Hong Kong Competition Commission targets exclusivity provisions in online food delivery platform service agreements

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Authored by: Machiuanna Chu and Sharon Pang

The Hong Kong Competition Commission (“HKCC”) opened an investigation of the two largest online food delivery platforms in Hong Kong (i.e., Foodpanda and Deliveroo) in September 2021, suspecting that certain provisions contained in the platforms’ respective service agreements with partner restaurants might be anti-competitive.  On 1 June, 2023, the HKCC announced that the two platforms had respectively agreed to make certain commitments in order to address the HKCC’s concerns.  

Among the anti-competitive concerns of the HKCC are (i) the exclusivity provisions contained in the two online food delivery platforms’ respective service agreements with partner restaurants by which Foodpanda or Deliveroo charges partner restaurants a lower commission rate if the restaurant works exclusively with the respective platform, and (ii) the onerous restrictions and/or penalties the two online food delivery platforms impose on partner restaurants for switching from an exclusive partnership to a non-exclusive partnership (hereafter collectively referred as “exclusivity provisions”).

Specifically, the HKCC alleges that the lower commission rate entices partner restaurants to enter into exclusive partnerships with Foodpanda or Deliveroo, and the onerous restrictions and/or penalties discourage partner restaurants from switching, thus essentially “locking in” the partner restaurants to either Foodpanda or Deliveroo. While the HKCC believes the exclusivity provisions may have anti-competitive effects on smaller online food delivery platforms, it notes that the same provisions imposed by Foodpanda are unlikely to have anti-competitive effects on Deliveroo, and vice versa.^[i]     

The proposed commitments by Foodpanda and Deliveroo that purportedly address the HKCC’s concerns regarding the exclusivity provisions are reflective of the HKCC’s view:  Whereas Foodpanda and Deliveroo may continue to enter into exclusive agreements with partner restaurants under which lower commission rates are offered, the proposed commitments include a carve-out of “Low Market Share Platforms” (defined as an online food delivery platform with less than 10% market share) that are not subject to exclusivity provisions.^[ii]  Further, Foodpanda or Deliveroo will not be subject to the proposed commitments if its market share falls below 30%.^[iii]

People may wonder:

1. Why define “Low Market Share Platforms” (that are carved out from the exclusivity provisions) as those with less than 10% market share?  What is the rationale behind the presumption that a rival online food delivery platform with less than 10% market share is more likely to be harmed by the exclusionary provisions while a platform with more than 10% market share is not?  

2. Why the magic number 30% market share?  There are no case precedents under Hong Kong competition law regarding a market share threshold below which the imposition of exclusivity provisions would be considered less likely to pose anti-competitive concerns.

3. The 10% or 30% market share is to be calculated based on total order values via online food delivery platforms.  Is this the only way to define a relevant market for the assessment of possible harm to consumers of the exclusivity provisions in this case under the competition law?

Addressing these questions entails analyses that are grounded in economics. In fact, assessing the competition law risks of exclusivity provisions requires careful consideration of a range of economic factors including, for example, the extent of market power of the party imposing the exclusivity provision, the respective market positions of other competitors, the degree of barriers to entry and expansion by smaller providers, the actual or potential effects of the exclusivity provision on consumers, among other factors.  Deacons has a dedicated Competition Economist as part of our team, allowing us to integrate economic analysis in our legal assessment of the competition law risks of complex business arrangements. 

This is the second of our series of Client Alerts on specific business practices that are currently under the HKCC’s radar. Our first article, which discusses the competition law implications of resale price maintenance, can be accessed [here].  Please continue to look out for our upcoming alerts.

ⁱ Similarly, the HKCC considers the exclusivity provisions used by Foodpanda or Deliveroo are less likely to have anti-competitive effects on a third-party online food delivery platform that has achieved a “significant” size in the market.

ⁱⁱ Under the carve-out provision, if a restaurant enters into an “exclusive” partnership with Foodpanda, it would still be able to benefit from the low exclusive commission rate from Foodpanda even though it also partners with a smaller online food delivery platform (i.e., one with less than 10% market share).  However, the restaurant would not be permitted to partner with Deliveroo at the same time if it wishes to continue to enjoy the low exclusive commission rate from Foodpanda.  (The same applies when a restaurant enters into an exclusive partnership with Deliveroo.)

ⁱⁱⁱ Based on the HKCC’s estimates, Foodpanda and Deliveroo presently account for 50-55% and 40-45%, respectively, of the online food delivery market.   

Key Contacts

Machiuanna Chu

Partner | Corporate Commercial

Email or call +852 2825 9630

Sharon Pang

Principal Economist – Competition | Corporate Commercial

Email or call +852 2825 9290