Fifteen premixed concrete suppliers in Yunlin County and twenty-seven premixed concrete suppliers in Changhua County were alleged to have violated the Fair Trade Law by fixing concrete prices and inter-supplier trading prices
Case:
Fifteen premixed concrete suppliers in Yunlin County and twenty-seven premixed concrete suppliers in Changhua County were alleged to have violated the Fair Trade Law by fixing concrete prices and inter-supplier trading prices
Key Words:
3,000-pound concrete, per cubic meter, inter-supplier trading, concerted action
Reference:
Fair Trade Commission Decision of December 14, 2000 (the 475th Commissioners' Meeting); Dispositions (89) Kung Ch'u Tzu No. 213 and (89) Kung Ch'u Tzu No. 214
Industry:
Premixed Concrete Industry (5232)
Relevant Law:
Article 14 of the Fair Trade Law
Summary:
1. In the wake of the "921 Earthquake" (of 21 September 1999), the central government's Post-Quake Reconstruction Committee, at its fourth meeting, forwarded a report to the Fair Trade Commission ("this Commission") detailing allegations that concrete suppliers in Touliu and Tounan Chen (Townships) had met to discuss fixing concrete prices in anticipation of demand following the earthquake. The report alleged that on 5 October 1999 the Tounan Township mayor called together concrete suppliers from the four townships and villages of Tounan, Touliu, Linnei, and Kukeng to discuss raising concrete prices by 30 percent for orders within Yunlin County and 40 percent for orders placed from other counties or cities. The Reconstruction Committee asked this Commission to investigate the allegation. The Commission dispatched investigators to the field and found that this particular allegation was unfounded, but found evidence of related anti-competitive practices. The field investigation occurred in tandem with routine post-quake pricing surveys. The investigation found that more than 10 Yunlin County concrete suppliers had in fact met in the Ch'un Hsing Restaurant in Tounan Township on 22 September and held discussions about refraining from poaching customers from each other. The post-quake price-investigation team discovered that a number of concrete suppliers in Changhua County had also gotten together over a meal after the earthquake, on 24 September, and negotiated concrete price hikes and inter-supplier trading matters. The investigation was therefore expanded to include concrete suppliers in both Yunlin and Changhua counties. 2. According to the investigation by the Commission, the Commission found as follows: (1)Yunlin County: Prior to the 921 Earthquake, legally operating concrete suppliers in Yunlin County had organized an industry social organization. This organization deemed suppliers without factory registration certificates to be illegal operators, and excluded them from membership. The organization counted 17 suppliers as its members: Pao Ch'iao, Nan Ch'ing, Ts'ai Sheng, Kuo Ch'an, Feng Sheng, Sheng Chi, Ta Cheng, Ch'ung Yu, Nan Feng, Hsu Feng, You Lien, Pao Yuan, Shih Yeh Chia, Hsin Li, Kuo Ti, Yuan Fa, and Huan Ch'iu. Two of them, Pao Yuan and Ta Cheng, were inactive though, as the former did not sell its concrete to the market and Ta Cheng had a small output and did not attend the organization meetings. The 15 active members of the social organization held meetings once ever month or two. Organization Chairman Wang Kuo-lin would decide when to hold the meetings and General Secretary Su Chin-miao would notify the members to attend. At the meetings, the suppliers fixed "reasonable consensus prices." Since 1999, these prices had been NT$1,200 per cubic meter (of 3,000-pound concrete) in local mountain areas and NT$1,250 per cubic meter in local coastal areas. These sales prices were also taken as the basis for trade in materials among the suppliers themselves. A number of the suppliers are on record as attesting to these circumstances, and organization's General Secretary Su Chin-miao stated that he routinely orally notified the various member suppliers of the meeting conclusions and instructed them to put them into action. On 22 September, the day after the earthquake, more than 10 of the suppliers used the occasion of a dinner at the Ch'un Hsing Restaurant in Tounan Township to discuss matters relating to post-quake order filling. Considering that only a small few of the suppliers - including Kuo Ch'an, Ts'ai Sheng, Feng Sheng, Pao Ch'iao, and Sheng Chi - had weathered the quake well enough to be able to start filling orders in the initial reconstruction period, the suppliers were not able to reach an agreement to increase prices. They did, however, reach a consensus to avoid price competition by refraining from trading among themselves and from poaching each other's customers. A majority of the suppliers admitted that they had attended the meeting and reached such a consensus and that they had further agreed to continue to abide by their original "consensus prices" to avoid competition. (2) Changhua County: The Changhua County concrete suppliers' social organization did not have an exclusivity policy like its Yunlin counterpart, and extended membership to suppliers without factory registration certificates. It counted 30 suppliers as members, although three of them, Sheng Sung, Ta Ming, and Kao Wei, had suspended operations a full two years before the earthquake because of financial difficulties. The 27 active members paid an annual membership fee of NT$20,000. Before the earthquake, the member suppliers held regular Wednesday meetings in Yuanlin Chen (Township) where they discussed avoiding customer poaching by implementing a quota system based on the relative production capacity of each supplier so as to save individual suppliers from being forced out of business by cut-throat competition. The suppliers agreed on a 30 percent discount off standard prices as their "reasonable consensus price" and inter-supplier trading price. The social organization also had the function of steppin g in to mediate disputes over poaching of customers by making the final decision in such cases as to the selling price and the supplier to fill the order. However, actual sales prices prior to the earthquake continued to fall short of these consensus prices, and hovered over in the range of a 36 to 33 percent discount in southern Changhua and a 35 to 32 percent discount in northern Changhua. The issue was raised again at at least two post-earthquake meetings, the first held on the Friday of the Mid-Autumn festival following postponement of the regular Wednesday meeting, and the second in early October. It was proposed at these meetings that where suppliers whose operations had been crippled by the quake were unable to fill orders, other member suppliers would back them up in filling the orders. The suppliers were in agreement that given the need to redouble quality control standards following the earthquake, the original discount range of 36 to 32 percent was too low, and that a discount of 25 percent would more reasonably reflect their costs. They ultimately agreed on a discount range of 30 percent to 25 percent, with the individual suppliers to determ ine their own discounts as they saw fit within the limits of this range. They also agreed to maintain the standard pre-quake inter-supplier discount of 30 percent, with actual discounts not to exceed a ceiling of 32 percent. 3. Reasons for disposition: Concerted action, under Article 7 of the Fair Trade Law and Article 5(1) of the Enforcement Rules, is limited to horizontal concerted action among competitor enterprises. While the Yunlin organization comprised only 15 legally operating suppliers whereas the Changhua organization's 27 members included unregistered suppliers, the member companies of both organizations were horizontal competitors with relationships of substantive competition. Although they belonged to the two separate geographical areas of Yunlin and Changhua, they all met the criteria for actors engaging in concerted competition. The form of the concerted action in each case was holding meetings and arriving at a mutual understanding to restrict concrete price competition. The concrete market is highly localized, and concrete prices vary locally depending on the degree of competition in any given locale. The mutual understanding among the 15 legally registered suppliers in the Yunlin area on restricting price restriction effectively al so constituted a pricing guideline for the unregistered suppliers in the area, and was sufficient to impact the trading order and supply-demand mechanisms throughout the Yunlin area concrete market. The Changhua organization's membership extended to unregistered suppliers as well as registered ones, and besides negotiating a mutual understanding on both external and inter-supplier prices, the organization also restricted competition by intervening and mediating in individual customer poaching disputes, so its actions exerted an even more intense effect on the trading order and supply-demand mechanisms in the local market than did those of its counterpart in Yunlin. Thus, a total of 42 suppliers in the Changhua and Yunlin areas were found to have engaged in concerted action in violation of the prohibitions in Article 14 of the Fair Trade Law. After considering such factors as the motives, gains, business scale, cooperativeness in the investigation, and market standings of the enterprises, this Commission imposed a fine of NT$100,000 on each of the enterprises pursuant to the fore part of Article 41 of the Fair Trade Law. Appendix: Pao Ch'iao Co., Ltd.'s Uniform Invoice No.: 89736911 Nan Ch'ing Cement Enterprises Ltd.'s Uniform Invoice No.: 86968280 Ts'ai Sheng Premixed Cement Industries Co., Ltd.'s Uniform Invoice No.: 97626677 Kuo Ch'an Industrial Construction Co., Ltd.'s Uniform Invoice No.: 24060203 Feng Sheng Industries Co., Ltd.'s Uniform Invoice No.: 16096742 Sheng Chi Premixed Concrete Ltd.'s Uniform Invoice No.: 84372166 Ch'ung Yu Cement Industrial Co., Ltd.'s Uniform Invoice No.: 22305765 Nan Feng Industrial Co., Ltd.'s Uniform Invoice No.: 86999410 Hsu Feng Premixed Concrete Ltd.'s Uniform Invoice No.: 84554068 You Lien Cement Industries Co., Ltd.'s Uniform Invoice No.: 64983793 Shih Yeh Chia Enterprises Co., Ltd.'s Uniform Invoice No.: 86105117 Hsin Li Cement Co., Ltd.'s Uniform Invoice No.: 66543960 Kuo Ti Cement Industries Co., Ltd.'s Uniform Invoice No.: 86962217 Yuan Fa Concrete Co., Ltd.'s Uniform Invoice No.: 86837725 Huan Ch'iu Concrete Industries Co., Ltd.'s Uniform Invoice No.: 55743723 T'ai Sung Concrete Ltd.'s Uniform Invoice No.: 22084735 San Li Construction Co., Ltd.'s Uniform Invoice No.: 52243801 Yuan Ch'eng Premixed Concrete Co., Ltd.'s Uniform Invoice No.: 96861097 Chang Lu Premixed Concrete Co., Ltd.'s Uniform Invoice No.: 22998555 Chiu Ta Premixed Concrete Co., Ltd.'s Uniform Invoice No.: 23252007 Li Ch'uan Concrete Co., Ltd.'s Uniform Invoice No.: 23213960 Pao Sheng Enterprises Ltd.'s Uniform Invoice No.: 23255285 P'u Ta Premixed Concrete Co., Ltd.'s Uniform Invoice No.: 23176000 Chia Fu Premixed Concrete Co., Ltd.'s Uniform Invoice No.: 23937254 He Tsuo Concrete Co., Ltd.'s Uniform Invoice No.: 60324377 He Li Concrete Co., Ltd.'s Uniform Invoice No.: 86760872 Huan Ch'iu Concrete Industries Co., Ltd.'s Uniform Invoice No.: 55743723 Ta Yuan Premixed Concrete Ltd.'s Uniform Invoice No.: 16202087 Yung Pei Li Gravel Enterprises Co., Ltd.'s Uniform Invoice No.: 22242523 Chung Ying Premixed Concrete Co., Ltd.'s Uniform Invoice No.: 23864560 Ta Ming Concrete Co., Ltd.'s Uniform Invoice No.: 86773026 Fu Lien Premixed Concrete Ltd.'s Uniform Invoice No.: 86412213 Chan Yung Premixed Concrete Co., Ltd.'s Uniform Invoice No.: 86788668 Sheng Ta Premixed Concrete Ltd.'s Uniform Invoice No.: 86777347 P'u Yen Premixed Concrete Ltd.'s Uniform Invoice No.: 84378437 Yi Lung Ying Premixed Concrete Co., Ltd.'s Uniform Invoice No.: 84395908 Chien Chang Concrete Co., Ltd.'s Uniform Invoice No.: 84532656 Yushan Concrete Ltd.'s Uniform Invoice No.: 86965636 He Ch'un Concrete Co., Ltd.'s Uniform Invoice No.: 84667422 Ch'ang Wang Concrete Ltd.'s Uniform Invoice No.: 97427826 Chun You Enterprises Ltd.'s Uniform Invoice No.: 84234734 Yun Ta Premixed Concrete Ltd.'s Uniform Invoice No.: 22911376 Summarized by Liu, Ginger; Supervised by Tso, Tien-Liang