The Fair Trade Commission initiated its own investigation into price discrimination by Chinese Petroleum Corporation (Chinese Petroleum) against six dealers in southern Taiwan, in violation of the Fair Trade Law
Case:
The Fair Trade Commission initiated its own investigation into price discrimination by Chinese Petroleum Corporation (Chinese Petroleum) against six dealers in southern Taiwan, in violation of the Fair Trade Law
Key Words:
non-uniform pricing, full LPG tanks, price information asymmetry, refusal to renew a dealership agreement
Reference:
Fair Trade Commission Decision of March 7, 2002 (the 539th Commissioners' Meeting)
Industry:
Gas Supply (3400)
Relevant Laws:
Summary:
1. The Fair Trade Commission (FTC) initiated its own investigation into a January 1999 concerted action by nine dealers of liquefied petroleum gas (LPG) to raise their profits on sales. During the investigation, the FTC discovered a suspected case of Chinese Petroleum (1) abusing its position as the monopoly supplier of LPG by improperly practicing discriminatory pricing against certain dealers in southern Taiwan, and (2) improperly refusing a request for renewal of a dealership agreement upon expiration of the agreement by its dealer, Excel Chemical Corporation. After making these discoveries, the FTC immediately launched a separate investigation.2. The FTC Commissioners found that Excel Chemical Corporation (Excel Chemical), Tay Hou Industry Co., Ltd. (Tay Hou), Lee Chang Yung Chemical Industry Corporation (Lee Chang Yung), Hershey Engineering Co., Ltd. (Hershey Engineering), Lienhua Lienho LPG Co., Ltd. (Lienhua), and Chien-Huey Industrial Corp. (Chien-Huey), all dealers for Chinese Petroleum in southern Taiwan, had entered dealership agreements with Chinese Petroleum to sell the latter's home-use LPG, and all of the said dealership agreements with Chinese Petroleum were in force during the months of July to September of 1999. Before LPG imports were liberalized in early 1999, Chinese Petroleum was Chinese Taipei's only LPG importer, and Chinese Petroleum had long sold the product at the officially posted price to its dealers. After Lee Chang Yung and Formosa Plastics Corporation began importing LPG in May and June of 1999, Chinese Petroleum adopted non-uniform prices in July and August of that same year vis-a-vis its dealers in an effort to undermine the ability of the new importers and their dealers to engage in market competition with Chinese Petroleum. In any case where Chinese Petroleum deemed that a dealer's sales of a competitor's products had resulted in reduced purchases by that dealer of Chinese Petroleum's LPG, Chinese Petroleum proceeded to take advantage of its superior access to LPG price information and the reliance on the part of dealers that Chinese Petroleum would continue its long-standing practice of selling LPG to all dealers at a uniform price. Without reporting to the competent authority (the Ministry of Economic Affairs), Chinese Petroleum illegitimately subjected its dealers to discriminatory treatment. Chinese Petroleum's purpose in so doing was clearly to strike an indirect blow against its new competitors, Lee Chang Yung and Formosa Plastics, so as to ensure itself a superior market position in a market now open to competition. In view of this fact, the FTC found that Chinese Petroleum's adoption of non-uniform prices constituted an improper decision regarding product prices and was therefore a violation of Article 10(1)(ii) of the Fair Trade Law.3. In addition, after Chinese Petroleum's dealership agreement with Excel Chemical expired on 30 September 1999, Chinese Petroleum refused Excel Chemical's request to renew the agreement, citing reduced LPG purchases by Excel Chemical in July and August of 1999. In July 1999, however, Chinese Petroleum had begun offering to Chien-Huey, Lienhua, and Hershey Engineering, while failing to sell LPG to Excel Chemical at the same reduced price, which put Excel Chemical at a competitive disadvantage in terms of transport costs. Excel Chemical lost large numbers of customers in central and southern Taiwan, which forced the company to reduce its LPG purchases from Chinese Petroleum. Though fully aware that the decline in Excel Chemical's LPG purchases was closely related to the fact that Chinese Petroleum did not offer reduced prices to Excel Chemical, Chinese Petroleum pointed selectively to the decline in Excel Chemical's LPG purchases and cited poor business performance on the latter's part as its reason for refusing Excel Chemical's request to renew the dealership agreement. Chinese Petroleum clearly did not weigh all relevant factors in a judicious manner; on the contrary, Chinese Petroleum took advantage of its dominance in the LPG market to illegitimately refuse to do business with Excel Chemical. This constitutes a violation of Article 10(1)(iv) of the Fair Trade Law.4. In July 1999, Chinese Petroleum began to abuse its monopoly of the LPG market by exercising price discrimination against dealers in southern Taiwan, in violation of Article 10(1)(ii) of the Fair Trade Law. And after Chinese Petroleum's dealership agreement with Excel Chemical expired on 30 September 1999, Chinese Petroleum illegitimately refused Excel Chemical's request to renew the agreement, in violation of Article 10(1)(iv) of the Fair Trade Law. Considering the motives of the respondent, the offenses committed, the severity of their impact upon the trading order, and the duration thereof, the FTC decided, in the interest of deterring imitation and restoring market order, to order Chinese Petroleum to cease the illegal actions described in the preceding paragraph and pay an administrative fine of NT$8 million, pursuant to the first part of Article 41 of the Fair Trade Law.Appendix: Chinese Petroleum Corporation's Uniform Invoice Number: 03707901Summarized by Hsieh, Hsiu-Lin; Supervised by Tso, Tien-Liang