Thursday, March 15, 2007

Where Are the Economists?

First we have the lawyers who hijack the whole debate on whether HK should have a competition law, now marketing experts join in.

According to a story in SCMP:

"A Chinese University academic has called for the introduction of a cross-sector competition law after a survey found Hong Kong retailers, especially supermarkets, abused their market power with suppliers.

The survey of 121 suppliers by the university's marketing department found many retailers dictated prices and demanded exclusivity...

Supermarkets were found responsible for an overwhelming majority of the unfair practices by retailers. About 70 per cent of the disadvantaged suppliers were found to have a supermarket as their major retailer...

Professor Sin said a cross-sector competition law was needed to ensure fair play between suppliers and retailers."

Read more here.

Not so fast professor Sin. For your argument to go through, you have to assume that the supermarkets/retailer do not pass on the savings that they get from squeezing the suppliers. If they do, consumers win at the end. And what's the problem with that?

To argue that the retailers are the ones who would buy low (from suppliers) and sell high (to consumers), you have got to show that the retailing industry is not competitive. That of course is a completely different issue which your research simply does not address! Why the rush to conclude that HK needs a competition law then?

Going back to your original thesis, suppliers being squeezed by retailers, if indeed the suppliers feel that they are being squeezed by retaliers, why don't they simply refuse to supply them and set up their own retail outlets through vertical integration? Why complain?

And for those who question the rationale of slotting fees, I strongly recommend them to read the paper by UCLA economist Ben Klein and George Mason University law professor Joshua Wright which you could access here.

BTW, where are HK's economits? Why they are silent on the topic which they should have a lot to say?

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