Academic journal article The Journal of Consumer Affairs

In Search of a Competition Policy in a Competitive Economy: The Case of Hong Kong

Academic journal article The Journal of Consumer Affairs

In Search of a Competition Policy in a Competitive Economy: The Case of Hong Kong

Article excerpt

The authors propose an exploratory framework to study competition policy development in general and apply it in the context of Hong Kong. Competition policy (in the U.S., commonly referred to as antitrust policy) is defined here as concerned with the public policy prohibiting anticompetitive behavior and the abuse of dominant market power on the part of businesses. The framework identifies four core variables that are important in influencing the development and implementation of a competition policy. These variables are the consumer protection agenda, external pressure, the political landscape, and the size of the economy. It is proposed that the way government responded to these forces has been instrumental in shaping how and why the competition policy debate in Hong Kong evolved the way it did. It also underscores the importance of recognizing the indigenous nature in the development of competition policy in any economy. Future research directions to generalize the framework are also suggested. These inclu de further development and expansion of the core variables, contextualization of the framework for cross-national comparisons, and undertaking longitudinal studies to examine the sensitivities of the competition policy to changes in the core forces over time.

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The Nobel Laureate Milton Friedman once made the now classic verdict in proclaiming Hong Kong as "the modern exemplar of free markets" (Friedman and Friedman 1980, 34). By all measures, this is certainly no mere flattery. And there is no better testimony to the verdict than the simple fact that Hong Kong has been rated the world's freest economy for the last nine straight years by the Washington-based Heritage Foundation's Annual Index of Economic Freedom (Johnson, Holmes, and Kirkpatrick 1998, 1999; Law 2002; O'Driscoll, Holmes, and Kirkpatrick 2000, 2001; Seawright 2001). Canada's Fraser Institute's quinquennial [report] Economic Freedom of the World similarly honored the city with the top rank six times in a row (Gwartney, Lawson, and Block 1996; Saunders 2000).

As Hong Kong thrives on the reputation of being the world's freest economy, one would expect that the free market mechanism could naturally enhance freedom of choice as well as competition in the economy. Such international rankings and popular expectation notwithstanding, the Consumer Council, the watchdog of consumer interests in Hong Kong, has argued contrarily. After a series of studies spanning four years from 1992-1996 on the competitive scenario in six service industries in Hong Kong, the Council concluded that a free economy, paradoxically, did not automatically guarantee a competitive economy in the Hong Kong context. In the supermarket sector, for instance, industry estimates generally agreed that the two largest chain stores together controlled approximately 70% of the supermarket sales (Consumer Council 1994b, 11). In the domestic water heating and cooking fuel market, the single largest player provided over 65% of the total gas market in 1993 (Consumer Council 1995, 15). In the private residentia l property market, the largest five developers produced between 50 -70% of the territories' new flats every year between 1991-1994 (Consumer Council 1996c, A3-2). Against the background that there was no comprehensive competition policy in the territory, the Council recommended that Hong Kong should enact a general competition law enforced by a competition authority that would apply across all sectors (Consumer Council 1996d).

The contention of the Consumer Council inevitably begs the question--how could Hong Kong finish number one in the world as the freest economy when in fact it did not have a competitive economy. This contradiction, in fact, is hardly surprising. The international ranking exercises are concerned with incentives and restraints aimed at investment. The evaluative criteria used in the ranking exercises do not include questions pertaining to the extent of governments effectively policing markets to remove anti-competitive behavior. …

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