competition that neither creates welfare for workers nor generates revenue for businesses.
Is “involutionary competition” a new legal concept? Probably not. Maurice Stucke and Ariel Ezrachi illustrate in their book Competition Overdose four scenarios where competition may become toxic. One of these scenarios, a race to the bottom, according to their theory, may arise when companies’ self-interests are not aligned with society’s collective interests, and no market players can de-escalate the race.
But what interests represent society’s collective interests? Lower prices or more innovation? China has now prioritized policies that it believes will encourage innovation over mere price competition. Any 100 billion yuan shift in welfare would be better off staying directly with innovators rather than going into consumers’ pockets. It is reasonable to infer that, for Beijing, investing in technical innovation, such as food-delivery drones and robots, should be encouraged more than merely engaging in price wars.
This position does not align with neoliberal economic thinking, which holds that the state has little justification for intervening in price-setting and transaction processes in a sufficiently competitive market. However, China is different. The anti-involution policy is deeply rooted in the country’s market realities.
For a long time, the Chinese market has been inundated with overlapping investments and production. This signals imitation-based—rather than innovation-driven—competition. As some business models and ideas are not technical innovations eligible for patent protection, businesses have strong incentives to sidestep investments in original, technical innovation, but instead follow those unprotected business ideas and free ride on first movers.
Moreover, insufficient patent protection in China also contributes to the prevalence of copycat competition in even high-end technology industries. As a result, successful business models—from bubble tea to photovoltaic industries—often attract a rapid influx of followers. Such a distorted culture rewards imitators but demotivates innovators, ultimately resulting in overcapacity and scale dumping.
In this sense, the anti-involution policy underscores the uniqueness and necessity of China’s institutional shift to foster a more innovation-friendly environment. This new policy stance mirrors the well-known inverted-U relationship between competition and innovation.
Curse of the Anti-Involution campaign
Ironically, various industries, such as new energy vehicles, photovoltaic glass, cement, and food-delivery platforms, have responded zealously to the anti-involution policy, welcoming a new regulatory climate that may tolerate collusion and price cartels.
Anti-involution is, by nature, anti-competition. Policymakers should realize that the anti-involution campaign may encourage regulatory arbitrage, facilitate collusion, and entrench the incumbents. These side effects may eventually run counter to the consumer welfare and public interest that could otherwise be furthered in a light-touched, competitive market.
Moreover, top-down restrictions on price-setting are rarely one-and-done fixes. Government regulation often fails due to information asymmetry and regulatory capture. Instead of providing subsidies or raising debt to lower prices, firms could also bring down prices by cutting costs and scaling back investment in innovation, rendering regulation a whack-a-mole game.
Therefore, anti-involution tools should be tailored narrowly rather than imposed arbitrarily and capriciously across all competitive industries. However, defining an optimal level of competition for different industries in favor of sustainable innovation is a challenging regulatory task.
Saving innovation by choking competition is to put the cart before the horse. Halting the price war does not necessarily lead to more innovation. Indeed, homogeneous competition, short-termism, and innovation fatigue are not merely regulatory problems. Just as Anu Bradford argues, legal, economic, political, and cultural factors collectively shape the innovation landscape of a specific jurisdiction.
A more sustainable approach to fostering a heterogeneous, pluralistic, innovation-friendly market is to rebuild public trust in long-term innovation investment through robust institutional and cultural commitment to respecting and rewarding knowledge contributions. This should be a long-term, systemwide project.
Authors’ Disclosures: The authors report no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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