Download Competition Law: Understanding Perfect Competition and Monopolies in Hong Kong Economy and more Slides Competition Law and Policy in PDF only on Docsity! Competition Law in Hong Kong Docsity.com Why Have Competition Law? • In a market economy, it is accepted that the market mechanism will only give the ‘optimal’ result if all industries are subject to competition • WHAT DO WE MEAN BY AN ‘OPTIMAL RESULT’? • WHAT DO WE MEAN BY ‘COMPETITION’? Docsity.com Why and How Does That Happen? • Some board work may help MC –extra cost of one more unit D – extra benefit of one more unit Optimal output Docsity.com Perfect Competition • Large number of small buyers and seller • Identical products • Free entry and exit • Perfect knowledge of market opportunities • Profit-maximizing behaviour Docsity.com Perfect Competition • Under perfect competition, price will equal marginal cost of production because every firm is in this situation MC D = AR = MR = Pm Pm Docsity.com Monopoly Leads to: • A STATIC ‘misallocation’ of resources. – Price not equal to marginal cost. With the existing resources and technology output is less than it could be. Units of a product which consumers value more highly than their cost of production do not get produced • A DYNAMIC misallocation of resources – insufficient attention and resources are devoted to innovation because there is no competitive pressure • CONSUMERS lose out to PRODUCERS Docsity.com Perfect Competition is a Model of an Ideal Situation • Helps to understand the major forces at work – market economies often behave ‘as if’ perfect competition were in place • BUT, not a very useful benchmark for policy • If we say ‘every industry which is not perfectly competitive’ must be regulated we have to regulate everything Docsity.com Practicable Alternatives to Perfect Competition as a Benchmark? • ‘Workable’ competition – the most desirable form of competition selected from those that are practically possible’ – Clark (1940) – but what is that? • ‘Contestable’ markets – Where entry is free and fast and exit involves little cost – Even a single firm cannot exert much market power for fear of entry – A perfect competition type outcome can arise even in situations far from p.c. Docsity.com Alternative Policy Approaches • ‘rules’ versus ‘discretion – ‘rules’ - certain behaviours or market structures are ‘per se’ illegal • Close to the US approach at one time – it is illegal to monopolize or seek to monopolize (e.g. cartels) and unnecessary to prove harm has been done – ‘discretion’ – certain behaviours or structures may allow damage to the public interest but it is doing the damage that is illegal • The UK approach Docsity.com Alternative Policy Approaches • Sector-specific versus Comprehensive Competition Laws – Hong Kong has regulations in respect of telecommunications and electricity (the Scheme of Control) but no general competition law – US, UK, Europe have more comprehensive systems Docsity.com Does Hong Kong Need A Comprehensive Competition Law? • In the traded goods sector – Probably not because HK firms are subject to intense competition amongst themselves and from overseas firms – highly contestable markets – toys, electronics etc • In the domestic market – There are very significant anti-competitive structures and practices Docsity.com
