Introduction

The Competition Commission of Hong Kong (the “Commission”) has recently announced a resolution with Kangaroo Limited (trading as “Keeta”), one of Hong Kong’s online food delivery platforms. This resolution addresses concerns over provisions in Keeta’s agreements with partnering restaurants that may restrict competition in the online food delivery sector.

Background

The Commission’s concerns centred on three main provisions in Keeta’s agreements with partnering restaurants:

1.      Exclusivity incentives: Restaurants receive lower commission rates for working exclusively with Keeta. This may discourage restaurants from partnering with multiple platforms, thus limiting options for smaller platforms to attract restaurants.

2.      Switching penalties: Restrictions or penalties apply if restaurants switch from exclusive arrangements with Keeta to non-exclusive ones, creating barriers to competitive shifts.

3.      Price parity clauses: Restaurants are prevented from offering lower menu prices on their own direct channels (e.g., dine-in or self-delivery) or on competing platforms, potentially softening price competition across the market.

The Commission believes that these provisions could make it more difficult for new or smaller platforms to enter and grow, thereby reducing competition in the online food delivery industry, as Keeta probably has some degree of market dominance. Restaurants and eventually customers will lose out on the advantages of healthy competition as a result.

Legal framework

Under the Competition Ordinance (Chapter 618 of the Laws of Hong Kong) (the “Competition Ordinance”), the Commission may accept commitments to address competition concerns without commencing an investigation or bringing proceedings. Such commitments are enforceable, with breaches potentially leading to penalties or orders from the Competition Tribunal.

The agreed resolution: a two-step approach

In response to the Commission’s concerns, Keeta has agreed to the following:

1.      Voluntary amendments: Keeta will amend the relevant terms in its agreements with partnering restaurants; and

2.      Formal commitment: Keeta will offer a commitment to the Commission under section 60 of the Competition Ordinance, making the amendments legally binding and enforceable by the Commission. In the event the Commission proposes to accept the commitment, the Commission will commence a public consultation.

The resolution offers several benefits:

·           Restaurants may enjoy greater flexibility to partner with multiple platforms without penalties, and freedom to set competitive prices across channels, potentially increasing revenue streams;

·           New or small platforms may have easier access to restaurant networks, facilitating market entry and expansion in a sector where network effects are critical; and

·           Enhanced competition may lead to more choices, better services, and lower menu prices for the consumers.

Takeaway

The Keeta’s resolution exemplifies the Commission’s balanced approach to enforcement, prioritizing co-operation and market benefits over adversarial proceedings. However, as the online food delivery sector evolves, platforms like Keeta are advised to navigate ongoing scrutiny and seek legal advice to mitigate competition risks, ensuring compliance with the relevant laws and regulations. The Commission will continue monitoring developments, with potential actions if necessary.