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Hong Kong Competition Commission secures milestone victory

Oxera advises HKCC in precedent-setting case

On 17 May 2019, the Hon. G Lam J, President of the Hong Kong Competition Tribunal (‘the Tribunal’), ruled in favour of the Hong Kong Competition Commission (‘HKCC’) in an enforcement action against ten construction companies.

Oxera’s Managing Partner, Dr Helen Jenkins, gave expert evidence on behalf of the HKCC during the trial, which was held in late 2018.

The case concerned a market sharing and price fixing cartel in relation to the provision of renovation services at a public rental housing estate in Kowloon. The defence denied the existence of either a market sharing or price fixing agreement, and in the alternative contended that these agreements were essential to delivering efficiencies.

This case is unique in that despite the hardcore nature of the market sharing agreement, the Competition Tribunal heard substantial economics expert evidence on its likely effects on prices paid by tenants. This was the first time that economics expert evidence was heard in the newly established Tribunal. The debate centred on i) whether a competitive outcome would be expected to deliver similar efficiencies, and ii) whether contractors that were not party to the agreement imposed a material competitive constraint on the respondents.

The Tribunal found that the market sharing and price fixing agreements constituted restrictions by object, and that they contravened the First Conduct Rule of the Competition Ordinance.

In coming to this conclusion, the Tribunal placed weight on the expert evidence of Dr Jenkins. In particular, the Tribunal agreed with Dr Jenkins’ characteristation of the competitive counterfactual, finding that competition would have been expected to deliver similar efficiencies and that ‘[a] competitive market would bring benefits because the contractors would need to communicate to customers through price’. The Tribunal also found that the respondents were each others’ closest competitiors, and that the removal of rivalry among this group of competitors ‘conferred upon the respondents the incentive and ability to raise prices’. Dr Jenkins’ empirical analysis of the respondents’ pricing—which showed that there was no systematic evidence of the alleged efficiencies being passed on to tenants in the form of lower prices—was also given weight by the Tribunal.

Dr Jenkins said: ‘This judgement is welcome and reaffirms that cartels should generally be assumed to be harmful to consumers, consistent with economics principles. The Tribunal recognised that competition is a force for good, and sets a justifiably high burden of proof for firms seeking to benefit from an efficiency defence.’