Date
24 March 2017
Are small mobile-phone retailers being eased out of the market by big chain store operators? Photo: Bloomberg
Are small mobile-phone retailers being eased out of the market by big chain store operators? Photo: Bloomberg

How discounted cellphone prices violate the Competition Law

Hong Kong’s Competition Law has taken effect since the start of the year.

People cheered as many big chain stores have slashed cellphone prices.

But, recently, it has been reported that many small mobile phone retailers are suffering, and prices are likely to rise again after these small retailers quit the business.

Before the Competition Law took effect, the big chain stores may have violated the rules on retail price maintenance. But now their “crime” is said to be predatory pricing.

Whether retail price control is anti-competition or not depends on the product’s quality. Many economists agree retail price control is in some cases a reasonable arrangement to encourage competition.

Are the big chain outlets violating the predatory pricing clauses? Some things have to be considered.

The most important one is whether the bigger players lowered the price to an excessively low level, which is below cost, to ease out smaller competitors and raise the price when those competitors are out of the market.

It is true big chain stores have substantial market shares, but I have no idea whether they are selling the products at a loss.

It is likely that the chain stores enjoy lower purchase prices than the small retailers, so the discounted prices they offer may still be above the costs.

In addition, we should also check whether the large retailers are “temporarily” operating at a loss, but with the intention to secure a bigger market share and raise the prices again.

Without more data I cannot tell you whether the chain cellphone outlets have violated the Competition Law.

But I hope the Competition Commission and media will keep calm and complain less.

This article appeared in the Hong Kong Economic Journal on March 22.

Translation by Myssie You

[Chinese version中文版]

– Contact us at [email protected]

MY/JP/CG

Assistant Professor at the Department of Economics, The Chinese University of Hong Kong

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