Digital Markets and Competition Law in Hong Kong: Challenges & Opportunities

Introduction

Hong Kong has historically embraced a laissez-faire approach to economic regulation, with minimal government intervention in market activities. While this strategy spurred economic growth, it also raised concerns about anti-competitive practices. Recognising the need for a modern legal framework, Hong Kong enacted the Competition Ordinance in June 2012. This marked a significant shift toward regulating market behaviour to promote competition and protect consumer welfare.

The Competition Ordinance addresses three key areas: prohibiting anti-competitive agreements, preventing the abuse of market dominance, and regulating mergers (initially limited to the telecommunications sector). This reform aligns Hong Kong with global trends in competition law, borrowing concepts from jurisdictions like the European Union (EU). The Ordinance reflects a commitment to promoting fair competition while adapting to the unique challenges of a rapidly evolving economy.

Hong Kong's digitally advanced population and robust technological infrastructure have fostered the growth of e-commerce, online platforms, and digital services. These sectors now play a central role in the city’s economy. However, the rise of digital markets introduces regulatory challenges that traditional competition laws were not designed to address. The application of the Competition Ordinance to the digital economy is therefore critical to ensuring fair competition in this rapidly changing landscape.

Key Challenges for Regulating Digital Markets

Market Definition

Defining the market in digital economies is more complex than in traditional industries. Network effects, where the value of a product increases with the number of users, can lead to “winner-takes-all” scenarios, as seen with platforms like social media. Additionally, companies gain significant competitive advantages by leveraging vast datasets to personalise services and target advertising, making data ownership and usage central to market power. Multi-sided platforms, such as e-commerce marketplaces that connect buyers, sellers, and advertisers, further complicate market definitions. These unique characteristics require regulators to move beyond traditional methods of analysing market share to understand market dynamics fully.

Dominance and Abuse of Power

Establishing dominance in digital markets requires a broader perspective than traditional competition metrics. A company’s control over essential data or its ability to create strong network effects can give it significant market power, even if its market share appears modest. Abuse of dominance in digital markets takes many forms, such as self-preferencing (where platforms favour their own services or products) or predatory pricing (offering products or services below cost to eliminate competition). The low marginal costs of adding users in digital markets further complicate these analyses, requiring regulators to adapt their frameworks to reflect these unique market structures.

Mergers and Acquisitions

Mergers and acquisitions in digital markets often involve large companies acquiring smaller, innovative startups. These transactions can consolidate market power and eliminate potential future competitors, stifling innovation and reducing consumer choice. Assessing the long-term impact of such mergers is challenging, particularly in a fast-paced digital economy where the full effects may take years to materialise. For Hong Kong’s Competition Commission, this requires developing forward-looking strategies to evaluate not just current market conditions but also future market dynamics.

Vertical Integration

Many digital platforms are vertically integrated, meaning they operate both the platform itself and complementary services. For example, an app store might also develop its own apps and prioritise them over competitors’ offerings. This raises concerns about unfair competition, such as self-preferencing or discriminatory practices that disadvantage rival services. Regulators must carefully assess how such integration may harm competition and consumer choice.

Enforcement and Expertise

Enforcing competition law in digital markets demands specialised technical knowledge. Regulators must understand complex algorithms, data systems, and artificial intelligence to identify anti-competitive behaviour. The global nature of digital platforms adds another layer of complexity, as companies often operate across multiple jurisdictions and store data in different countries. This makes effective enforcement challenging. While Hong Kong’s Competition Commission has made progress, it must continue investing in expertise and collaborating with international authorities to address cross-border issues effectively.

Opportunities for Hong Kong

Promoting Innovation

Competition law must balance enforcement with the need to foster innovation. Overly strict regulations can deter investment and slow technological advancements. By adopting a flexible regulatory environment, Hong Kong can support the development of new technologies while ensuring fair competition. Striking this balance is essential to building a vibrant digital ecosystem and attracting investment in the tech sector.

Enhancing Consumer Choice

Digital markets provide consumers with greater choice, convenience, and personalised services. However, they also raise concerns about data privacy, algorithmic bias, and exploitative practices. Consumers may unknowingly share vast amounts of personal data, and algorithms could unfairly prioritise certain outcomes or groups. To address these risks, competition law must be complemented by stronger data protection regulations and rules that promote algorithmic transparency. These measures can ensure consumers benefit from increased choice without being exposed to unfair practices.

Adapting to Change

Hong Kong’s position as an international financial centre gives it a unique opportunity to lead in digital market regulation. To seize this opportunity, Hong Kong must invest in building technical expertise in areas like artificial intelligence, big data, and algorithms. It must also ensure that its legal frameworks remain flexible and adapt to the evolving nature of digital markets. Furthermore, collaboration with other competition authorities is essential to developing consistent approaches to global digital competition issues. By fostering international partnerships, Hong Kong can strengthen its position as a leader in regulating digital markets effectively.

Conclusion

The rise of digital markets presents both challenges and opportunities for Hong Kong's competition law framework. Addressing the unique features of the digital economy, such as network effects, data-driven advantages, and cross-border challenges, requires a proactive and innovative approach.

To ensure fair competition and support long-term economic growth, Hong Kong must continually adapt its competition laws, invest in enforcement capabilities, and collaborate with international partners. By achieving this, Hong Kong can promote innovation, protect consumers, and foster a thriving digital economy. As digital markets evolve, ongoing review and reform of the competition framework will be essential to maintaining fair competition and supporting the city’s economic success.

References and Further Reading 

“An Overview of Competition Law Enforcement in Hong Kong” (Journal of Antitrust Enforcement)

“Competition Bill gazetted” (info.gov.hk) 

“Financial Inclusion and Virtual Bank in the Era of Digitalisation: A Regulatory Case Study in Hong Kong” (SocioEconomic Challenges) 

“Hong Kong’s First Competition Law: Impact on Construction Contracting” (Journal of Legal Affairs and Dispute Resolution in Engineering and Construction) 

“Hong Kong SFC enforcement trends” (Journal of Investment Compliance) 

“Ready for Action: Looking Ahead to the Implementation of Hong Kong’s Competition Ordinance” (Journal of European Competition Law & Practice)

“Taxation of e-commerce in Hong Kong: applying UK and US experience” (Managerial Auditing Journal)

“Toward a more robust competition policy regime for Hong Kong” (Journal of Antitrust Enforcement)