An Evaluation of Reasonableness of Charging Slotting
Allowance (Additional Fees) by Distribution Business from the Perspective
of Competition Law
【Abstract】
- Main purpose of this research
According to a study report published by the Organization for Economic Cooperation
and Development in 1999, the market structure of distribution industry has
moved towards rising concentration, and consequently the distributors were
no longer playing the intermediary roles between the manufacturer and end-consumers.
Nevertheless, for most manufacturers, these large-scale distributors still
have buying power and without them, the manufacturers are unable to promote
their product smoothly, and thus in effect, the manufacturers in some sense
still have to rely on such distributors in order to continue the operations.
The direction of law enforcement for the competent authority of competition
law in many countries has been affected by this trend of development. In the
past, these competent authorities have focused on preventing the large-scale
manufacturers from abusing its market position, but now they are looking for
ways to avert the distributors from using its buying powers and unreasonably
exploit the manufacturers’ benefits and thus affect consumer interests. With
regard to the market development of distribution industry in domestic, the
relevant industries have also moved towards large-scale operations following
the entrance of foreign companies, in addition, more business kinds, business
types and new kinds of operations and technologies have been introduced into
the market. Although such introductions are beneficial to the development of
distribution industry, however, due to that most of the businesses in domestic
are small- and medium-sized enterprises (an approximately 90% or more of all
businesses), moreover, the suppliers are also mostly small and medium- sized
enterprises and they thus rely closely on distributors for continuation, therefore,
the changes to some extent certainly will affect the interactions between the
small- and medium-sized suppliers with its distributors. The conduct of improper
charges of slotting allowance (additional fees) is amongst all the most debated
issue. This research is conducted to study the issue of charging slotting allowance
(additional fees) by distributors in domestic more thoroughly, and the attitudes
of the competent authorities of competition law on this issue in other countries,
as well as questions emerged in the course of enforcing the Fair Trade Law
in domestic and the directions of handling this issue in the future.
- Research Method
This paper studied literatures on the topic of research and summarized the
theoretical evaluations of the impact of competition law on slotting allowance
(additional fees) and, the regulations stipulated by the competent authorities
of competition law from aboard are also illustrated in this paper. Additionally,
this paper also referred to the actual development situation and conducted
questionnaires to clearly determine the substitutability of various business
types and the market definitions, to study the similar and different views
of distributors and suppliers on additional fees. After that, this study
analyzed the different forms of slotting allowance (additional fees) as charged
by distributors of different business types. In addition, this paper looked
at the cases handled by the Fair Trade Commission and the courts’ judgments
for administrative litigations and compared the similarities and differences
of the Fair Trade Commission’s and the courts’ opinions with regard to the
topic in order to determine guidelines to handle the conduct of charging
slotting allowance (additional fees) in the future.
- Major Findings, Conclusion and Suggestions
- Although the Competition Law has neither concretely concluded that
the charges of slotting allowance (additional fees) will promote competition
as the best allocation for the limited spaces of shelves can be attained,
nor lead to anti-competition as the retail prices will increase and the
types of products for selection will be reduced which then resulted greater
loss of consumers interests, but that does not imply that the competent
authority of Competition Law has ignored this important issue of vertical
trading relations between the suppliers and the upstream and downstream
distributors. On the contrary, this issue has received close attentions
when the distribution sector is gaining buying powers.
- Following the change of economic activities, the distribution sector
has shown different mode of operations. From the point of view of product
structure, product price and targeted customer group, there is a high
degree of substitution for some distribution sectors. Moreover, as
there are no legal or technological entry barriers for distribution
sector, therefore the competitions among the counterparts in same business
or even in different types of business are quite intense; there is
no clear-cut criterion to differentiate some types of businesses. This
study showed that the hypermarkets have charged more kinds of slotting
allowance (additional fees) and also the percentage of total slotting
allowance (additional fees) to total business turnover is higher; follow
next is the chained convenience stores and the supermarkets come last
in the list. Furthermore, the product structures for different types
of distribution sectors are also not the same, and also the percentages
of slotting allowance (additional fees) to its business turnover for
each product are also varied. With regard to the opinions of suppliers
on additional fees, the majority of suppliers deemed that although
the distribution sector has charged slotting allowance (additional
fees) according to the written contract that was established by both
parties beforehand, but most suppliers believe such slotting allowance
(additional fees) do not give any benefits in the sales of products
and furthermore the charges has exceeded benefits that can be obtained
directly from the conduct.
- Because of the domestic industry structure’s characteristics and
the information asymmetry between the distribution sector and its suppliers,
the Fair Trade Commission deemed that the conduct of charging slotting
allowance (additional fees) by distribution sector may have caused anti-competition
and hence on the grounds as the competent authority for the Competition
Law, the Fair Trade Commission, under the regulations of the Fair Trade
Law and guidelines prescribed by the Commission itself, thus has received
and handled many cases related to the conducts of charging slotting allowance
( additional fees )by distribution sector all along. The said conduct
is regarded as violating Article 24 of the Fair Trade Law. Three important
conditions are used to determine whether the aforementioned Article is
applicable to a specific case; first, whether the conduct of an enterprise
is deceptive or obviously unfair; second, whether the enterprise is abusing
its market dominant position and third, whether the conduct of the enterprise
is sufficient to affect trading order. At present, although there are
several cases still pending through administrative relief procedures
as the original decisions have been reversed by the Administrative Court,
however, the purpose of the Fair Trade Commission to prescribe such regulations
is gradually understood and hence there is a tendency of these regulations
receiving more support.
- Within the scope of limited administrative resources, this study
has given the following suggestions; collecting information and conducting
investigation for the relevant industry of distribution businesses, establishing
complete industry data, organizing forum or seminar on competition discussion
with industrial circles, requesting the industry for their opinions,
duly reviewing and revising the relevant governing principles or guidelines
in coordination with the present situation of industry development so
that the party concerned and the administrative court will be more convinced
with regard to the definition of relevant market in the handling of cases,
maintaining trading order between the distribution businesses and its
suppliers and building a fair and competitive trading environment.
Researcher: Wu, Cheng Wuh，
Chen, Yuhn Shan，
Chen, Jen Ying，
Yang, Chung Lin，
Lin, Hsin Wen，
Taur, Rong