Yesterday, the Hong Kong Competition Commission (the HKCC) took ten construction and engineering companies to the Competition Tribunal (the Tribunal) for an alleged market sharing and price fixing cartel relating to the renovation of over 800 flats in On Tat Estate, a public housing estate in Kwun Tong. The alleged conduct violated the First Conduct Rule of the Competition Ordinance.

Market sharing

According to the originating notice, the ten contractors divided the renovation projects in three residential blocks in On Tat Estate by drawing lots. Each of the ten contractors was allocated four floors of each of the three blocks. The ten contractors agreed to:

  • refrain from actively seeking business from the tenants on the floors allocated to the other nine contractors;
  • refrain from accepting business from the tenants on the floors allocated to the other nine contractors; and
  • direct the tenants on the floors allocated to the other nine companies to their allocated contractors.

The HKCC alleges this arrangement to be a market sharing agreement, which had the object of eliminating or significantly limiting competition.

Price fixing

The originating notice also states that the ten companies used the same promotional leaflets to advertise their services to the tenants in On Tat Estate. The leaflets set out the package prices for each of the four types of residential units in On Tat Estate. The tenants were generally given a choice of at least two basic renovation packages, except for those living in the smallest type of flats who were only offered one type. The prices of the basic packages offered to each type of residential units were the same.

The HKCC alleges this to be a price fixing agreement as it maintained or controlled the price of renovation work by determining the prices of the basic packages or by influencing the transaction price, as the prices on the leaflets served as the starting point or anchoring reference point for the price negotiation between the tenants and the contractors.

Ongoing focus on issues affecting Hong Kong consumers

In the HKCC’s market study report on the renovation and maintenance sector published in May 2016 (available here), the HKCC noted that anti-competitive behaviour was present in the sector and stated that it was keeping an eye on any potential contravention of the Competition Ordinance in the industry. It should hence come as no surprise that the HKCC has picked this case as its second case before the Tribunal, especially given the HKCC’s enforcement focus on consumer protection.

Commenting on the case, HKCC’s chairperson Ms. Anna Wu said, “market sharing and price fixing are serious anti-competitive practices which lead to reduced consumer choices and uncompetitively high prices, hurting consumers, other businesses and the economy as a whole. The Commission accords priority to combating such conduct which are particularly egregious when the people directly affected belong to low income groups such as the residents of the relevant public housing estate in the present case.”

The HKCC’s press release on this case is available here.