elective part 1 (2) anti-competitive behaviours & competition policy

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


Anti-competitive Behaviours & Competition Policy

Impacts of anti-competitive practices & competition policy

What are anti-competitive practices?


A. Monopoly & anti-competition

2.1 What are anti-competitive practices?

B. Different forms of anti-competitive practice


A. Monopoly & anti-competition

To analyze the relationship between monopoly & anti-competitionTo understand the definition of anti-competitive practice


Monopoly

Economies of scale

Elimination of weaker competitors through competition

+

Monopoly= Anti-competition?

Not necessarily Not necessarily anti-competition


Monopoly

Abuse market dominance

Engage in anti-competitive practices

Why is monopoly often seen as being anti-competitive?


Anti-competition:Enterprises use unfairunfair or iinappropriatenappropriate ways to reduce or restrict market competition.

What is anti-competition?


B. Different forms of anti-competitive practice

To learn about the forms of anti-competitive practiceTo examine some anti-competitive practices in Hong Kong


Mergers

Horizontal agreements

Vertical agreements

Anti-competitive practices:All behaviours that distortdistort or restrict market comperestrict market competitiontition.


Horizontal mergers

The merging of firms producing the same type producing the same type of goodsof goods.

The merging of The merging of restaurantsrestaurants

The merging of KCR and MTR


The merging of a firm and another firm that plaplans to enter the marketns to enter the market and compete with it.

The potential competitor is removed. Price

Potential competition mergers


The merging of firms which are in different productioin different production stagesn stages & have a buyer-seller relationship.

A flour company merges with a bread shop.

Competitors lose raw material supply or retail outlets.

The newly merged enterprise has more control of the mathe market pricesrket prices.

Vertical mergers


Competitors in the same industry work together to reach an agreement on price & output price & output so that they can jjointly control pricesointly control prices.

Competitors in the same industry may work together to control prices.


Price-fixing

An agreement between firms to fix or raise the price to resrestrict price competition trict price competition and increase profits.

Price-fixing distorts the normal operation of t

he market

Increases buyer’s costs

Suspected of price-fixing


Sales & production quotasAn agreement among producers or suppliers to fix a sales or producfix a sales or production quotation 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.


Bid rigging

Firms agreeing to submit common bidscommon bids..

Firms agreeing to submit the lowest bid to win the contractwin the contract by rotationrotation.

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.


Market division:in products & locations

An agreement among producers or suppliers on the scopthe scope of operatione 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.


With different sources of customers, there is no competition. Colluding firms can charge higher prices.

Customer allocation

An agreement among market participants on the sthe source of customersource of customers.


Joint boycotts

An agreementagreement 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.

The joint effortjoint effort of competitors to force suppliers or customers not to trade with another competitor.


Unfair or discriminatory standards

Standards agreed upon among members of a trade union or among members of a trade union or professional bodyprofessional 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


Cement production companies, building construction companies & property agents may enter vertical agreements.

An agreement on purchasing or sales conditions made between fifirms in different stages in the prodrms in different stages in the production or sales chainuction or sales chain.


Exclusive dealingThe agreement made between a supplier and its distributors so that the distributors cannot sell products of the same kind cannot sell products of the same kind provided by other suppliersprovided by other suppliers.

Supplier A

The distributor only sells Supplier A’s products.

You can only sell what I provi

de you.

Supplier B

My sales channel is blocked. I may have to close down.


Sole distributor

The arrangement that the producer only assigns one diassigns one distributorstributor for its products in a specified sales territoryin a specified sales territory.

Ng Fung Hong is the sole distributor of live cows imported from the mainland.


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.


Resale price maintenanceA supplier specifying the minimum or maximum pricespecifying 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.


Abuse of dominance

Predatory pricing

Tie-in salesPrice discrimination

Retail price minimum


2.2 Impacts of anti-competitive practices & competition policy

To analyze the impacts of anti-competitive practices on consumers & the economy as a wholeTo examine the justifications & concerns for competition policy in Hong KongTo examine the debate on competition law


What impact does anti-competitive practices have?

Hindering the development of the industry

Unfavourable to consumers

Harmful to economic efficiency


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.


The newspaper industry and the rail industry have ver

y 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

Elective Elective Part 1 (2) Part 1 (2) Anti-competitive Anti-competitive Behaviours & Competition PolicyBehaviours & Competition PolicyConcerns for competi

tion policyInterference 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?


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


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?



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 on public policy or economic groundseconomic grounds.

The new law does not point against the rail merger.

A group opposed the exemption of government departments from the competition law.

Exemptions?



The CPRC suggests civil penalties.

Civil offence? Cri

minal offence?


elective part 1 (2) anti-competitive behaviours & competition policy

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