2. Joint buying

2. Joint buying

What is joint buying?

A joint or group buying agreement arises when undertakings agree to jointly purchase products including inputs (e.g. raw materials) used for the production of other products. Joint buying can be carried out through a jointly controlled legal entity, through an association, or by a contractual arrangement between undertakings or some looser form of cooperation.

[Source: Commission’s Guideline on the First Conduct Rule Paras 6.31-6.32]

What are the possible benefits of joint buying?

Joint buying frequently allows small and medium-sized enterprises (SMEs) to achieve economies of scale similar to those of their larger competitors’. This may lead to lower prices in the market where the joint buying takes place, lower transaction costs, and/or enhanced distribution efficiencies for the SMEs.

[Source: xommission’s Guideline on the First Conduct Rule Para 6.33]

When does joint buying raise competition concerns?

A joint buying arrangement would typically not be considered by the Commission to have the object of harming competition unless it is a disguised buyers’ cartel. An analysis of the effects on competition of joint buying will consider the effects of the arrangement on both the upstream buying and the downstream selling markets, i.e. the relevant markets where the undertakings engage in the joint buying and the relevant markets where the jointly purchased products are subsequently sold or where other products produced using jointly purchased inputs are sold.

Harmful effects on competition in the downstream market may occur if, for example, the joint buying results in competitors in the downstream market achieving a high degree of commonality of costs or where there is some sharing of competitively sensitive information beyond what is necessary for the purposes of the buying arrangement. As regards the upstream buying market, concerns may arise if, for example, the joint buying results in the buying market being foreclosed to competing purchasers.

In general, joint buying is unlikely to give rise to concerns under the First Conduct Rule if the parties do not have market power in the relevant downstream markets.

[Source: Commission’s Guideline on the First Conduct Rule Paras 6.34-6.37]

Hypothetical example

With a view to achieving savings in their input costs, 100 small snack food retailers and market stall holders from across Hong Kong form a joint buying group. The buying group members must buy at least half of their snack food products through the buying group. Together, the small retailers account for a small portion of the relevant buying and selling markets in Hong Kong and there are a number of strong competitors in both buying and selling markets (including large wholesalers and supermarket chains).

The arrangement does not have the object of harming competition and the Commission would be unlikely to find that the arrangement has any anticompetitive effects.

Even if the formation of the buying group enhances the commonality of input costs across the small retailers to an extent, their market position on both the buying and selling markets and the presence of large competitors suggests harm to competition is unlikely.

If the joint buying agreement did give rise to harmful effects on competition, it would still be likely to generate economic efficiencies in the form of economies of scale. As the buying group members face strong competitive pressures in the downstream selling market(s) from supermarket chains, it is likely that the cost savings achieved by the joint buying will be passed on to consumers. The general exclusion for agreements enhancing overall economic efficiency may therefore apply.

[Source: Commission’s Guideline on the First Conduct Rule Hypothetical Example 9]