According to a story reported in China's Caijing magazine, a tax firm (let's call it firm A) in the coastal Zhejiang province has filed a complaint to the court that a local government has violated the newly implemented antitrust law.
According to the story, firm A complains that another tax firm (let's call it B) has been allowed to have an office at the local government building while similar demand from firm A is denied. Apparently firm B has close government ties with the local government. Hence, the complaint. It will be very interesting to see how the court rules in this case. Stay tuned for more reporting on the case.
Here is the story, sorry folks in simplified Chinese only.
Now even if the mainland's antitrust law does allow cases against the government (some other jurisdictions as well like Australia), one wonders why in HK government's consultation paper on competition law, the government is exempted from the law.
Showing posts with label competition law. Show all posts
Showing posts with label competition law. Show all posts
Tuesday, August 05, 2008
Thursday, May 24, 2007
No Free Competition Law
A lot of people who are in favor of the competition law fall into the trap of comparing apples and oranges without knowing it.
They think if the market weren't working (equivalent to market imperfection), the government needs to do something about it (or correcting the wrongs in the market if you like). What they forget to inform us is that they are implicitly assuming that doing something about market imperfection is costless. In fact, it does cost us, a lot!
Here is one instance where the Supreme Court in the US is trying to lower the costs of running the country's competition law.
They think if the market weren't working (equivalent to market imperfection), the government needs to do something about it (or correcting the wrongs in the market if you like). What they forget to inform us is that they are implicitly assuming that doing something about market imperfection is costless. In fact, it does cost us, a lot!
Here is one instance where the Supreme Court in the US is trying to lower the costs of running the country's competition law.
Tuesday, May 22, 2007
Competition Law Hurts Competitiveness
Awhile back, I have a post lamenting the Consumer Council's report advocating competition law in HK has committed the error of mistaking correlation as causality.
I then find out a reader at HK Competition Law , which has a link to my post, has made some not so friendly remarks about my post.
People have different views, that's fine with me. But that should not preclude exchange of ideas in a civilized manner, at least that's what I believe. A case in point, the gentleman up at HK Competition Law holds the view that there should be a place for competition law in HK. I don't. But that difference in opinions has not prevented the conduct of civilized exchanges between us.
The reader then went on challenging me to show him research which indicates how competition law blunts competitiveness. I thought it is a no-brainer. At least economic theory would tell us such might be the case. Instead of wasting readers' time on going through detailed economic anaylsis, I would recommend you readers to read this open letter first. If you decide to have more stuff to read after finish it, let me know.
The bottomline of the letter (and it is signed by 240 economists and let me also disclose that a couple of these economists are my former professors and Ph.D. dissertation adviser):
"Many of these cases are based on speculation about some vaguely specified consumer harm in some unspecified future, and many of the proposed interventions will weaken successful U.S. firms and impede their competitiveness abroad."
I then find out a reader at HK Competition Law , which has a link to my post, has made some not so friendly remarks about my post.
People have different views, that's fine with me. But that should not preclude exchange of ideas in a civilized manner, at least that's what I believe. A case in point, the gentleman up at HK Competition Law holds the view that there should be a place for competition law in HK. I don't. But that difference in opinions has not prevented the conduct of civilized exchanges between us.
The reader then went on challenging me to show him research which indicates how competition law blunts competitiveness. I thought it is a no-brainer. At least economic theory would tell us such might be the case. Instead of wasting readers' time on going through detailed economic anaylsis, I would recommend you readers to read this open letter first. If you decide to have more stuff to read after finish it, let me know.
The bottomline of the letter (and it is signed by 240 economists and let me also disclose that a couple of these economists are my former professors and Ph.D. dissertation adviser):
"Many of these cases are based on speculation about some vaguely specified consumer harm in some unspecified future, and many of the proposed interventions will weaken successful U.S. firms and impede their competitiveness abroad."
Monday, April 09, 2007
And What's Wrong with That? or I Could Have Filed it Under the Why HK does not Have Better Reporters Category
SCMP has a story last Sunday on competition between convenient stores, supermarket chains, and mom-and-pop stores.
This is the beginning of the story:
"Stacking cans of Coca-Cola Zero in his Tsuen Wan grocery shop, Lai Wai-kwong has been wondering whether the new cold drink will boost sales at his small business.
Things do not look promising. He sells three cans for HK$10, or HK$3.33 per can, which yields a 10 per cent profit margin. But supermarkets are selling eight cans for HK$20.90, or HK$2.61 per can. What's more, shoppers receive a free bottle of lemon tea with their buy."
Please tell me reporter, what's wrong with customers getting the better end of the deal? Would you prefer to see these giant supermarkets leave the scene and see the price for Coke Zero to cost HK $ 5.00 a can. Is that fair? And to whom? Sure it is fair to Lai, the owner of the mom-and-pop store, but have you considered the benefits of the customers whose welfare would definitely decline if that were to happen when you penned that article of yours?
Unfair practices are involved the reporter might respond, whose story continued:
"Supermarket chains have more bargaining power with suppliers than mom-and-pop shops like Mr Lai's. Small shops pay 10 to 20 per cent more for soft drinks from wholesalers than the chains. The chains also enjoy exclusive distribution of some products, which Mr Lai is barred from selling."
Read more here.
I would leave the counter-argument in support of the supermarket chains' bargainning power as an exercise to the reader (hint: if not for that power vis-a-vis the suppliers, do you think you could get such a cheap price for Coke Zero at HK $ 2.61 per can mentioned above?). I would pose the answer later on.
As far as exclusive distribution is concerned, do you think at least the reporter should make a case for why such practices might make business sense and how that practice might actually help customers in the first place? Instead the tone of the story makes it seems like the reporter has made a guilty verdict without a trial.
Why couldn't we have better reporters? Again one explanation is that there exists liberal bias in the media, as my fellow classmate back in graduate school reported here.
This is the beginning of the story:
"Stacking cans of Coca-Cola Zero in his Tsuen Wan grocery shop, Lai Wai-kwong has been wondering whether the new cold drink will boost sales at his small business.
Things do not look promising. He sells three cans for HK$10, or HK$3.33 per can, which yields a 10 per cent profit margin. But supermarkets are selling eight cans for HK$20.90, or HK$2.61 per can. What's more, shoppers receive a free bottle of lemon tea with their buy."
Please tell me reporter, what's wrong with customers getting the better end of the deal? Would you prefer to see these giant supermarkets leave the scene and see the price for Coke Zero to cost HK $ 5.00 a can. Is that fair? And to whom? Sure it is fair to Lai, the owner of the mom-and-pop store, but have you considered the benefits of the customers whose welfare would definitely decline if that were to happen when you penned that article of yours?
Unfair practices are involved the reporter might respond, whose story continued:
"Supermarket chains have more bargaining power with suppliers than mom-and-pop shops like Mr Lai's. Small shops pay 10 to 20 per cent more for soft drinks from wholesalers than the chains. The chains also enjoy exclusive distribution of some products, which Mr Lai is barred from selling."
Read more here.
I would leave the counter-argument in support of the supermarket chains' bargainning power as an exercise to the reader (hint: if not for that power vis-a-vis the suppliers, do you think you could get such a cheap price for Coke Zero at HK $ 2.61 per can mentioned above?). I would pose the answer later on.
As far as exclusive distribution is concerned, do you think at least the reporter should make a case for why such practices might make business sense and how that practice might actually help customers in the first place? Instead the tone of the story makes it seems like the reporter has made a guilty verdict without a trial.
Why couldn't we have better reporters? Again one explanation is that there exists liberal bias in the media, as my fellow classmate back in graduate school reported here.
Tuesday, February 27, 2007
Fuzzy Logic
From a story in the HK Standard:
Legislator Ronny Tong Ka-wah said despite suspected cartel behavior locally among supermarkets, property markets, fresh pork suppliers, ports and exhibition services, the lack of any independent and neutral body charged with adequate investigative powers to detect and substantiate claims would make enforcement of fair competition difficult, if not impossible...
Although there exist few barriers to entry into Hong Kong markets, Tong believed existing business conduct that impeded competition was particularly worrisome for foreign investors who were new to the market."
Read more here.
Wouldn't one expect Mr Tong to at least understand the contradictory nature of his own argument highlighted above?
Anti-competitive behaviour means returns for incumbents higher than the interest rate;
If barriers entry are few, competitors who want a cut of the higher return would jump into the fray;
Returns would return to normal as competition intensifies.
Why worry, Mr Tong?
Legislator Ronny Tong Ka-wah said despite suspected cartel behavior locally among supermarkets, property markets, fresh pork suppliers, ports and exhibition services, the lack of any independent and neutral body charged with adequate investigative powers to detect and substantiate claims would make enforcement of fair competition difficult, if not impossible...
Although there exist few barriers to entry into Hong Kong markets, Tong believed existing business conduct that impeded competition was particularly worrisome for foreign investors who were new to the market."
Read more here.
Wouldn't one expect Mr Tong to at least understand the contradictory nature of his own argument highlighted above?
Anti-competitive behaviour means returns for incumbents higher than the interest rate;
If barriers entry are few, competitors who want a cut of the higher return would jump into the fray;
Returns would return to normal as competition intensifies.
Why worry, Mr Tong?
Saturday, February 17, 2007
Holiday Readings
For those of you interested in competition law, here are a few new titles on the topic. May be you would want to read them over the Chinese new year holiday eh?
1) Lectures on Antitrust Economics;
2) The Antitrust Enterprise;
3) Antitrust Law
Enjoy! Wish you readers all a healthy and prosperous Year of the Pig
1) Lectures on Antitrust Economics;
2) The Antitrust Enterprise;
3) Antitrust Law
Enjoy! Wish you readers all a healthy and prosperous Year of the Pig
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.
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.
Thursday, February 15, 2007
Oh Oh !
"It is difficult to imagine Hong Kong not introducing a competition law soon as the city is lagging behind even places such as Papua New Guinea, one of England's foremost experts in the field says. Nicholas Green QC yesterday told a seminar organised by the Asian Competition Forum and the Civic Party that various forms of competition law had been in place for years in countries such as India and South Korea...
Even Papua New Guinea had had the legislation in place since 2002, Mr Green said. He believed Hong Kong, which this month ended a three-month consultation on a competition policy, would follow the international trend."
That is from a story in today's edition of SCMP, read more here.
In the 1950s and 1960s, it was fashionable for a lot of developing countries to pursue absurd economic policies like import substitution, industrial policies and economic planning, would Mr Green consider it a mistake that HK did not follow that "international trend" back then?
When protectionism was in vogue, would Mr Green advise HK to follow that "international trend" as well?
Even Papua New Guinea had had the legislation in place since 2002, Mr Green said. He believed Hong Kong, which this month ended a three-month consultation on a competition policy, would follow the international trend."
That is from a story in today's edition of SCMP, read more here.
In the 1950s and 1960s, it was fashionable for a lot of developing countries to pursue absurd economic policies like import substitution, industrial policies and economic planning, would Mr Green consider it a mistake that HK did not follow that "international trend" back then?
When protectionism was in vogue, would Mr Green advise HK to follow that "international trend" as well?
Monday, February 12, 2007
Does Competition Law Get its Job Done?
Both Chief Executive contenders in HK, Donald Tsang and Alan Leong, vow to introduce competition law if elected.
A new cross-country study reported that:
"We find, in ordinary least squares regressions, that the scope of a country's competition law is positively associated with the perceived intensity of competition in the country's economy. However, we find no evidence that the scope of competition law is positively associated with an objective proxy of the intensity of competition. Moreover, instrumental variables regressions, though preliminary, do not indicate that the scope of competition law affects the perceived intensity of competition."
Read the paper here. This should give Mr Tsang and Mr Leong pause in their rush to introduce competition law in HK. And here is my previous post on the same subject. Here is a blog on HK's competition law.
A new cross-country study reported that:
"We find, in ordinary least squares regressions, that the scope of a country's competition law is positively associated with the perceived intensity of competition in the country's economy. However, we find no evidence that the scope of competition law is positively associated with an objective proxy of the intensity of competition. Moreover, instrumental variables regressions, though preliminary, do not indicate that the scope of competition law affects the perceived intensity of competition."
Read the paper here. This should give Mr Tsang and Mr Leong pause in their rush to introduce competition law in HK. And here is my previous post on the same subject. Here is a blog on HK's competition law.
Wednesday, February 07, 2007
Confusing Correlation with Causality!
Consumer Council has put out a report advocating the merits of having a competition law in HK.
One of its claims:
"Enactment of a cross-sector competition law will not jeopardize Hong Kong's favourable business environment and should, instead, enhance its competitiveness."
What's the evidence? The report continues:
"This is reinforced by the fact that according to the 2006 Heritage Foundation Country Competitiveness Rankings, the US has the highest ranking in competitiveness, but is also one of the earliest economies to have a cross-sector competition law. In the Foundation's survey, Ireland, a small economy similar to Hong Kong and the United Kingdom are ranked 5 like Hong Kong, while Australia and Singapore (which has recently enacted a cross sector competition law, ranked 7. These economies are considered by the Heritage Foundation to be among the world's most market-oriented jurisdictions and they have cross-sector competition laws."
But isn't the fact that HK, without a competition law for so long, can maintain its high place in ALL of the different competitveness or free market ranking at least suggests to the Consumer Council people that, well, may be HK really does not need a competition law to boost its competitiveness?
Second, we can question the Consumer Council's claim from a different angle. HK's is able to transform itself from a barren island to an economic powerhouse without the need to have a competition law, how much marginal benefit a competition law would bring? How much such a law would cost? Is it worth it? The Consumer Council document is silent on this.
And finally, the fact that the US, Australia, Singapore and GB are advanced economies and all of them have competition law DOES NOT IMPLY that these economies derived competitiveness from having a competition law in place. All it shows is that there is a correlation between the strong economies mentioned and their having a competition law. It CERTAINLY DOES NOT SHOW that the introduction of the competition law causes economies to prosper!
The fact that advanced economies like the US or UK have competition law might very well mean that only such wealthy countries could afford such a costly piece of legislation.
One of its claims:
"Enactment of a cross-sector competition law will not jeopardize Hong Kong's favourable business environment and should, instead, enhance its competitiveness."
What's the evidence? The report continues:
"This is reinforced by the fact that according to the 2006 Heritage Foundation Country Competitiveness Rankings, the US has the highest ranking in competitiveness, but is also one of the earliest economies to have a cross-sector competition law. In the Foundation's survey, Ireland, a small economy similar to Hong Kong and the United Kingdom are ranked 5 like Hong Kong, while Australia and Singapore (which has recently enacted a cross sector competition law, ranked 7. These economies are considered by the Heritage Foundation to be among the world's most market-oriented jurisdictions and they have cross-sector competition laws."
But isn't the fact that HK, without a competition law for so long, can maintain its high place in ALL of the different competitveness or free market ranking at least suggests to the Consumer Council people that, well, may be HK really does not need a competition law to boost its competitiveness?
Second, we can question the Consumer Council's claim from a different angle. HK's is able to transform itself from a barren island to an economic powerhouse without the need to have a competition law, how much marginal benefit a competition law would bring? How much such a law would cost? Is it worth it? The Consumer Council document is silent on this.
And finally, the fact that the US, Australia, Singapore and GB are advanced economies and all of them have competition law DOES NOT IMPLY that these economies derived competitiveness from having a competition law in place. All it shows is that there is a correlation between the strong economies mentioned and their having a competition law. It CERTAINLY DOES NOT SHOW that the introduction of the competition law causes economies to prosper!
The fact that advanced economies like the US or UK have competition law might very well mean that only such wealthy countries could afford such a costly piece of legislation.
Subscribe to:
Posts (Atom)