As the Competition Commission wakes gently with guidelines and examples meant to reassure, the business community should always be alert for a change that leads to an aggressive, arbitrary, harassing Commission.
(Photo credit: John Chong @ SFU.ca)
Dr. Stanley Wong, CEO of the Competition Commission, has been on a mini-publicity campaign to promote guidelines and explanatory scenarios to tell businesspeople what activities could see them fall afoul of the competition law. It seems they are finally ready to dip their toe into the realm of action. Given massive campaigns and counter-campaigns regarding the CE election proposal , this stir of life has been relegated to media’s back pages. However, this waking tiger must be watched.
Government bodies, independent or not, must be seen to be doing something to justify their existence. One assumes this Commission must find some anti-competitive behavior to target. The vague nature of competition law means that the head, Dr Wong, will have wide latitude to choose what to investigate. Promoted guidelines will likely be good ones to follow – as long as Dr Wong has his post.
As seen in Europe and the US, new leadership means new ideas, different levels of aggression in pursuit of companies and different priorities. Unlike normal crime, where reasonably solid evidence leads to investigation to reveal incontrovertible evidence, competition law exists more in the realm of thought crime. Bare suspicion or patterns of economic outcomes can lead to lengthy, disruptive investigations with no resolution. Very competitive (low) prices, a good thing for consumers, leads to suspicion of predatory pricing. High prices and margins across a product category also suggest price fixing. Revealing information as part of an honest merger or takeover discussion with competitors may lead to accusations of information sharing in order to collude and fix markets.
Most investigations start with economic data, such as the investigations into gas stations here. But to actually prove anything, there has to be a ‘smoking gun’ of intent which is almost never there. Regulators frequently trot out decades-old examples, like last week when global vitamin price fixing from the 1990s were cited in press conferences in Hong Kong.
We are also to be treated to a retread of the 2005 investigation into price fixing in gasoline prices. The current spur is the disconnect between the widely reported drop in global oil prices from the change in price at the pump for consumers. What the study found in 2005 and what is still the case today is that the biggest price fixer is the Hong Kong SAR government. Then, ‘product cost’, which includes gas, staff, marketing, administration and more – the business – made up only $4 of $13-14 of cost per litre. $6 was pure profit to the government. The remaining $3 was about evenly divided between land cost, margin, and frequent discounts off the top line price. The government tax on a litre of gas is still the biggest cost factor today.
Public forgetfulness means that the Competition Commission can round on the gas station industry every ten years or so. International providers have long laboured under repressive competition regimes in their home jurisdictions and have strong measures in place to guard against even the slightest hint of anti-competitive behaviour. No matter – they must once again prove their innocence.
Some complain the tiger is toothless without a smoking gun, and this is true. However, even a toothless tiger still has powerful jaws and you can be in for a bruising, messy gumming with the tiger-breath stench of bad publicity all over your business, even if it doesn’t prove fatal.
Competition Commission executives under pressure from political overseers to be seen ‘doing something’ or a change in leadership, combined with the arbitrary nature of competition law, can lead to harassment investigations against a range of industries as budget permits. The Competition Commission CEO’s attempts to reassure the business community with guidelines and examples should not lull them into complacency. Bureaucracies such as this excel at working behind the scenes before launching a major offensive, unnoticed as businesspeople focus on satisfying customers, hiring new people and driving investment for future growth. Business, beware the waking tiger!
Originally appeared in Next Magazine, April 29, 2015