Friday, February 16, 2007

My Take on Competition Law in HK

Readers seem to have an interest in some of my previous posts on competition law. Guess it is time to clarify my position.

I look at the topic mainly from a comparative institutional perspective.

Scenario I, no competition law:

Imagine there is no competition law, which is now the case in HK. Yes, you might have some collusion in price setting, and yes you might have some "unfair" business practices here and there. And these "anti-competitive" acts cost the economy.

Short of government barriers, I do believe that most if not all of these "anti-competitive" acts would be wiped out in time. That is I believe that most if not all, short of government imposed barriers to entry, so called "anti-competitive acts" would not exist for long. The reason why I believe this to happen is simple: profit.

Supposedly "anti-competitive" acts bring profits, and plenty of them. That will send a signal to businessmen to divert their energy and resources from other uses to the one in question. Profits will revert back to the normal rate of return before long.

Hence it is expected that the costs imposed on the economy as a result of the remaining "anti-competitive" acts (i.e. those acts that would not be wiped by competitive forces) would be low.

Scenario II, with competition law

With competition law, some of the "anti-competitiveness acts" might be eliminated sooner than they would be without the law. These are the pluses for the law.

But enforcement is not a free lunch. Several costs to society are involved.

a) Direct costs of staffing the enforcement agency, costs of investigation, and the costs of operation of the judicial system;

b) Indirect costs imposed on society when a beneign act of business is found guilty;

c) Indirect costs imposed on society when businessess fail to defeat their rival in the market and try to get rid of their opponents through complaining their rivals for engaging in "anti-competitive" acts (the microsoft case comes to mind)

Bottom Line:

I do not have any numbers in hand. But my inclination is to believe that net cost to soceity would be lower in scenario I. Wish somebody would be able to conduct empirical research on this topic sometime soon.

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