Keywords: competition, Hong Kong, Collective boycott,
Don't Gang Up!
A collective boycott, or a collective refusal to deal, occurs where two or more businesses collectively refuse to deal with a third party. While businesses are free to choose their business partners, ganging up to exclude an actual or potential competitor can be considered anti-competitive.
A boycott is an effective way of inflicting targeted harm on other players in a relevant market. There can be various reasons for effecting a boycott, including (1) to prevent market entry or to drive a player out of the market, (2) to enforce the terms of a cartel against a 'rogue' member (e.g., to punish discounting in violation of a price fixing arrangement), or (3) to prevent or delay innovation or new business models.
WHO IS USUALLY INVOLVED?
Collective boycotts may have a horizontal or vertical aspect, or both, or it may be driven by a trade association or consortium of businesses. Examples of the different forms a collective boycott can take include: (1) refusal of a trade or industry association to admit a new member; (2) an agreement among suppliers that impact customers; (3) an agreement among customers that impact a supplier; or (4) an agreement between competitor and a common supplier, or suppliers, to deny you access to an important resource or facility.
HOW DOES A BOYCOTT WORK?
Any form of conduct that involves ganging up to exclude an actual or potential competitor from the market without objective business justification may amount to a boycott, for example:
- Terminating business relationships with a third party in a coordinated manner;
- Setting exclusionary membership requirements to prevent a competitor from joining as a member; or
- Refusing to supply an important resource or facility1, or only supplying it on unreasonable terms.
IS A BOYCOTT EVER JUSTIFIABLE?
A collective boycott may, depending on the circumstances, be justifiable on the following grounds:
- Efficiency considerations such as establishing more efficient distribution channels, reducing costly supply arrangements or lowering product costs;
- Protecting the safety and security of a system or network; or
- Protecting incentives to invest and innovate.
Next week we will look at Resale Price Maintenance (RPM), a type of agreement commonly entered into between businesses operating at different levels of a relevant market.
Originally published 29 April 2015
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