Consultation on proposed acceptance of commitments from Foodpanda and Deliveroo09Aug2023
On 1 June 2023, the Competition Commission commenced a consultation on its proposal to accept legally binding commitments (“Proposed Commitments”) from two leading online food delivery platforms in Hong Kong, Foodpanda and Deliveroo (“Platforms”).
The Competition Commission conducted an investigation into the respective agreements between the Platforms and their partnering restaurants. The Competition Commission formed the view that certain terms and conditions in those agreements may harm competition and contravene the First Conduct Rule of the Competition Ordinance. In particular, these terms may hinder entry and expansion by new or smaller platforms. These terms include (“Provisions”):
1. exclusive terms, where the partnering restaurant will be charged a lower commission rate if it works exclusively with the respective Platform;
2. breach of exclusivity provision, where the partnering restaurant is restricted from, and will be penalised for, partnering with other platforms;
3. price restriction provisions, where the partnering restaurant may not charge lower prices on their own direct channels, or (in respect of the Foodpanda agreement only) on competing food delivery platforms;
4. (in respect of the Foodpanda agreement only) tying provisions that require the partnering restaurant which uses Foodpanda’s food delivery services to also use its order-to-pickup services.
The opinion of the Competition Commission was that the Provisions would reduce competition as it would preclude the smaller, competing platforms from entering the market for Order-to-Deliver Services in Hong Kong. The Competition Commission took into account that the Platforms have a degree of market power in the market for Order-to-Deliver Services. The Competition Commission took the view that the Provisions would allow the Platforms to charge higher commission rates, and eventually this would result in customers paying higher prices.
The inclusion of the Provisions in the agreements would have the effect of preventing, restricting or distorting competition in Hong Kong. This contravenes the First Conduct Rule of the Competition Ordinance.
Each of the Platforms has offered commitments (“Proposed Commitments”) to address the Competition Commission’s concerns in relation to a possible contravention of the First Conduct Rule. The Proposed Commitments by the Platforms include:
- not enforcing the Provisions;
- not entering into any new agreements that contain the Provisions; and
- removing the Provisions from the existing agreements with partnering restaurants.
The following terms would replace the Provisions:
- The partnering restaurants may switch from working exclusively to working non-exclusively with the respective Platform.
- The partnering restaurants will need to give no more than two months’ prior notice to the respective Platform if it wishes to switch from working exclusively to working non-exclusively with the Platform.
- If no prior notification is provided, the Platforms may clawback the difference in the applicable commission rate, but only for a maximum of two months.
- The partnering restaurants may charge lower prices on their own direct delivery platforms, on their direct dine-in channels and (for Foodpanda’s Proposed Commitments) on competing platforms.
- (In respect of Foodpanda’s Proposed Commitments only) Foodpanda must obtain explicit consent from the partnering restaurants to acquire Order-to-Pick-Up Services. Partnering restaurants may terminate Order-to-Pick-Up Services without terminating Order-to-Deliver Services.
- Working exclusively with one of the Platforms means that the partnering restaurants cannot work with the other Platform or platforms that are not Low Market Share Platforms. Low Market Share Platforms are platforms that provide Order-to-Deliver Services and have a monthly market share of 10% or less. The partnering restaurants are not prohibited from working with Low Market Share Platform.
The Proposed Commitments would last for three years from their effective date unless terminated at an earlier date, with reporting and monitoring mechanisms in place to ensure compliance.
The consultation period ended on 15 June 2023. More information on the consultation is available on this link.
Pádraig Walsh and Carol Ling
If you would like to discuss any of the matters raised in this article, please contact:
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. This article was last updated on 9th August 2023.