I. Motive
The law enforcement of the FTC emphasized the order and competitions of the domestic petroleum market. The FTC went through the liberalization of domestic petroleum market since its establishment and we have paid attention to conditions and competition dynamics in the domestic petroleum market. Based on years of law enforcement experiences, the FTC has published the "Cases and Materials on Fair Trade Act: Energy Industry (I)" and Cases and Materials on Fair Trade Act: Energy Industry (II) in 2000 and 2002 respetively. The two collections were published years ago and did not summarized cases according to the types. Our current objective is to collect, summarize and categorize cases related to the petroleum market on which we have put emphasis for a long time. By so doing, the FTC will have a better understanding on the development of domestic petroleum market and how the implementation of Fair Trade Act shall be directed. Moreover, some suggestions will be proposed for the purpose of maintaining competitions in the domestic petroleum industry.
II. Methodology and Analysis
The scope of this project is limited to Fair Trade Act related cases in the domestic petroleum market, which includes restrictive competitions (monopoly, merger, and concerted action) and unfair competitions (counterfeit, untrue advertisement, and deceptive or obviously unfair competitions). We first collect FTC decisions related to the petroleum market and then categorize them into different types. The term "petroleum market," since the crude product category covers different items, only includes domestic gasoline and diesel, fuel oil, aviation fuel, oil and lubricants, and other livelihood-related oil products. The liquefied petroleum gas, natural gas, as well as asphalt and other oil products and petrochemical raw material case are not within the scope of this study and will be discussed separately in future studies.
Our analysis is based on previous FTC decisions, and the following two methodologies are applied to comprehend market conditions and key issues, in order to determine the direction and contents of the study.
(1) Literature review: We collect FTC cases and studies related to the topic for studies, summary, and discussions. The in-depth literature review is the basis for our empirical studies, which then leads to our conclusions and suggestions.
(2) Expert opinions: During the study, scholars are invited to present their theories and experiences. We also consult major domestic petroleum suppliers for purposes of gathering marketing and production information, in order to study the production, marketing, trading system in the petroleum market and the industrial policy of energy competent authority.
III. Conclusion and Suggestion
(1) Conclusion: We summarize cases related to Article 10, 14, 18, 19, 20, 21, and 24 of the Fair Trade Act regarding monopoly, merger, concerted action, restriction on resale price, boycott, discrimination, and improper inducement in the petroleum market. Based upon the above study, we think relevant parties in the petroleum market are petroleum suppliers in the upper stream and gas stations in the lower stream. The timing of the cases emerged is closely related to government's deregulation on the petroleum market. Since the government allowed private enterprise to operate gas stations in 1987, the gradual deregulation measure liberalizes the petroleum market. In response to the deregulations, the FTC communicated with relevant regulatory agencies in the government and suggested amending relevant regulations. The enforcement of Fair Trade Act also liberalized the domestic petroleum market and promoted competitions.
(2) Suggestions: In the domestic petroleum market, regulations and entry barriers for gas stations in the lower stream were almost eliminated. In addition, gas stations often cut price and competes intensely. However, participants in the gas station market are getting larger in size and include many chain stores. Hence, the FTC shall pay close attention of the operation of gas stations, the number of market participants, and mergers of gas stations. In addition, even though the currently adopted floating price mechanism is beneficial to consumer interests and limits the excess profits of monopoly, the relative low oil price may distort the resource allocation of consumers and producers in the domestic petroleum market and even create inefficiency. It reduces the number of potential market participants and affects market competition. Moreover, in response to public concerns, the floating price mechanism is transparent and gives advance notice to price adjustments. The pursuit of public and transparent price adjustments may reduce domestic petroleum supplier's incentive for price competition, if the government overly interferes with the petroleum price. In the future, the international oil price may continue to increase, and the government also plans to adjust the tax rate on domestic energy and oil. We propose that the timing of tax adjustments shall be reviewed. When the international energy price is more stable, the current floating price mechanism shall be modified in accordance to the legislative intent of the Petroleum Administration Act, to avoid excessive intervention in the domestic petroleum price.