Taiwan Tobacco & Liquor Corporation

Case:

Key Words:

tie-in sales, imbalance between market demand and supply

Reference:

Fair Trade Commission Decision of September 21, 2006 (the 776th Commissioners' Meeting); Disposition (95) Kung Ch'u Tzu No. 095142

Industry:

Tobacco Manufacturing (0900)

Relevant Laws:

Article 19 of the Fair Trade Law

Summary:

1. It was reported by media that Taiwan Tobacco and Liquor Corporation (hereinafter called the "TTL"), during March 2005, implemented a measure encouraging only customers who purchased new tobacco products to have the priority to purchase Long Life tobacco products. Therefore, the Fair Trade Commission ("FTC") initiated an ex-officio investigation.

2. Findings of FTC after investigation:
   The Executive Yuan passed the amendment draft of Tobacco and Liquor Tax Act in early March, 2005 planning to elevate the amount of tobacco health and welfare surcharge (hereinafter called the "surcharge"). Therefore, the tobacco market encountered a shopping rush and inventory shortage due to the anticipation of a price rise. In order to deal with the imbalance between market demand and supply, the TTL took a measure total quantity control from February 21, 2005 to June 30, 2005. Additionally, the TTL commenced bonus purchase of tobacco products starting from March 18, 2005 allowing customers who purchased some new tobacco products to have the priority to purchase a certain amount of previous Long Life tobacco products.

3. Grounds for disposition:
   (1) The measure of total quantity control taken by the TTL was a temporary measure to deal with the imbalance between market demand and supply. The concept of such a measure was to take into account the actual needs of different retailers and allow small-sized retailers to have basic quota. Therefore, the measure was not improper. However, the TTL would still violate the Fair Trade Law if it employed the aforesaid measure to further engage in other improper competition.
   (2)The tobacco product bonus purchase measure in question taken by the TTL was to allow consumers who purchased certain new tobacco products to have the priority to purchase certain amount of four specific types of old Long Life products. Aforementioned new and old tobacco products respectively have independent economic value. Therefore, these two types of products need not to be sold jointly. The TTL's act fits the characteristics of tie-in sales by using the purchase of new tobacco products as the trading condition for the priority of purchasing old tobacco products. Furthermore, the TTL's Long Life series has had respectable popularity and competition advantage. The total sales value of the four old Long Life products exceeded 11% of the entire domestic tobacco market in 2004. Therefore, these products have certain influence on the market. Under the circumstances where there was a shopping rush on the market and the total account measure was taken regarding Long Life tobacco products, the TTL's tie-in sales would have caused its trading counterparts to have to purchase the new Long Life tobacco products to purchase old Long Life tobacco products with priority, but not because of the quality or prices of the new products. As a result, the measure might have impeded the fair competition in the tobacco market.
   (3) After considering the TTL's market share of almost 40%, being the top two in the market, and its action of taking advantage of the imbalance between market demand and supply to engage in tie-in sales, though the implementation period only lasted one month and had no conspicuous effect, the FTC ordered the TTL to cease any illegal action and imposed an administrative fine of NT$301,000 in accordance with the fore part of Article 41 of the Fair Trade Law.

Appendix:
Taiwan Tobacco & Liquor Corporation's Uniform Invoice Number: 03787101

Summarized by Lin, Hsin-Wen; Supervised by Wu, Pi-Ju