Hong Kong must act now to open up electricity market, antitrust chief says (South China Morning Post, 15 Jul 2018)3 Environmental officials must commit to liberalising Hong Kongs electricity market and start laying the groundwork for competing suppliers to enter, according to the head of the citys antitrust watchdog. Competition Commission chairwoman Anna Wu Hung-yuk said the task would require enhancing connectivity between power grids and providing access rights to third parties, in a similar fashion to how the government broke up the telecommunications market in the 1990s. But allowing Hong Kongs two power firms to continue building and expanding their ownership of critical energy infrastructure could make it harder to open up the market to other players, she said. CLP Power and HK Electric supply Kowloon, the New Territories and Lantau, as well as Hong Kong and Lamma islands, respectively.

Hong Kong's competition regulator faces challenges in supermarket sector (South China Morning Post, 30 Jun 2014)4 Ahead of next year's long-awaited competition law, food industry insiders describe a sector where prices are controlled and shenanigans commonplace as suppliers and supermarkets jostle for margin and market share in the fight over who fills your shopping basket. The dominance of two companies in the supermarket industry - Dairy Farm International Holdings and AS Watson Group - has long concerned consumer rights advocates. ParknShop and Wellcome account for up to 75 per cent of the grocery store market in Hong Kong. Last year, the industry was the subject of a Consumer Council investigation. Almost identical product pricing between supermarkets has bemused observers for some time. "Is this a pure coincidence or a tacit agreement not to compete? Without a full investigation of the sector it is impossible to say," said Mark Williams, an executive director of the Asian Competition Forum and an expert on competition law

Question 1 (20 marks) Identify the types of market structure of the Electricity sector and Supermarket sector in Hong Kong. Compare and contrast the two types of market structure.

Question 2 (15 marks) Suppose the two supermarkets, Parknshop and Wellcome, are simultaneously considering the pricing strategies. The supermarkets can either hold prices where they are or engage in price cutting activity. If neither cuts prices, both earn 400. If both cut prices, they both earn 200. If one supermarket cuts prices, it gains 500 while the other earns 100.

The payoff matrix as follows:

		Parknshop
		Price Cut	Price Hold
Wellcome	Price Cut	W:200, P:200	W:500, P:100
	Price Hold	W:100, P:500	W:400, P:400

(a) Determine the dominant strategies for each supermarket (if any). Explain. (6 marks)

(b) Determine the Nash Equilibrium (if any). (3 marks)

(c) To what extent you agree to the following statement If neither firm has a dominant strategy, a Nash equilibrium cannot exist. (6 marks)

(d) The electricity consumed in Hong Kong is generated mainly using coal, natural gas and nuclear energy as the sources. The Lamma Power Station of The Hongkong Electric Co., Ltd. (HEC) and the Castle Peak Power Station of CLP Power Hong Kong Limited (CLP Power) are the two power plants that generate electricity by coal. Analyze the private and external costs associated with the production of electricity by coal. Discuss with the aid of diagram(s), what policies a government might use to decrease the external cost of electricity production by coal. (15 marks)