The Fair Trade Commission initiated an investigation on the successive adjustments of wholesale gasoline prices by the two largest gasoline suppliers in Chinese Taipei after they were punished for violating concerted action regulations, determined whether such successive price adjustments have violated the Fair Trade Law

Chinese Taipei

Case:

Key Words:

Monopoly, improper pricing

Reference:

Fair Trade Commission Decision of March 30, 2006 (the 751st Commissioners' Meeting), Letter Kung Er Tzu No. 0950002811, 0950002812, 0950002813, 0950002814 of April 3, 2006

Industry:

Other Petroleum and Coal Products Manufacturing (1990)

Relevant Laws:

Article 10 and Article 14 of the Fair Trade Law

Summary:

1. This case originated from decision of the Fair Trade Commission (FTC) made in October 2004 to render punishment on Chinese Petroleum Corp. (hereinafter referred to as "CPC') and Formosa Petrochemical Corp. (hereinafter referred to as "FPCC") for their concerted actions in price adjustments. The FTC has monitored the price adjustment conducts of the said oil suppliers since then; and initiated another investigation on March 14, 2005. Both oil suppliers have adjusted prices seven times since they have been punished, including four price hikes and three price cuts from December 2004 to the end of February 2006.
2. Upon investigation, the FTC found that the seven price adjustments of CPC and FPCC made after the punishment were handled differently from the past. Formerly, both parties made an advance announcement of price adjustment. Such changes included both parties made same adjustment margin at different points of time; both parties did not adjust prices simultaneously and there was even price competition; the competitor did not follow price hikes; no advance announcement of price adjustment was made through media, the price adjustment was made and become effective right away. In particular, FPCC took the lead and raised prices on August 31, 2005 but CPC did not follow price hikes. As a result, FPCC faced with the withdrawals of gasoline stations and reduction of oil delivery. Moreover, the FTC has sent staffs to carry out maneuverable investigations whenever the two oil suppliers raised wholesale prices. Such investigations found that many chain gasoline stations did not adjust their retail prices immediately, there were also gasoline stations did not follow the adjustment because they were holding price reduction promotion, or they were instead adopting reverse operation to reduce price for sales increase; therefore, the consumers had various end user retail prices and more selections. Furthermore, the investigation of the FTC showed that the oil suppliers had raised the wholesale prices mainly because the price of international crude oil continued to rise. Their import declarations were evidences showing that the costs of their crude oil imports indeed had similar trend of increase.
3. Grounds of Non-disposition:
1. The FTC did not detect any unlawful circumstances of meeting of minds or improper pricing in the price adjustments of CPC and FPCC. However, the FTC still sent letters to both oil suppliers reminding them not to violate laws or affect trading order in their future price adjustments.
2. Presently, the energy competent authority has already supervised domestic gasoline price adjustment. In order to avoid market interference and distort pricing mechanism, the government authority will only step in to pay close attention on the market price of gasoline when the gasoline price has great fluctuation. For the sake of deliberation, the FTC adheres to the principle of constructive and discretion in the intervention of gasoline market price according to laws. The FTC follows four major principles of "expecting market mechanism become effective", "respecting the supervision and administration of the industry competent authority", "conducting necessary intervention and investigation" and "consulting about measures for the adjustment of market structure" in the intervention of gasoline market price.
3. The FTC still pays great attention on the gasoline prices of CPC and FPCC and their subsequent price adjustments. If they have any concerted actions again, they may face a fine of not exceeding NT$ 50 million each as this is not their first offense. They will also face a criminal liability of fixed-term imprisonment not exceeding three years, or detention in lieu thereof or in addition thereto, a fine of not exceeding NT$ 100 million. In addition, both oil suppliers must refer to the reasonable international oil price and its correlation with the purchase price when they adjust gasoline prices in response to the cost pressures. The symmetric variations between the margin of price increase, the frequency of price adjustments, price adjustment and each key factor are studied to determine if both oil suppliers have abused their monopolistic powers in the pricing. Just as the previous occasions of law enforcement, the FTC will vigorously investigate and resolve price adjustment on a case-by-case basis in accordance with the Fair Trade Law when the situation has arisen.

Summarized by Yang, Chia-Hui;
Supervised by Lin, Kin-Lan

Appendix:
Chinese Petroleum Corp.'s Uniform Invoice Number: 03707901
Formosa Petrochemical Corp.'s Uniform Invoice Number: 86522210