Clear regulatory framework and data analysis help to maintain Hong Kong’s competitive environment in the digital age, CEO of the Competition Commission Rasul BUTT says.

As Hong Kong’s economy and society continue on the path to rapid digitization, conduct affecting digital markets has become one of the Competition Commission’s three enforcement priorities to ensure a level playing field for businesses and consumers.

“E-commerce is a global trend, and in Hong Kong, a sizable portion of business has gone digital,” said Rasul Butt, the Commission’s Chief Executive Officer. “Anti-competitive conduct used to be confined to the brick-and-mortar sectors, but they, too have gone digital.”

These developments have resulted in certain changes to how the Commission carries forward its mandate. Established in 2013, its primary role is to safeguard fair competition in all sectors. The aim is to promote an environment that is conducive to the free flow of trade, innovation and business efficiency.

“We are not the ones to come out with new products and services,” Butt said. “Instead, we safeguard the competitive process and allow companies to compete fairly with each other.”

Tackling digital sector

With the onset of digitization, the Commission’s mandate took on new significance as online platforms and breakthrough technology enabled businesses to transform the commercial landscape.

For example, in 2020, the Commission took decisive action by securing commitments from major online travel agents to remove clauses that might reduce competition. More recently, it also addressed exclusivity arrangements and most-favored nation clauses in contracts between food delivery platforms and restaurants.

“We focused on the issues of new entry to markets and the expansion of smaller platforms being very difficult in Hong Kong,” Butt said. “That’s the approach we took in tackling the case.”

Rather than pursuing a blanket ban on exclusivity arrangements, the Commission crafted a more nuanced solution that allowed the incumbents to maintain exclusivity against each other, while prohibiting them from exercising it against smaller platforms with a less than 10% market share.

This illustrated the Commission’s clear-eyed approach in addressing competition issues in the digital space which may differ from other jurisdictions. For example, in many cases concerning food delivery platforms, overseas competition authorities tended to tackle them from an “abuse of dominance” angle whereas the Commission’s case was one based on the “First Conduct Rule” – anti-competitive agreements. This difference in approach was due to the unique characteristics of the Hong Kong market where there were more than one active player in the market and the competition issue related to the difficulties for small or new food delivery platforms to enter into or expand in the market.

Leveraging data analysis

With digitization clearly here to stay, the Commission has also made a determined effort to use the latest technology and data analysis techniques to keep pace with change. For instance, in-house economists have begun to use data screening programs to identify suspicious patterns in public procurement processes that may be indicative of anti-competitive conduct like bid-rigging.

Of course, technology cannot do everything, and these methods still have their limitations. However, better data analysis definitely helps to point the Commission in the right direction by detecting a possible “smoking gun”, after which the more traditional types of investigative work take place to gather evidence that can, if necessary, be used in legal proceedings.

Butt noted that this data-driven approach has been recognized as novel yet effective, even by long- established competition agencies around the world.

Collaborating on digital oversight

With digital markets evolving so rapidly, the Commission has always emphasized the importance of collaboration – both domestically and globally.

“We need to keep abreast of new developments,” Butt said. “Apart from talking to key players, including overseas competition agencies, industry experts, and members of academia, it is also important for us to form strategic partnerships with other government agencies and public bodies which are involved in developing the technology and digital sector. Such collaboration can help us understand how the relevant markets operate, and effectively tackle the competition issues that may arise.”

“An example was the successful collaboration with the Hong Kong Productivity Council where irregularities in the applications for a government- backed digital transformation grant scheme managed by the Council were identified and the ensuing investigation culminated in the filing of a case before the Competition Tribunal.” Butt said.

Enhancing public awareness and advocacy

To keep pace with digitization in other respects, the Commission has also put particular emphasis on the need for public education and advocacy. This has seen the launch of forward-looking initiatives like the “Post to Compete” social media challenge, which aims to engage the younger generation, and the production of a TV drama series based on real-life cases.

The broad purpose is to raise overall awareness of competition law and its importance in the digital age, not just among businesses, but also with consumers who are increasingly reliant on digital platforms and services.

By combining use of the right tools, partnerships, public engagement initiatives and enforcement strategies, the Commission hopes to position itself as a nimble and farsighted regulator ready to safeguard competition in a digital future.

“Market competition is the cornerstone of Hong Kong’s economic success,” Butt said. “We want to ensure that we are in the best position to combat any anti-competitive conduct that might stifle innovation and the emergence of new technologies and services.”

Looking ahead, Butt believes there is still plenty of work to be done because emerging trends will pose new challenges for the Commission. Firstly, the continuing shift to digital platforms and online commerce will create new avenues for potential anti-competitive behavior. Secondly, the speed of change in digital markets will always make it difficult to anticipate and address emerging competition issues. In addition, with so many digital platforms and tech companies based overseas, there will inevitably be many questions about the complexities of extraterritorial jurisdiction.

“It is like trying to look into a crystal ball and anticipate what’s coming - and that is very difficult,” said Butt, noting though that there was no intention of shying away from these challenges. Rather, the Commission will remain steadfast in its commitment to performing its functions, upholding a level-playing field in Hong Kong for the benefit of both consumers and businesses in the digital age.