Complaint that Safeway Gas Company Ltd. violated the Fair Trade Law by abusing its advantageous market position

Chinese Taipei

Case:

Complaint that Safeway Gas Company Ltd. violated the Fair Trade Law by abusing its advantageous market position

Keywords:

merger, household liquefied petroleum gas (cylinder gas) market, natural gas (pipeline gas) market, market share, definition of market boundary, relevant product market, geographic market, commissioned operation, vertical integration, predatory pricing

Reference:

Fair Trade Commission Decision of June 7, 2000 (the 448th Commissioners' Meeting); Disposition (89) Kung Chu Tzu No. 105

Industry:

Gaseous Fuel Supply Industry (4200)

Relevant laws:

Articles 6, 11, 13, 19(iii), and 40 of the Fair Trade Law

Summary:

1. Safeway Gas Company Ltd. (Safeway), a household liquefied petroleum gas ("LPG") distributor, was alleged to have entered into commissioned operation with Nanch'eng Packing and Distribution Factory (Nanch'eng) of Pintung County in 1998 without first obtaining the Commission's permission for merger. It was also alleged to have abused its advantageous market position during the period from 1998 to 2000 by offering at below-cost prices for its products to its downstream retailers with an attempt to buy out retailers in Chinese Taipei and thereby dominate the market. Its actions were reported to have violated the Fair Trade Law.
   
   
2. Although in terms of household energy supply (the market of consumption) or their end uses (product functions), household LPG and natural gas are competing products; yet substantial entry barriers exist in both markets which had thereby disqualified them as freely competitive markets. Moreover the attributes and distribution channels of the two products are completely different. Therefore, it is appropriate to treat the two as non-competing and independent products. Safeway's deal with Nanch'eng in 1998 to operate as a commissioned packer and distributor of LPG meets the definition of merger stipulated in Article 6(1)(iv) of the Fair Trade Law. The total revenue of the two companies in the previous accounting year (1997) was NT$ 5.36 billion, far exceeding the official threshold of 2 billion (revised to 5 billion beginning February 1, 1999) which requires the filing of an application for approval to the Commission. Safeway violated article 11(1)(iii) of the Fair Trade Law by its failure to file the application before the completion of the deal. From 1998 through 2000, Safeway continued to merge LPG retailers across Chinese Taipei in ways that had also met the definition of merger under article 6(1)(i) of the same law. The market share of Safeway in household LPG was 27.77% in 1999, exceeding the 25% threshold that would require the filing of application for approval of merger. Its failure to file the application prior to the completion of the merger violated Article 11(1)(ii) of the same law. Pursuant to Article 13 of the same law, it is ordered that Safeway shall make necessary correction on its violations within one month after this disposition is served. The company shall file an application of merger, subject to be approved by the Commission, within the aforementioned period should it choose not to correct its current unlawful merger. In addition, after taking into consideration of the motivation and purpose behind this violation, and the degree to which the offense would disrupt competition, the Commission decided that a fine of NT$ 1.2 million should be imposed upon the offender pursuant to Article 40 of the same law.
   
   
3. It was also alleged that Safeway, after buying out retailers in Taipei, Yunlin, and Taichung (among other areas in Chinese Taipei), took advantage of its position as a distributor to engage in low-price (below the prevailing market prices or its cost) competition through its own retailers. Whether or not this activity should be governed by Article 19(iii) which prohibits activities having the effect of causing a competitor's trading counterpart to trade with oneself by coercion, inducement with profit, or other improper means and, thereby, restricting competition or interfering with fair competition has to be decided by Safeway's motivation for the low-price sales and their impact on the relevant markets. The low-price sales of Safeway were understood as its response toward its sliding market share after foreign imports started to play a role in the domestic market. It was the product of vertical integration conducted island-wide by Safeway. The investigation has not currently produced any direct evidence supporting the allegation that the motivation and purpose of the low-price sales were intended to squeeze out specific competitors or exclude specific competitive enterprises from entering the market. Nor is there evidence proving any significant impact on the competition in the relevant market. This complaint shall not be processed by the Commission due to insufficient evidence; however, the Commission will pay close attention to whether the company violates article 19(iii) of the same law in the future by abusing its advantageous market position as a distributor through below-cost sales or other unfair competitive measures, with the aim of forcing specific competitors out of business, thus affecting the relevant market's competitive order.

Summarized by Luo Mei-hsia
Supervised by Tsuo T'ien-liang

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