Competition Laws in Hong Kong

Competition laws in Hong Kong

Introduction

Hong Kong is long prominent that it is the freest economy in the world. However,

, though Hong Kong seems quite successful, there is also criticism that her laissez faire policy leads to some monopolistic status in different industries. Someone thus argue that the market cannot work is appropriately without any government intervention and they therefore ask for the implementation of the competition laws to discourage any forms of anti-trust behavior. In fact, Hong Kong is a few of advanced economies that still have not enacted the Competition laws. After years of debate, under the society's and political parties' pressure, On 14 June 2012 the Hong Kong Legislative Council passed the Competition Bill (Competition Ordinance or CO), enacting Hong Kong's first cross-sector competition law. During the enacting the laws, however, there are quite a number of controversial issues about the content of the Competition Ordinance and it is still not unsettled now. For example, the coverage of the laws, the exemption from the laws, the penalties, the absence of the right to bring stand-alone private actions and the like, thus, in the following essay, we would discuss the details of the Competition Ordinance and how we may improve it to make it works in a correctly direction and at the same time will not bring much adverse effects to the economy.

Why should we having Competition laws

Theoretically, entry is necessary for the efficiency of the market since it averts firms earning excessive profits and makes the price closer to the minimum average cost. Hence, higher cost firm will be driven out because the price will decrease below their minimum average cost. Low cost firms can be rewarded a substantial profit. The existing high profit, thus, induce potential entrants to enter the market and develop better production means. At the end, the whole society can be beneficial as both allocative and technological efficiency are achieved. At a result, the price of goods and service are at lowest price and the inefficient firms will be driven out, the efficiency therefore has achieved.

The proposed competition law would help to achieved this outcome as it encourages firms' entry and sustain the competition in the markets and thus increasing the economic efficient. In Hong Kong, the market competition is often imperfect and firms always involve in restricting competition by merger or forming cartel. As such, it may lead to an inefficient equilibrium. Thus, we need a Competition laws to avoid competition restriction so as to increase social welfare.

We can see that a Competition laws can enhance social welfare, but it is held only when the design of the laws is appropriate. So, let's look at the detail of the Competition Bill in Hong Kong to see whether it leads the markets to a correct road so thus increasing social welfare.

Coverage of the Competition laws

i. Size:

One of the major controversial of Competition laws is what size of the firm should be exempted from the competition law. Under the current enacted bill, small business benefit from a full exclusion from the prohibition on the abuse of a substantial degree of market power when their turnover does not exceed $40 million. A firm with a combined annual turnover of less than HK$200 million is also excluded for less serious violations of restrictive practice.

One may argue that these exemptions would make the competition laws impractical. However, given the fact that Over 98% of business operations in Hong Kong are small and medium enterprises, the coverage of SMEs may pose a significant adverse effect to the economy as SMEs might be exposed to competitors' discrediting and lengthy and costly litigations. Unless SMEs shift the extra operation costs to the consumers, they may only choose to move their business out of the territory or simply