Violation of the Fair Trade Law by the distribution system and sales activities of the motorcycle industry
Chinese Taipei
Case:
Violation of the Fair Trade Law by the distribution system and sales activities of the motorcycle industry
Key Words:
Yamaha motorcycles, Kymco motorcycles, Cheng Yeh, Hwa Yeh, Chia Chang, geographical restriction on sales, resale prices
Reference:
Fair Trade Commission Decision of January 7, 1996 (the 223rd Commission Meeting)
Industry:
Vehicle Industry (3241)
Relevant Laws:
Article 18 and Article 19(iv) and (vi) of the Fair Trade Law
Summary:
1. This case originated from the following complaints of violations of the Fair Trade Law:
(1) Cheng Yeh Corporation, the general distributor of Yamaha motorcycles in Taipei City had restricted the price of motorcycle. The restrictions were sanctioned by penalties and refusal to supply best-selling motorcycles.
(2) Hwa Yeh Corporation, the general distributor of Yamaha motorcycles in Chiayi County and Chiayi City had restricted the geographical areas of sales and fixed the resale prices, with the intent of monopolizing the market. These acts deprived the consumers of the reasonable prices.
(3) Chia Chang Corporation, the general distributor of Kymco motorcycles in Chiayi County and Chiayi City had restricted the geographical areas of sales, sanctioned by penalties.
2. After investigation, it was found that Cheng Yeh, Hwa Yeh, and Chia Chang, the county and city general distributors of Yamaha or Kymco motorcycles, were the trading counterparts of their downstream regional dealers in the sale relationships. These general distributors (Cheng Yeh, Hwa Yeh, and Chia Chang) were found to have restricted the resale price of the regional distributors and unduly restricted their business operations of the said regional distributors. In the Yamaha system, Yamaha, through the appointment of managers or through Luen Shan or Chun Sha (Luen Shan and Chun Shan are consulting companies), directly or indirectly controlled the business operations of Cheng Yeh and Hwa Yeh. In addition, Luen Shan directly participated in the price stabilization meeting, sent price inspectors to check if the prices set by Luen Shan were followed, and sanctioned against those who cut their resale prices or sold outside their sales territories. Based upon these acts, i.e., Yamaha's appointing managers, Luen Shan's checking prices, and Chun Shan's imposing penalties on price-cutters, it should be concluded that Cheng Yeh and Hwa Yeh had restricted their downstream regional distributors or dealers in the resale prices and the geographical areas of sales, with penalties or other measures. Therefore, Yamaha was found to have violated Article 18 and Article 19(vi) of the Fair Trade Law. In the Kymco system, Kymco controlled business operations of the Chia Chang through the appointment of managers, through direct ownership of shares, through the representation in the boards of directors and supervisors, and through suggesting price data and market information. On several occasions, the Chia Chang board of directors resolved to restrict the resale prices and the geographical areas of sales. Based upon these acts, i.e., Kymco's appointing managers and representation in the boards of directors and supervisors, it should be concluded that Kymco had restricted their downstream regional distributors or dealers in the resale prices and the geographical areas of sales. Therefore, Kymco was found to have violated Article 18 and Article 19(vi) of the Fair Trade Law. On the other hand, the motorcycle market is of a highly oligopolistic structure. Yamaha and Kymco had apparent market powers to influence the supply and demand. Furthermore, it has not been proved that the positive economic benefits of the existing marketing system, the resale price maintenance, and the geographical restrictions outweighs the negative impact; neither has it been proved that these acts were implemented for inter-brand competitions. Therefore, it should be concluded that these acts, due to their tendency of restricting fair competition, constituted violations of Article 18 and Article 19(vi) of the Fair Trade Law.
3. Although the cartel, jointly invested and formed by Cheng Yeh, Hwa Yeh, Chia Chang and their downstream regional distributors, started before the implementation of the Fair Trade Law, the investigation showed that to date Yamaha and Kymco have maintained the cartel through appointing managers, through the activities of Luen Shan and Chun Shan, through direct ownership of the shares, and through representation in the boards of directors and supervisors. These acts were improper means that cause other enterprises to refrain from price competition or to participate in concerted actions. On the other hand, Yamaha and Kymco had apparent market powers to influence the supply and demand. Furthermore, it has not been proved that the positive economic benefits of the existing marketing system, the resale price maintenance, and the geographical restrictions outweighs the negative impact; neither has it been proved that these acts were implemented for brand competitions. Therefore, it should be concluded that these acts, due to their tendency of restricting fair competition, constituted violations of Article 18 and Article 19(iv) of the Fair Trade Law.
4. Since these activities are widespread in the sales/distribution system of the motorcycle industry, a large number of enterprises will be involved. If the Commission deals with each and every violation by the county/city general distributors, it is possible that during the period of correction the sales/distribution of motorcycles would be in disorder, thus leading to further oligopolistic practices within that market. In addition, although the above marketing system and marketing strategy are improper and against fair competition, there is a historical background for these activities. In accordance with the resolution of the 157th Commission Meeting, the "General Principles for Enforcement or Non-enforcement on Cases of Complaints or Ex Officio Investigation", in the event the violation by an enterprise is long-standing and it is a wide-spread practice within the industry that requires overall correction, industry-wide corrective measures shall be implemented first. Therefore, in relation to this case, it is resolved that corrective measures be implemented to guide the two motorcycle enterprises, while alternatives be formulated that are consistent with the spirit of fair competition and with the motorcycle sales/distribution requirements.
Summarized by Lin, Tsing-tang
Supervised by Yang, Chia-hun
Appendix:
Yamaha Corp.'s Uniform Invoice Number: 22318608
Kymco Corp.'s Uniform Invoice Number: 75195800
＠: For information of translation, click here
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