1. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy

2. Anti-competitive Behaviours & Competition Policy Impacts of anti-competitive practices & competition policy What are anti-competitive practices?

3. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy A.Monopoly & anti- competition 2.1What are anti-competitive practices? B.Different forms of anti-competitive practice

4. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy A.Monopoly & anti-competition To analyze the relationship between monopoly & anti- competition To understand the definition of anti-competitive practice

5. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Monopoly Economies of scale Elimination of weaker competitors through competition + Monopoly = Anti-competition? Not necessarily Not necessarily anti-competition

6. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Monopoly Abuse market dominance Engage in anti-competitive practices Why is monopoly often seen as being anti-competitive?

7. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Anti-competition: unfair inappropriate Enterprises use unfair or inappropriate ways to reduce or restrict market competition. What is anti-competition?

8. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy B.Different forms of anti-competitive practice To learn about the forms of anti-competitive practice To examine some anti- competitive practices in Hong Kong

9. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Mergers Horizontal agreements Vertical agreements Anti-competitive practices: distortrestrict market competition All behaviours that distort or restrict market competition.

10. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Horizontal mergers producing the same type of goods The merging of firms producing the same type of goods. The merging of restaurants The merging of KCR and MTR

11. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy plans to enter the market The merging of a firm and another firm that plans to enter the market and compete with it. The potential competitor is removed. Price Potential competition mergers

12. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy in different production stages The merging of firms which are in different production stages & have a buyer-seller relationship. A flour company merges with a bread shop. Competitors lose raw material supply or retail outlets. the market prices The newly merged enterprise has more control of the market prices. Vertical mergers

13. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy price & output jointly control prices Competitors in the same industry work together to reach an agreement on price & output so that they can jointly control prices. Competitors in the same industry may work together to control prices.

14. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Price-fixing restrict price competition An agreement between firms to fix or raise the price to restrict price competition and increase profits. Price-fixing distorts the normal operation of the market Increases buyer’s costs Suspected of price-fixing

15. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Sales & production quotas fix a sales or production quota An agreement among producers or suppliers to fix a sales or production quota so that their joint reduction in output can raise the product price. The Organization of the Petroleum Exporting Countries (OPEC) influences the oil price through controlling their output.

16. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Bid rigging common bids. Firms agreeing to submit common bids. win the contractrotation Firms agreeing to submit the lowest bid to win the contract by rotation. New Year Fair stalls bidding & the construction of the gates for public housing units have been suspected of bid rigging. The price for the project will be much higher than the market price. Share the profits & eliminate competition.

17. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Market division: in products & locations the scope of operation An agreement among producers or suppliers on the scope of operation. Each firm in the agreement sells only the specified products or operates only at the specified locations and will not enter others’ scope of operation. Most housing estates in Hong Kong have only one supermarket.

18. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy With different sources of customers, there is no competition. Colluding firms can charge higher prices. Customer allocation the source of customers An agreement among market participants on the source of customers.

19. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Joint boycotts agreement An agreement among competitors not to trade with certain suppliers or customers. Colluding competitors Let’s not buy from this supplier so that it will leave the market. joint effort The joint effort of competitors to force suppliers or customers not to trade with another competitor.

20. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Unfair or discriminatory standards among members of a trade union or professional body Standards agreed upon among members of a trade union or professional body, which deny newcomers the change to enter or compete in the market. Let’s draw up some standards to prevent newcomers from entering the market. Trade union

21. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Cement production companies, building construction companies & property agents may enter vertical agreements. firms in different stages in the production or sales chain An agreement on purchasing or sales conditions made between firms in different stages in the production or sales chain.

22. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Exclusive dealing cannot sell products of the same kind provided by other suppliers The agreement made between a supplier and its distributors so that the distributors cannot sell products of the same kind provided by other suppliers. Supplier A The distributor only sells Supplier A’s products. You can only sell what I provide you. Supplier B My sales channel is blocked. I may have to close down.

23. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Sole distributor assigns one distributorin a specified sales territory The arrangement that the producer only assigns one distributor for its products in a specified sales territory. Ng Fung Hong is the sole distributor of live cows imported from the mainland.

24. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Tie-in sales & bundling The buyer can buy the desired good or services (i.e., the tying good) only if he agrees also to buy a different good or service (i.e., the tied good) from the seller. Tie-in sales The sale of a package of several services (or products) and buyers cannot buy only one item. Bundling of services The sale of Windows products is bundled with browsers.

25. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Resale price maintenance specifying the minimum or maximum price A supplier specifying the minimum or maximum price at which a product must be re-sold to customers by downstream firms. The prices of football T-shirts have once been said to be specified by the supplier.

26. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Abuse of dominance Predatory pricing Tie-in sales Price discrimination Retail price minimum

27. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy 2.2Impacts of anti-competitive practices & competition policy To analyze the impacts of anti- competitive practices on consumers & the economy as a whole To examine the justifications & concerns for competition policy in Hong Kong To examine the debate on competition law

28. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy What impact does anti- competitive practices have? Hindering the development of the industry Unfavourable to consumers Harmful to economic efficiency

29. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Major justification for competition policy To provide a legal basis for the investigation & sanctioning of anti-competitive conduct. To strengthen the competition regulatory framework in order to promote market discipline. To improve the business environment & provide a level playing-field for business.

30. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy The newspaper industry and the rail industry have very high entry barriers. To improve transparency through delineating what constitutes anti-competitive conduct so that firms & the public are fully aware of them and can prevent their occurrence in society. Without such regulation through legislation, in the long run there might be an adverse effect on the relative competitiveness of Hong Kong, especially in those sectors with high entry barriers. Major justification for competition policy

31. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Concerns for competition policy Interference with the market structure Increase in the cost of doing business Effects on the development of small- & medium-sized enterprises Use of alternative ways to enhance market competition Needed?

32. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy Cross-sector? Sector-specific? Concerns for competition policy To tackle cross-sector ‘bundling of services’ effectively and to avoid discrimination against certain business sectors or consumers, the Competition Policy Review Committee (CPRC) suggests that competition law should apply to all. Competition Policy Advisory Group

33. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy The practices are not illegal unless they are found: To have been carried out with the intent to distort the market. To have the effect of distorting normal market operations & lessening competition. Practices covered? Concerns for competition policy

34. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy on public policy or economic grounds CPRC recommended that the new legislation should allow the government to exempt certain specified situations from the application of the law on public policy or economic grounds. The new law does not point against the rail merger. A group opposed the exemption of government departments from the competition law. Exemptions? Concerns for competition policy

35. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy The CPRC suggests civil penalties. Civil offence? Criminal offence? Concerns for competition policy

36. Elective Part 1 (2) Anti-competitive Behaviours & Competition Policy