“Competition Ordinance of Hong Kong: Merger Guidelines with focus on Safe Harbors”

Xian Yu Huang, Chu Hai College of Higher Education 

Safe harbours in merger guidelines under Competition Ordinance provides thresholds on market concentration below which postmergers, or proposed postmergers, are unlikely to be anti-competitive.  In Hong Kong, the Competition Commission resorts to the use of Concentration ratio (CR) and Herfindahl-Hirschman Index (HHI) as measures for first and second safe harbor threshold (3.15 and 3.16, Merger Guideline).  We argue that the Commission had failed to consider the different market structures and the methodology had adverse to fair competition in the market. This paper aims to propose the economic-theory-based merger simulation models to find a more reliable safe harbours. We use the Bertrand – based Proportionally Calibrated Almost Ideal Demand System (PCAIDS) merger simulation model of Epstein and Rubinfeld (2001) to test the merger safe harbours.  By assuming a threshold price increase for an SLC, we are able to identify the market settings at which such increases are generated.  This has allowed us to formulate suggested safe harbours.