Here's a question worth asking: What took them so long?

China's market regulator finally launched an investigation into Trip.com Group Ltd. (TCOM) (9961.HK) this week for anti-competitive behavior, and honestly, the surprise isn't that it's happening. It's that the company managed to build a travel booking empire controlling more than 60% of China's online travel market before anyone said a word.

Trip.com has been around forever in internet terms. It went public on the Nasdaq back in 2003, making it one of China's earliest U.S.-listed tech companies. For its first decade, things looked relatively normal. The company competed, grew steadily, and played reasonably fair. But starting around 2015, Trip.com went on an acquisition spree that would make a private equity firm blush, systematically buying up or investing in nearly every competitor of any consequence.

Why could it pull this off? Size and timing. China's bigger internet giants like Alibaba (BABA) (9988.HK) and Tencent were too busy chasing the really lucrative stuff like e-commerce and gaming to care much about travel bookings. That left Trip.com, previously known as Ctrip.com, as the 500-pound gorilla in a market that, while substantial, wasn't quite sexy enough to attract the heavyweights.

The State Administration for Market Regulation (SAMR) announced its investigation Wednesday, saying it's looking into potential abuse of market dominance. The probe zeroes in on Trip.com's hotel booking operations, which generated about 44% of the company's revenue in the third quarter, according to sources who spoke to financial media Caixin.

Hotels Don't Have Much Choice

Hotel bookings make sense as the focus here. China's hotel market is incredibly fragmented. Yes, there are some big chains like H World Group (HTHT) (1179.HK) and Jin Jiang (600754.SH), but most of the market consists of thousands of regionally owned properties. These smaller operators depend heavily on online referrals to fill rooms, which gives Trip.com enormous leverage.

According to Caixin, Trip.com routinely forces hotels into exclusive or restrictive agreements. The company also locks up massive amounts of room inventory in advance, effectively preventing competitors from accessing supply. If you're a small hotel chain trying to survive, you don't have much bargaining power when the platform controlling 60% of the market comes calling.

Trip.com isn't the first Chinese internet company to face this kind of scrutiny. Alibaba paid a record $2.8 billion fine in 2021 for similar anti-competitive practices in e-commerce. Meituan (3690.HK) and Tencent have both endured probes that resulted in fines and forced behavioral changes. But that wave of regulatory action mostly wrapped up two or three years ago, making the timing of Trip.com's investigation somewhat puzzling. The company has been engaging in these practices longer than most.

For its part, Trip.com issued a standard response, saying it would "actively cooperate" with the investigation. Translation: We knew this might be coming eventually.

The Market Reacts Badly

Investors didn't love the news. Trip.com's stock has tanked 22% over the last four trading days, erasing roughly $9 billion in market value. At its latest close of $61.30, the damage is real but not catastrophic for long-term holders. Anyone smart or lucky enough to buy shares at the 2003 IPO is still sitting on gains of about 54 times their initial investment, even after the split-adjusted IPO price of $1.125.

China's online travel market is worth about $105 billion annually and is expected to grow at roughly 15% per year over the next five years, according to Modor Intelligence. Trip.com directly controls about a third of that market through its own operations. But the real story is in what it controls indirectly.

An Empire Built on Strategic Investments

Between 2015 and 2017, Trip.com went on a buying spree that fundamentally changed the competitive landscape. In 2015, it bought 48% of Qunar, a major competitor backed by internet giant Baidu. That same year, it acquired 37.6% of former archrival eLong from U.S. travel giant Expedia (EXPE). It also picked up stakes in Tuniu (TOUR) and other smaller players.

Then Trip.com got creative. It engineered a merger between eLong and Tencent-backed Tongcheng, creating Tongcheng (0780.HK), which later listed in Hong Kong. Trip.com still owns 27% of that combined entity, according to Hong Kong Stock Exchange filings.

Add it all up, and Trip.com effectively controls more than 60% of China's online travel market through either direct operations or significant stakes in competitors. The only other meaningful players are Meituan with about 20% market share and Alibaba's Fliggy platform with 10%.

That kind of concentration has real advantages. It helps explain why Trip.com continues posting some of the industry's strongest growth numbers as China's travel sector rebounds from pandemic lows. Third-quarter revenue jumped 16% year-over-year to 18.3 billion yuan, while net income roughly tripled to 19.9 billion yuan from 6.8 billion yuan a year earlier.

Before the selloff, those results gave Trip.com a price-to-earnings ratio around 20, which was premium but not outrageous. The recent drop has pushed that down to 16.5, actually falling below Tongcheng's 18.7 P/E ratio.

What Happens Next?

Let's be realistic about where this goes. The market regulator will almost certainly find Trip.com guilty of anti-competitive behavior. A large fine is coming, probably $1 billion or more. That sounds dramatic, but Trip.com had the equivalent of $15 billion in cash at the end of September, so a fine alone won't cripple the company.

The real concern is what else regulators might demand. Forced divestiture of major holdings seems likely, particularly the stakes in Tongcheng and Qunar. Trip.com will almost certainly have to end its exclusive arrangements with hotels, opening up inventory to competitors.

Those structural changes matter far more than any fine. They could finally knock Trip.com off its throne and create genuine competition in China's online travel market. For investors, that's the storyline worth watching. The company built an empire by systematically eliminating competition. Now it might have to give chunks of that empire back.

Trip.com has had a great run, but maintaining a 60% market share was never going to be sustainable once regulators decided to pay attention. The only real surprise is that it took this long for someone to notice.