Twenty-seven cylindered Liquefied Petroleum Gas (LPG) distributors in southern Taiwan engaging in concerted action to raise fees for delivery and filling services and to raise the price of cylindered LPG in violation of the Fair Trade Law
Case:
Twenty-seven cylindered Liquefied Petroleum Gas (LPG) distributors in southern Taiwan engaging in concerted action to raise fees for delivery and filling services and to raise the price of cylindered LPG in violation of the Fair Trade Law
Key Words:
Cylindered LPG; filling plant; major transportation; subsidiary transportation concerted action
Reference:
Fair Trade Commission Decision of January 11, 2001 (the 479th Commissioners' Meeting); Disposition (90) Kung Chu Tzu No. 023, 024
Industry:
Retailing of other fuels (5449)
Relevant Laws:
Article 14 of the Fair Trade Law
Summary:
1. This case originated from the increases of LPG prices for five times by China Petroleum from November of 1999 to March of 2000 due to the rise of international oil prices during the period of 1999 to 2000. Among those price increases, the highest one occurred on March 28, 2000, with an increase rate of 20%. It had thereby resulted in the increases of the delivery, filling and retailing prices for cylindered LPG at the downstream market. The Fair Trade Commission (the Commission) conducted this investigation after receiving numerous complaints from both consumers and end distributors. It is the finding of the FTC that the previous charges for filling and delivery of cylindered LPG was around NT$1 per kilogram; however, agreements among distributors had raised the price to NT$2 in the Kaohsiung-Pintung area and NT$2.2 in the Tainan area. This meant an extra cost of about NT$30 per 20-kilogram cylinder, leading to the complaints from retailers about cost increases. 2. Findings: (1) In the early 90's, prior to the introduction of the Fair Trade Law, the distribution of LPG was administered by the Vocational Assistance Commission for Retired Servicemen. Service charges for delivering and filling cylindered LPG were regulated at the price of NT$1.91 per kilogram in the southern area of Taiwan. However, prior to 1996, competition between the filling stations and the differences in their costs of major transportation had driven the real delivering and filling charges down to NT$1.2-1.4 in the Kaohsiung-Pintung area, NT$1.5-1.85 in the Tainan area, and NT$2.2 in the Chiayi area. Thus, three distinct geographical markets for the delivery and filling of LPG were formed in the Kaohsiung-Pintung, Tainan and Chiayi regions. (2) Development of concerted action: The Commission found that among the 30 filling stations in the southern region, aside from the three in Chiayi who were not involved, the Tainan market where 8 stations were included and the Kaohsiung-Pintung market where 19 stations are included are two separate relevant markets. Prior to the March of 2000, due to lower transportation costs, stations located in the Kaohsiung-Pintung area were able to compete with those in the Tainan market. While in March, by taking the opportunity of the efforts made at Safeway Gas's Kaohsiung plant by the "LPG Safety Management Foundation", which was established by operators at different levels of the distribution chain, to raise a fund of NT$30 million by soliciting contributions from filling station operators, a motion was put forward that the operators in the two markets decide on a three-tier pricing system that would reflect differences in their major transport expenses, with NT$2 for the Kaohsiung-Pintung area, NT2.2 for the Tainan area, and NT$2.5 for the Chiayi area. Operators attempting to distribute in two different areas were required to apply the prices set for each respective area to avoid abrupting the new market system. With the exception of operators in the Chiayi area, all participants in the organization agreed to the pricing scheme, and a "market stabilization fund" was set up along the lines of the "Gas Safety Management" foundation mentioned above; contributions were said to be for a "mutual assistance fund." Operators in the Kaohsiung-Pintung area were relatively more willing to abide by the new pricing scheme, and continued to hold another meeting right after the first one was completed to form consensus regarding the new scheme among the filling station operators in the area. It was decided that implementation of the agreement could be left to the respective associations of the operators in the three areas, and while the operators in Chiayi still disagreed, the new pricing scheme had been uniformly adopted in the Tainan and Kaohsiung-Pintung areas by March 3, 2000. (3) Implementation of the concerted action: In order to facilitate the accomplishment of its goals of raising the prices for LPG and restraining the number of operators for downstream LPG retailers, operators of filling station held meetings at irregular intervals to collude on the means applicable to the control of the cylindered LPG market. Between the March and July of 2000, those in the Kaohsiung-Pintung area met repeatedly, first on March 3 in Kaohsiung to conclude the price-increase agreement and the establishment of stabilization fund, then on March 10 in Pintung to confirm that the price agreement would take effect next time China Petroleum raised its price on LPG (on about March 28). It was further decided that payments by the operators to the stabilization fund would be divided into two categories, depending on whether the volumes handled were above or below 500 metric tons, and that all operators must additionally pay a miscellaneous fee of NT$0.2 per kilogram. To buffer the backlash from d ownstream retailers and make it easier to collect the fees, operators sent representatives to persuade local industry associations and to smooth over customer-swaying disputes among retailers, as well as to encourage retailers to pass expenses on to end users. Retailers who refuse to accept the scheme were threatened with supply interruption. Due to the facts that any attempt to switch to other filling stations would be rejected by the operators with various excuses, retailers were in effect deprived of the liberty to choose its own filling stations. As a result, competitive mechanisms in the entire LPG market in the southern region were seriously disrupted, affecting nearly 1000 retailers in that area. 3. The 27 firms involved in this case were all at the "filling station" level within the vertical distribution structure of the household LPG market, and were "competitors" in their respective Kaohsiung-Pintung and Tainan markets and were capable of being qualified as members of a concerted action under law. The alleged concerted action was operated through continued meetings to set fees and agreements to divide customers, which had the effect of restraining trading counterparts, prices and other business activities. Following the completion of the agreements to raise prices, measures to implement those agreements were always put forward and adopted by all members. There are 19 of the 21 filling stations in the Kaohsiung-Pintung area that involved in this case accounted for 97% of the total volume sold, sufficient to affect supply and demand functions in that market. The eight stations in the Tainan area accounted for over 80% of the volume sold there, with only an exceptionally small portion of the demand in that market served by operators from the Kaohsiung-Pintung region. The conduct of the operators involved had violated Article 14 of the Fair Trade Law, which prohibits concerted action. The Commission based its assessment of administrative fines on several factors, including the size of the operators, their profitability, degree of cooperation with the investigation, past records, and whether they had played a leading role in the pricing scheme. The Tainan and Kaohsiung-Pintung areas constitute two separate markets, thus the Commission issued dispositions respective to those areas in accordance with the fore part of Article 41 of the Fair Trade Law. Administrative fines of between NT$1 - 1.5 million were assessed. In the Kaohsiung-Pintung area, three involved stations-Safeway Gas, Kao Fa, and Hsin Feng-a fine of NT$15 million was respectively imposed; Chien Huey and Kuo Hui each was fined NT$8 million; Another 11 were fined NT$4 million individually-Chian Chang, Yi Ch'un, Jung Chou, Feng Yi, Kao Hsiung, Shih Hsin, Tung Yi, Nan Ch'eng, Hsin Ch'eng, Hsin Lian and Ho Sun Shin; Hung Li, Ying Neng, and Ch'i Mei were fined NT$1 million resectively. In the Tainan area, San Yan received a fi ne of NT$8 million; Yi Lin, Hsueh Chia, and Ch'uan Shuai each received a fine of NT$4 million; Chung Hua Li was fined NT$2 million; and Lian Ho, Ta Tung, and Nan Ya each received a fine of NT$1 million. The total amount of fines assessed for deterrent purposes was NT$133 million. Appendix: Safeway Gas Company Ltd.'s Uniform Invoice Number: 86927084 Chien-Huey Industrial Corp.'s Uniform Invoice Number: 81263468 Kao Fa Kuan Chuang Co., Ltd.'s Uniform Invoice Number: 85772837 Hsin Feng Mei Ch'i Fen Chuang Co. Ltd.'s Uniform Invoice Number: 85793755 Tung Yi LP Gas Co. Ltd.'s Uniform Invoice Number: 91754148 Chien Chang Mei Ch'i Kuan Chuang Hang's Uniform Invoice Number: 88213794 Hsin Lien Enterprise Co., Ltd.'s Uniform Invoice Number: 90855560 Shih Hsin Mei Ch'i Fen Chuang Co., Ltd.'s Uniform Invoice Number: 82023190 Ho Sun Shin Enterprise Corp.'s Uniform Invoice Number: 23961351 Kuo Hui LP Gas Co. Ltd.'s Uniform Invoice Number: 91882164 Yi Chun Chemical Co., Ltd.'s Uniform Invoice Number: 88213273 Feng Yi Enterprise Co., Ltd.'s Uniform Invoice Number: 97373075 Nan Cheng LP Gas Plant's Uniform Invoice Number: 90261053 Kao Hsiung Mei Ch'i Fen Chuang Co., Ltd.'s Uniform Invoice Number: 83604012 Jung Chou Enterprise Co., Ltd.'s Uniform Invoice Number: 07933978 Hsin Cheng Mei Ch'i Fen Chuang Ch'ang's Uniform Invoice Number: 91828177 Ying Neng Mei Ch'i Kuan Chuang Chang's Uniform Invoice Number: 85199375 Hung Li Mei Ch'i Fen Zhuang Chang's Uniform Invoice Number: 88006798 Ch'i Mei Mei Ch'i Lien He Fen Chuang Chang's Uniform Invoice Number: 85667271 Lien He LP Gas Fen Chuang Co., Ltd.'s Uniform Invoice Number: 73254970 Chung Hua Li Co., Ltd.'s Uniform Invoice Number: 73021262 Ta Tung Kuan Chuang Co., Ltd.'s Uniform Invoice Number: 69307906 San Yan Hsiung Ti Enterprise Co.'s Uniform Invoice Number: 72060553 Yi Lin Enterprise Co., Ltd.'s Uniform Invoice Number: 721666296 Hsueh Chia Enterprise Co., Ltd.'s Uniform Invoice Number: 72111125 Ch'uan Shuai LP Gas Fen Chuang Co., Ltd.'s Uniform Invoice Number: 73640257 Nan Ya Wa Ssu Hsing Ye Co., Ltd.'s Uniform Invoice Number: 16025203 Summarized by Ginger Liu; Supervised by Tso Tien Liang