Feature

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Text: Marcus Wong
Translator: Jessica Young
Art: Ricky Chan
Photo: HKET
Did the two leading
supermarkets collude
on prices?
Lowering prices at the same time and
by the same range
ct
iv
e
It refers to the competitors agree to fix
or increase the prices of items via a mutual
agreement.
Supermarkets denied price-fixing
Being questioned by the Federation of Trade
Unions, the two supermarkets rejected any accusation
of price-fixing. A PARKnSHOP spokesman said doing
price checks was a common practice. It is difficult
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It refers to the market dominated by a few
sellers. Gasoline retail and supermarkets are
examples of oligopoly in Hong Kong.
The chief executive of the Consumer Council
Connie Lau said in a radio interview that the council
received a complaint about the alleged price-fixing
of the two leading supermarkets PARKnSHOP and
Wellcome in the previous two years. However,
because of the lack of authority to investigate
the complaint, the council could only refer it to
the related supermarket to follow up. She looked
forward to the competition law being considered by
the legislation as soon as possible so as to bestow
of a competition policy can provide a legal basis
for the relevant departments to deal with anticompetitive behaviours and empower them
to investigate and punish the manufacturers
concerned, in order to effectively deter anticompetitive behaviour.
El
e
Competition Policy
It is law and government policy that
regulates the form of market competition.
The purpose of this policy is to maintain free
market competition and eliminate barriers to
market entry via sanctioning anti-competitive
behaviour.
Oligopoly
The Consumer Council urged the
formulation of competition law
e
authority to the Competition Law Committee
established in the future to investigate companies
that are suspected to collude on prices.
This could explain why the government would
enact a competition policy. At present, Hong
Kong does not have a competition policy. Even
the Federation of Trade Unions and the public
suspect that the supermarkets colluded on
prices, the authorities also lack the legal power
to investigate supermarkets. Yet, the enactment
▲T he chief executive of the Consumer
Council Connie Lau said in an interview that
the Council received a complaint about
the alleged price-fixing of the two leading
supermarkets PARKnSHOP and Wellcome
every year. She looked forward to the
enactment of competition law as soon as
possible.
e
e
Price-fixing
El
iv
It means the agreement made between
competitors in the same market which is
to reduce the degree of competition in the
market.
for them to stop competitors checking their prices
and making adjustments accordingly. A Wellcome
spokesman said prices were affected by purchase
prices and competitiveness. The price changes were
evidence of vigorous competition.
In fact, the market structure of supermarket
is oligopoly. The pricing strategies of the two
supermarkets inevitably affect each other. When
one supermarket announces a price cut, another
supermarket will often follow suit in order to maintain
its market share, and thus the situation that the prices
of products are adjusted at the same time and by the
same range may appear. Therefore, the Federation
of Trade Unions' finding was not enough to prove
that the two supermarkets agreed a deal on prices of
products.
iv
ct
days. As for the Vita lemon tea, they sold the product
at the same price for 14 days. They both raised its
price to $14.9 for 8 days and lowered it to $14.5 for
the remaining 6 days. As a result, the Federation of
Trade Unions questioned them in price-fixing as the
prices of products sold at the two supermarkets were
very close and went up and down at the same time.
If the accusation is true and the two companies
agreed a deal on prices, their activities would
constitute anti-competitive behaviour, which is
price fixing of horizontal agreement. As the two
supermarkets control prices to limit competition,
the prices of products will be higher than the
prices under effective competition, increasing
consumer spending. In addition, due to less price
competition, choices for consumers will be fewer.
El
e
Horizontal Agreement
n
sig
De
P
ed
Special promotion day
becomes a price rise day?
ct
PARKnSHOP and Wellcome are the leading
supermarkets in the industry and their pricing
strategies always draw attention. In order to
understand the pricing strategies of the two
supermarkets, the Federation of Trade Unions
monitored price variations on 8 items sold at
Wellcome and PARKnSHOP chains in Wong Tai Sin,
Tsuen Wan, Sham Shui Po, Sai Wan and Ap Lei Chau
respectively from mid-February to early March in
2012. It was found that 7 items were sold at the same
prices for consecutive days.
Take Amoy glod label light soy sauce as an
example, the two supermarkets sold the product
at $12.50 for 15 consecutive days. But they both
lowered its price to $10.5 for two days out of the 15
to
ho
▲
Feature
The two leading supermarket chains PARKnSHOP and
Wellcome have been accused of colluding on prices, after
the Federation of Trade Unions study found that they often
sold a variety of goods at the same prices, or even made price
adjustments on the same days. If the claim is true, how will the
price-fixing affect the supermarket market? Yet, PARKnSHOP
and Wellcome denied the accusation and said that the prices
were the same as a result of the rival following its pricing.
However, the government suggests that
independent private litigations should be replaced
by the competition policy. In other words, even if
the public suspects that the supermarkets collude
on prices, they cannot collect their own evidence to
prosecute the supermarkets in the future, but can
only complain to the Competition Law Committee,
which will report the case. Is such a competition
law adequate to protect consumers? It is a matter of
opinion.
Exam Practice
(a)Explain why the market structure of the supermarkets in Hong Kong is oligopoly.
*(b)State the two characteristics of an oligopolistic market with the example of Hong Kong supermarket industry.
Suggested answer is on P.7 and www.econschool.com/sample1213
Related Concepts: Horizontal Agreement, Price-fixing, Oligopoly, Competition Policy
PARKnSHOP and Wellcome are the oligopolists
in the supermarket industry in Hong Kong,
therefore more non-price competitions, such
as advertising are involved. In fact, every Friday,
the promotional prices of some products are
published in newspaper advertisements, using
slogans like "bottom price" to attract customers.
However, the Federation of Trade Unions survey
found that the promotional prices of some
products sold at the two supermarkets on Fridays
were higher than the prices on other days. For
example, Golden Elephant brand rice was sold at
$91.9 from February 24 to 27 (Friday to Sunday)
at PARKnSHOP, but during 4 days before the
promotions, they were only sold for $89.9. In
addition, 8 canned Coca-Colas were sold at the
promotional price of $23.9 at PARKnSHOP on
Friday while $24.9 at Wellcome, but they were
only sold at $20.8 on the previous day.
Therefore, market information is not
entirely circulated in the industry. Although
consumers can get information on the prices
of products from advertising, they might be
misled by so-called "promotional prices".
Smart consumers should do price checks to
acquire more market information.
Related Past Paper Questions
DSE 2012
‧Paper 2, Section B, Q.12(a)
‧Paper 2, Section C, Q.14(d), (e)
CE 2010
‧Paper 2, Q.25
CE 2009
‧Paper 2, Q.25
CE 2008
‧ Paper 1, Section A, Q.3
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