Most Read Contributor in Hong Kong, September 2016
2015 - The year of competition in Hong Kong
Margin squeeze is a form of exclusionary abuse where a (fully or
partially) vertically integrated business controlling a key input
or facility in the upstream market sells that input to its
downstream rivals at substantially less favourable terms, to
strengthen its own market power in the downstream market and hamper
the ability of downstream rivals to compete effectively.
When is margin squeeze harmful to competition?
Although businesses generally have no duty to deal, or deal
fairly, with its competitors, under certain circumstances a margin
squeeze may cause undue foreclosure in the downstream market to
equally efficient competitors.
Margin squeeze is a common practice in Hong Kong, and will only
contravene competition law in very narrow circumstances. When
assessing whether a margin squeeze may amount to abuse, the
Competition Commission will consider:
1. The nature of the upstream input or facility.
The more important the input or facility and the more
substantial it is as a proportion of overall production cost in the
downstream market, the greater the potential negative impact on
competition in the downstream market.
Supplying a key input or facility at unreasonable terms is akin
to a constructive refusal to deal, which is unlikely to be
problematic unless the business has a duty to deal in the first
2. The size of the margin squeeze.
Competition in the downstream market may be restricted where
the business with substantial market power in the upstream
Sells an input to its downstream rivals at a price which
exceeds the price at which it sells the end-product in the
Uses profits from inflated prices charged to downstream rivals
to subsidise its own cost of production, in order to sell the
end-product at a below-cost price in the downstream market. We hope
you enjoyed the series!
This article marks the end of our Hong Kong Competition Law
Series. We hope you found the articles useful and informative.
Should you wish to revisit previous articles from the series,
please click here.
The Competition Ordinance (Cap.619) is currently set to come
into force on 14 December 2015. For inquiries related to the Hong
Kong Competition Law Series, please contact the following persons
or your usual contacts at our firm.
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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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As mentioned in our previous alert in this series, the Hong Kong Competition Commission's investigative process begins with an Initial Assessment to screen suitable cases for further investigation or other action.
The investigative process begins by the Hong Kong Competition Commission (the "Commission") identifying a potential contravention of a competition rule.
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