Professional Documents
Culture Documents
9
Of those systems of competition law, not all but
many include provisions for the prohibition of mergers
that would be seriously detrimental to competitive
structure of markets. So about 50 countries have a
system whereby a competition authority or minister or
competition commission or whatever, in certain
circumstances, can prohibit mergers on competition
grounds. Some of these cases are extremely
controversial, as many of you saw last year, European
commission prohibited the merger between General
Electric and Honeywell. So we’ve got about 90 systems,
50 or so include merger control. And the interesting
thing is that the systems of competition law that we
have exists in all types of economy.
10
Obviously highly developed and very substantial
economies, such as the United States or Canada, have
competition regimes. But many of the countries that
have emerged from a state-controlled market structure,
the former Soviet Union countries, for example, the
countries of Central and Eastern Europe. Most of these
countries now have adopted competition regimes. So
you’ll find that Poland, Hungary, Slovenia, Romania and
Bulgaria - all these countries do have competition
regimes. And also numerous developing countries, with
very small economies in some circumstances, have
also adopted competition laws. So you can go to
Zambia, Zimbabwe, Ghana or Senegal and you will find
that there are competition rules.
11
So frankly you look around the world globally and
there are very few patches of the atlas where you do
not find systems of competition law. And there are
numerous explanations for this. And one could have a
debate about why there are so many systems of
competition law and to what extent is it because that the
IMF and World Bank has required people to adopt
competition laws.
13
(Slide 2)
14
“Well! We used to have all these state controls in
the form of planning and so on and so forth. And now
we’re meant to have a free market. And all that’s
happened is that the old state control mechanisms have
gone away and we’ve put competition law in its place.
So it’s just as much manipulated as it used to be.”
17
The difficulty with that proposition and the reason
that you have competition law is that firms may have
market power. And if they have market power, then
they may be able to abuse it. In some circumstances
an individual firm has market power, so it can perhaps
raise prices to an excessively high level, or just as
possibly, it may reduce prices to an unreasonably low
level in order to defeat competitors. Then that firm puts
its prices back up. Very difficult to work out when the
price is unfairly low or unfairly high. But the idea is a
simple one. It may also be that firms get together
collectively and agree, for example, to fix prices or to
share out customers, or geographically to divide
markets.
18
Well, all of these things are examples of the
abuse of market power. So the purpose and the
function of competition law is to enable an institution
somewhere, be it an individual invested with the powers
or a commission or a court, or whoever it should be,
possible to come in and correct those situations in
which there is a failure of the market because
somebody has abused his market power.
24
And for that reason the modern focus of
competition law globally, and there’s absolutely no
question about this, the modern focus of competition
authorities is tending to be of horizontal agreements
between competitors to rig the market. Whether this is
by agreeing to fix prices, whether it’s by agreeing to
share out geographical markets: I will have this market
and you will have that market and we will never invade
each other’s markets. Or whether it is by allocating
customers: I will deal with the wholesale sector and you
can deal with the retail sector. Or I will deal with
hospitals and you will deal with the dental end of the
health service market. These are regarded as
absolutely fundamentally illegal agreements in systems
of competition law.
25
And actually the issue that one has when
confronted with that sort of problem is not whether the
agreement is legal or illegal. The issue tends to be: is
the competition authority able to obtain evidence to
prove that the agreements exist. And also what kind of
penalty has to be imposed in order to act as a deterrent
to prevent other firms from behaving in this way.
27
So competition law systems are very concerned
with horizontal agreements of this kind and it is
specifically written into the Telecom Ordinance in Hong
Kong. In Section 7K, these three types of agreements
are specifically stated to be illegal. Price fixing in
telecom markets, market sharing and customer
allocation are specifically stated to be unlawful in
telecoms in Hong Kong.
31
…...Price discrimination, as a general proposition, I
think is a good, rather than a bad thing. One shouldn’t
have a sort of instinctive feeling that just because a
price is discriminatory, it is therefore bad. The
discriminatory price might actually be a way in which a
firm can simply maximise its output. And there’s
nothing wrong with a firm maximising its output. On the
other hand, if it’s indulging in discrimination because it
is a way of eliminating a competitor, I could start to draw
diagrams explaining that idea. But where the
discrimination is anti-competitive in its nature and effect,
then there clearly is a case for a dominant firm to be
investigated by the competition authority.
32
Similarly if a dominant firm enters into a deal with
a customer or supplier which is exclusive…, “I will
supply a service to you on condition that you do not
take the same service from anybody else for two years,
three years, five years….” Clearly a point in time comes
at which that sort of exclusive vertical relationship, a
relationship between people operating at different levels
of the market, a time comes when competition
authorities will be concerned that the exclusivity is
having the effect of foreclosing other people’s
reasonable access to the market.
36
So that really leads onto the last bullet point
there, which is that systems of regulation tend to have
rules that just simply say you must not do this. So really
it’s the question of look at the behaviour, look at the rule
and you know the answer “Yes” or “No”. Competition
law is much more complicated than that. Competition
law is going to be about saying – “Has X abused a
dominant position?” And that is a question which is
essentially about economic analysis. It’s asking – “Has
firm X got market power?” That requires a definition of
what the relevant market is. If it has got market power,
has it indulged in the low cost selling which has
adversely affected the competitive nature of the market?
There is no simple short cut answer in those cases. By
its nature it requires a long and sophisticated analysis.
So applying competition law intellectually is just a totally
different business from applying regulatory rules. 37
So two more slides focusing more specifically on
telecommunications and Hong Kong, but many of the
ones I want to make have really been made already.
(Slide 5)
(Slide 6)
42
And so my concluding slide says – “Well. What
about the Hong Kong Ordinance?” And it is fascinating
to see where your law has arrived and of course it can
be traced back to the original licence conditions about
competition. It’s the same thing we did in the United
Kingdom incidentally. We started by imposing licence
conditions on BT - British Telecommunications - and
then in due course, the licence condition went away
because we introduced a law to deal with the problems
in hand.
• Horizontal agreements
– price fixing
– market sharing
– customer allocation
• Abuse of market power
– predatory pricing
– anti-competitive discrimination <<Back
– exclusive agreements
Slide 4
• Note: Competition law is not the same as ex
ante