Over the course of more than two years, the Hong Kong Competition Commission ("Commission") investigated the exclusivity and price parity provisions of Hong Kong's two leading online food delivery platforms, Foodpanda and Deliveroo, with partner restaurants.1 The investigation ended after the Commission accepted unique commitments from the platforms to address its potential competition concerns.
The case stands out as one of the Commission's most important, complex and widely publicized enforcement actions to date, also reflecting its emphasis on regulating digital platforms and the digital economy.
The case has also sparked discussions on broader topics, such as: (i) the legality and effects of exclusivity and price parity terms in a non-dominance context; (ii) the assessment of credible new entry in the context of foreclosure; and (iii) the thoughtful design of commitment terms that help preserve (rather than undermine) competition in a highly dynamic platform market.
In this briefing, we provide our thoughts on some key takeaways from Hong Kong's online food delivery investigation.
Highlights
- Market power without individual dominance. The Commission took action against exclusivity and price parity terms despite a lack of "substantial degree of market power" by either Foodpanda or Deliveroo (the equivalent of "dominance" adopted in most jurisdictions). The Commission noted that Foodpanda and Deliveroo held only a "certain degree of market power" with individual shares over 40% and proceeded on the basis of the First Conduct Rule (prohibition against anticompetitive agreements) rather than the Second (abuse of dominance). Based on the commitment terms, the Commission appears to suggest that a market share of at least 30% would be indicative of sufficient market power for competition concerns to arise, aligning with EU and UK block exemption regimes, which provide a safe harbor for shares below this threshold.
- Cumulative foreclosure effects of parallel agreements. The Commission highlighted that the "high cumulative captive market share" of Foodpanda and Deliveroo potentially foreclosed smaller platforms, with approximately 50% of Hong Kong's online food delivery market tied to their exclusivity agreements. This threshold mirrors the EU's approach, where a parallel network of agreements of suppliers with similar vertical restraints can raise concerns if they cover more than 50% of the market.
- Legality of narrow price parity clauses. The Commission prohibited narrow price parity obligations. First, the Commission was not convinced that the narrow price parity obligations had any pro-competitive benefits (such as preventing free-riding). Second, like with the market coverage and cumulative effect of exclusivity terms, the Commission was concerned that the narrow price parity obligations of Foodpanda and Deliveroo covered a significant part of the market, therefore effectively mirroring wide (across-platform)price parity, which is considered more harmful than narrow price parity.
- Threat of credible market entry. The Commission maintained a foreclosure theory of harm even thought here was evidence of a credible threat of a new competitor entering the market. In the last year of the investigation, Meituan entered the market with its "Keeta" app and managed to secure a market share above 10% within six months of commencing operations.
- Dynamic commitment terms. The commitments continue to allow exclusivity while preventing market distortions through dynamic market share thresholds that adjust to changes in market conditions. Foodpanda and Deliveroo can incentivize exclusivity as long as restaurants can also work with smaller platforms (under 10% market share) without losing benefits like lower commission rates. Meituan's "Keeta" does not qualify for this carve-out as it exceeded the threshold by the time the commitments were entered into. Additionally, if Foodpanda or Deliveroo's market share falls below 30%, they can be released from the commitments.
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Footnotes
* Fangda Partners advised Deliveroo in the investigation.
1. The Commission also investigated tying/bundling terms imposed by Foodpanda.
Originally published November 2024
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