|Q1:||Hong Kong’s economy has long been one of the freest and most competitive. Why do we need the Competition Ordinance (Ordinance) and what can it do for us?|
Hong Kong has long been one of the freest and most competitive economies in the world. But that does not mean there is no conduct that reduces competition. Anti-competitive conduct such as price fixing or bid-rigging could lead to reduced consumer choice and uncompetitive high prices, and such conduct is not absent from Hong Kong. We have to work continuously to maintain competition in our markets.
The Ordinance enshrines in law our established value for competition and provides a legal framework to curb possible anti-competitive conduct. A free and level playing field is an important cornerstone for the success of Hong Kong’s economy. Competition in a market ensures effective distribution of economic resources, facilitates continuous innovation of products and services, enhances efficiency in supply, and induces more rapid responses from product and service providers to the needs of consumers.
|Q2:||What can the Competition Commission (Commission) do to help consumers?|
|A2:||Competition spurs businesses to be more efficient, innovative and responsive to consumer needs, which in turn leads to more effective use of resources and greater productivity gains for the economy. By investigating anti-competitive conduct and enforcing the provisions of the Ordinance, the Commission helps to maintain a free and level playing field for businesses. The more competition there is in the markets, the more consumers will be supplied with goods and services at the best possible choices of price and quality.|
|Q3:||What are the types of conduct prohibited by the Ordinance?|
The following conduct is prohibited by the Ordinance:
|Q4||What are the penalties for contraventions?|
|A4:||Where a contravention of a competition rule is proven, the Competition Tribunal has a broad‐range of sanctions available to levy against a contravening party. These include pecuniary penalties, director disqualification, damages and other orders. For pecuniary penalties, the Tribunal may award a penalty up to 10% of the turnover of each undertaking involved for each year in which the contravention occurred, up to three years.|
|Q5:||What can the Ordinance do to help the small and medium enterprises (SMEs)? Are there exemptions for SMEs from the conduct rules?|
The Ordinance, by prohibiting anti-competitive behaviour, helps maintain a level playing field for businesses which would encourage efficiency, innovation, quicker and better response to consumers’ demands as well as free entry to the market. SMEs may also benefit from the increased market opportunities and reduced market barriers.
While we expect businesses, large or small, to comply with the Ordinance, there are exemptions for smaller businesses:
First Conduct Rule
In case of non-serious anti-competitive conduct, the first conduct rule does not apply to an agreement between undertakings if their combined turnover does not exceed HK$200 million.
Second Conduct Rule
The second conduct rule does not apply to an undertaking whose annual turnover does not exceed HK$40 million.
|Q6:||When did the Ordinance come into full effect?|
|A6||The Ordinance came into full effect on 14 December 2015.|
|Q7:||What should I do to mitigate the likelihood of contravention of the Competition Ordinance (Ordinance)?|
The Competition Commission (Commission) has been actively reaching out to the public and businesses by rolling out advocacy and education programmes (see the upcoming events of Seminars & Workshops)
Businesses are encouraged to take proactive steps to understand the Ordinance, identify risk areas and set up self-compliance programmes in time.
In addition to Guidelines outlining its interpretation of the Ordinance, the Commission has produced a number of publications to help businesses understand and comply with the Ordinance. As a start, businesses and small and medium enterprises (SMEs) may go through “The Competition Ordinance and SMEs”, “Competition Ordinance and Trade Associations” brochures and “One-minute TV Episodes – Compete with Integrity” videos to understand the gist of the Ordinance and its compliance. The Commission has also developed a self-assessment toolkit for businesses to assist them to comply with the new law.
Competition law vs. price regulation
|Q8:||What can the Competition Commission (Commission) do about “unfair” or “too low” or “too high” prices?|
Businesses should independently set prices for their products and services based on market conditions. The Competition Ordinance (Ordinance) does not seek to regulate prices, and it is not the Commission’s role to monitor prices to ensure prices are ‘fair’. The Ordinance serves to promote competitive markets to encourage businesses to offer better products at better prices.
As such, an undertaking’s independent pricing decisions will almost never raise competition concerns.
In very limited circumstances, undertakings with substantial market power making independent pricing decisions may harm competition. Predatory pricing, which is explained in paragraphs 5.3 to 5.7 of the Guideline on the Second Conduct Rule and in the “Low pricing versus predatory pricing” FAQ below, is one of the limited examples of where this may occur.
Low pricing vs. predatory pricing
|Q9:||I am a retailer and another competing retailer has lowered its price substantially. This retailer is harming my business. Are they allowed to do this under the Ordinance?|
Offering low prices to consumers is the epitome of competitive conduct and the Commission welcomes businesses charging lower prices based on competition on the merits. For example, small and medium enterprises (SMEs) independently deciding to charge low prices cannot harm competition and will not contravene the Ordinance. This is merely competition in action.
In very limited circumstances an independent decision by an undertaking with substantial market power to charge ‘predatory’ prices may contravene the Ordinance.
Predatory pricing occurs where an undertaking with substantial market power charges below its own cost, making a loss for a sufficient duration to force one or more undertakings out of the market and/or to otherwise “discipline” competitors. The Commission considers predatory pricing a contravention of the Second Conduct Rule of the Ordinance. However, predatory pricing is rare, and even firms with substantial market power charging low prices will often not be engaged in predatory pricing.
Before making a complaint about low or allegedly predatory pricing, businesses should refer to the Commission’s Guideline on the Second Conduct Rule to consider whether each of the required elements for establishing predatory pricing are likely to be present.
All suppliers charging the same prices
|Q10:||If all suppliers in a market are charging the same price, or increase their price at the same time or offer the same discount, does this mean they are engaging in price-fixing and collusion?|
The existence of the same or similar prices for a product is not necessarily evidence of a price fixing cartel.
In markets where the product sold is the same or very similar (such as fuel, or vegetables in a wet market), competitors’ prices may be the same or very similar even in the absence of an anti-competitive agreement. For example, if you know that pricing a little higher than your competitor is likely to mean you lose a lot of customers and pricing below your competitor means your competitor will quickly match your price, prices naturally tend to gravitate towards the same price. This is sometimes known as “parallel pricing” and does not require any arrangement between competitors to occur.
In response to public concerns about the pattern of fuel price changes in particular, the Commission has initiated a study into the Hong Kong auto-fuel markets. The market study aims to establish a thorough understanding of the markets, including the functioning of competition in them and how prices rise and fall. The understanding of these markets obtained over the course of the study will allow the Commission to better address the concerns auto-fuel consumers in Hong Kong have expressed.
Resale Price Maintenance vs Recommended Retail Prices
|Q11:||Can a supplier impose or recommend the retail price at which a retailer sells its products?|
Resale price maintenance (RPM) occurs whenever a supplier imposes a fixed or minimum resale price to be observed by the retailer when it resells the product. Depending on the circumstances, the Commission may regard RPM as having the object of harming competition.
It is common for manufacturers or distributors to identify “suggested” or “recommended” retail prices. So long as they are merely recommendations, and retailers freely adjust their prices upwards or downwards to compete with each other, they are very unlikely to raise competition concerns.
However, where a so called “recommended retail price” is combined with measures that effectively require the retailer to follow the recommendation or otherwise prevent the retailer making its own decision on how to price the product, (for example, the retailer might suffer some form of penalty or adverse consequences should it depart from the “recommended retail price”) this overall course of conduct may be assessed as RPM.
Ultimately, it does not matter how a price is described. In considering whether RPM is occurring, the Commission will look at the substance of arrangements in relation to price, not at whether the prices are described as recommended.
|Q12:||My company intends to appoint a sole distributor in Hong Kong to distribute its goods. Would this arrangement contravene the Competition Ordinance (Ordinance)?|
An exclusive distribution agreement generally only raises concerns under the Ordinance if it has or is likely to have an anti-competitive effect on competition in the relevant market and there is no exemption or exclusion available for the agreement.
The mere fact that a company appoints only one distributor does not establish an anti-competitive effect. The distribution arrangement would need to harm competition in a relevant market. This is more likely to occur if one of the parties to the agreement has market power and the agreement is likely to foreclose its rivals’ access to the market.
Even if an exclusive distribution agreement is considered to have anti-competitive effects, the agreement may nonetheless benefit from the general exclusion for agreements enhancing overall economic efficiency. Paragraphs 6.85 to 6.89 and Hypothetical Example 19 of the Commissions’ Guideline on the First Conduct Rule provide more detail on the Commission’s approach to exclusive distribution arrangements.
As the effects of exclusive agreements can vary considerably, the Competition Commission (Commission) is generally not in a position to provide detailed guidance to individual undertakings about such arrangements without conducting an investigation.
Undertakings who are concerned that an exclusive distribution arrangement may harm competition but who also consider the arrangement leads to economic efficiencies may choose to apply to the Commission for a Decision if they desire greater legal certainty.
Tying and Bundling
|Q13:||I operate an small and medium enterprise (SME) and we sometimes offer products in a bundle. For example, a customer can purchase Products A and B together for a lower price than if it purchased Products A or B individually. Would this practice contravene the Ordinance?|
Offering your own products in a package is referred to as tying or bundling. These are common commercial arrangements and they generally do not harm competition when carried out by SMEs.
However, if a business with substantial market power engages in tying or bundling, such conduct may harm competition and may amount to a contravention of the Ordinance. Examples of how this may occur are set out in paragraphs 5.8 to 5.12 of the Commission’s Guideline on the Second Conduct Rule.
|Q14:||Can I exchange information with other market players either directly or indirectly through a third party?|
Businesses often exchange information on a variety of matters with no risk to the competitive process.
However, as set out in paragraphs 6.38 to 6.43 of the Guideline on the First Conduct Rule, where competitors exchange competitively sensitive information (e.g., information on prices, business costs, sales volumes and market shares), directly or indirectly through a third party such as a trade association, such practices may harm competition in contravention of the First Conduct Rule of the Competition Ordinance (Ordinance). In particular this is the case where competitors share information in private on their future individual intentions or plans with respect price. Conduct of this nature will be considered by the Competition Commission (Commission) as having the object of harming competition and would likely be equated with price fixing cartel conduct.
Where the information exchange does not have the object of harming competition, the Commission may consider whether it nonetheless has an anti-competitive effect. As set out in paragraph 6.47 of the Guideline, the type of information exchanged and the structure of the market in which the information exchange occurs are important factors to be considered when analysing the potential anti-competitive effect of an information exchange. In most cases, the exchange of historical, aggregated and anonymized data is not likely to harm competition.
In addition to the Guidelines, the Commission has also published a Trade Association Brochure and Compliance Toolkit to assist businesses identify key risks associated with sharing information with one another.
Tendering for goods and services
|Q15:||If a business or an Owners’ Corporation / Incorporated Owners awards a contract for goods or services to a contractor without conducting a tendering exercise, does this contravene the Competition Ordinance (Ordinance)?|
|A15:||All customers, be they consumers, businesses or Owners’ Corporations / Incorporated Owners are generally free to choose how they will contract for goods or services. Whether or not a tender process is used to select a contractor does not, of itself, raise concerns under the Ordinance.|
Due procedures for awarding a tender
|Q16:||I suspect that the Owners’ Corporation of my building does not follow the procedures required to pass a valid resolution in awarding a tender for certain maintenance work. Does this contravene the Ordinance?|
The Ordinance prohibits bidders who should be competing to win a tender from entering into arrangements to rig bids. The Competition Commission (Commission) considers that this is a form of serious anti-competitive conduct under the Ordinance.
The Ordinance does not provide that customers must use a tender to buy goods or services, or if the customer elects to use a tender, that they tender in a particular way. Concerns solely in relation to the tender procedures will not contravene the Ordinance and will only be relevant to the Commission if they suggest bidders have entered an anti-competitive arrangement with each other.
Anti bid-rigging clause in tender documents
|Q17:||Is there a standard anti bid-rigging clause for businesses to include in their tender invitations?|
As different businesses may want to set different requirements in their tender invitations, there is no standard or universal clause on the subject. Nevertheless, businesses may consider the following elements when preparing their tender documents:
Non-compete clauses in employment contracts
|Q18:||A clause in my employment contract restricts me from joining other competing companies for 6 months after the termination of my contract. Does this clause contravene the Competition Ordinance (Ordinance)?|
The unilateral imposition of such clauses in employment contracts is unlikely to harm competition in a market unless they are of an unduly long duration and/or relate to an expertise which is in very limited supply. However, this assumes that the imposition of the restriction is an independent decision of the employer. Harm to competition is likely to arise in the employment context if, for example, competitors share or agree on certain terms and conditions of their employees’ employment contracts.
Employment law, in addition to competition law, may govern the imposition of non-compete clauses by employers in employment contracts in Hong Kong. Employees or employers concerned about the inclusion of non-compete clauses should consider seeking legal advice.
Concurrent jurisdiction with the Communications Authority
|Q19:||I wish to lodge a complaint regarding competition concerns in the telecommunications industry. Should I contact the Competition Commission (Commission) or the Communications Authority?|
The Commission and the Communications Authority have entered into a Memorandum of Understanding (MOU) ( available on the respective websites) to coordinate the performance of their functions under the Ordinance.
The Communications Authority will, ordinarily, take the lead role in handling matters that fall fully within the concurrent jurisdiction. In accordance with the Commission’s MOU with the Communications Authority, such complaints received by the Commission will be referred to Office of the Communications Authority for consideration.
|Q20:||I understand that statutory bodies are exempt from the application of the First Conduct Rule and Second Conduct Rule. Where can I find a list of the exempt statutory bodies?|
The list of statutory bodies exempt under the Ordinance can be found in Annex A of the discussion paper of Bills Committee on Competition Bill .
These statutory bodies are exempt from Part 2, Part 4, Part 6 and Schedule 7 of the Ordinance.
Although pursuant to section 3(1) of the Ordinance, the First and Second Conduct Rules do not apply to statutory bodies, that does not prevent the Commission from taking action against undertakings who are not exempt but engage in anti-competitive conduct in their dealings with, or by following recommendations from, statutory bodies. This may occur where, for example, undertakings agree to follow a scale of fees recommended by an exempt statutory body.
Exempted statutory bodies are expected to adhere to the spirit of Competition rules and should not facilitate or encourage undertakings subject to those rules to contravene them.