Review of Industrial Organization 21: 145–166, 2002.
© 2002 Kluwer Academic Publishers. Printed in the Netherlands.
Competition Policy under Laissez-Faireism: Market
Power and its Treatment in Hong Kong
EDWARD K. Y. CHEN
and PING LIN
Department of Economics, Lingnan University, Tuen Mun, Hong Kong
E-mails: email@example.com, firstname.lastname@example.org
Abstract. The paper describes the current competition policy framework in Hong Kong: how it
came into existence, what business practices are prohibited, and how the enforcement system works.
Recent cases in the telecommunications industry are used to illustrate the sectoral approach, a unique
feature of Hong Kong’s competition policy. We argue that a sectoral approach faces two fundamental
drawbacks. First, due to having different “rules of the game” for different sectors, the allocation of
resources may be distorted in the long run. Second, since the relevant regulatory agencies perform
dual roles both as competition policy enforcer and as traditional regulator of natural monopolies,
the impartiality of their competition decisions may not be credibly conveyed to the public. We
also address other speciﬁc problems associated with the sectoral approach, such as the exclusion
of structural issues, narrow coverage of sectors, and the lack of public enforcement. We conclude
that an overall competition law can better promote competition and economic efﬁciency in Hong
Key words: Competition policy, laissez faire, sectoral approach.
JEL Classiﬁcations: K21, L4, L5.
There has been a general impression that Hong Kong is one of the most free
market economies in the world. For more than half a century, the Hong Kong
government has adopted a positive non-intervention policy, a philosophy that has
dominated almost every aspect of its policy making. Laissez faire has been treated
with great respect, and market forces have been regarded as the best way of alloc-
ating resources. The government seldom, if ever, attempts to ﬁne-tune the level of
macroeconomic activities, and has continuously fought to keep intervention into
The ﬁrst author served as the Chairman of the Hong Kong Consumer Council during 1991–
1997. The paper was presented at the Workshop on The Treatment of Market Power in East Asian
Economies, Taipei, June 2001, organized by the PECC Trade Policy Forum. We thank David Round
and other participants at the workshop for their comments and suggestions. Comments by Leonard
Cheng on an early draft of the paper are also appreciated. The second author also thanks the Hong
Kong CPEC for ﬁnancial support.
Author for correspondence.