Most Read Contributor in Hong Kong, September 2016
With Power, Comes Responsibility
Being big is not bad, but businesses with substantial market
power have a special responsibility not to abuse their position to
restrict or eliminate competition.
What is substantial market power?
Substantial market power is the ability to act unilaterally
without effective competitive constraint. For example, a business
with substantial market power will be able to remain profitable
while engaging in the following behaviour:
Charging supra-competitive prices.
Reducing the quality of products.
Reducing the variety of products.
Lowering customer service standards.
In a competitive market, in face of an increase in price or
deterioration in the quality of goods or services offered,
customers will bargain for a better deal, or switch to other
suppliers. However, businesses with substantial market power can
reduce the attractiveness of their competitive offering without
resulting in a significant loss of business. This may be due to a
number of reasons, for example the lack of countervailing buyer
power or a lack of close substitutes for the relevant product or
service, or, the cost to customers of switching is prohibitively
Under the Competition Ordinance, businesses with an annual
turnover of HKD 40 million or less are exempted from the
application of the Second Conduct Rule.
What constitutes abuse?
There is nothing wrong with achieving market power by being
better, more efficient, and more successful than the rest of the
Problems arise only when, having legitimately attained a
position of substantial market power, a business attempts to
maintain that position in an evolving market, not by competing on
merit, but by misusing its power to exclude competitors.
To illustrate, the following conduct may constitute exclusionary
abuse of market power:
Having looked at what market power means and the types of
conduct that could be seen as an abuse of that power, next week, we
will consider how market power is assessed.
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This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Please also read the JSM legal publications
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