Holiday Entertainment Co., Ltd. & Cashbox Partyworld Co., Ltd.

Case:

Key Words:

exclusive purchase, monopoly abuse, entry barrier

Reference:

Fair Trade Commission Decision of March 8, 2007 (the 800th Commissioners' Meeting); Letter (96) Kung Jye Tzu No. 096002 issued on March 9, 2007

Industry:

Audiovisual & Singing Services (9322)

Relevant Laws:

Article 6 ,11and 12 of the Fair Trade Law

Summary:

1. Holiday Entertainment Co., Ltd. (hereinafter called "Holiday") and Cashbox Partyworld Co., Ltd. (hereinafter called "Cashbox") filed a merger report to the FTC on December 27, 2006. Both enterprises of the merger were in the audiovisual and singing services. Holiday planned to acquire and merge with Cashbox in the form of Holiday being the remaining company and Cashbox the acquired company. Since the merger in question would cause these two enterprises to have more than one-third of market share, and therefore, fell under the threshold prescribed in the Fair Trade Law, the enterprises participating in the merger in question filed a merger report to the FTC.
2. Findings of FTC after investigation: Though the merger region encompassed the whole nation, the affected "geographical markets" were those individual counties/cities with planned short-range communication network or their adjacent counties/cities. For example, Taipei County and Taipei City shall be considered as one geographical market for there are dense bus and metro networks between the two areas. In 2005, the enterprises of the merger had more than 90% market share in Taipei County and Taipei City. The merger would give these two enterprises a monopoly position. In addition, if the proposed merger did take place, since their sales amount already exceeded half of the total sales amount of the audiovisual and singing services in the nation, these two enterprises would become exclusive purchasers of karaoke tapes, sold by the upstream businesses.
3. The FTC found the competition restraints of the merger in question as follows: (1) Unilateral Effects: If the merger in question did take place, the two enterprises would turn out to be the monopolist in Taiwan County and Taipei City. No other business operators would have the ability to compete with said enterprises. As a result, said enterprises would have the ability to unilaterally raise their service remuneration. Moreover, without sufficient pressure of competition, monopolies tend to be reluctant to lower their costs, engage in products innovation, or improve service quality. Therefore, the consumer's rights and interests would be deeply affected. (2) Entry Barriers: Though the major fixed costs of the audiovisual and singing services industry is merely 25% to 30% of the total costs, the most influential entry barrier is whether a new enterprise can purchase karaoke tapes from the agencies under reasonable conditions. Since the enterprises of this merger had already held superior position in channels, they had substantial influence on the upstream karaoke tape agencies. If the enterprises of the merger requested the karaoke tape agencies to discriminate any new fringe firms entering the audiovisual and singing services industry, it would definitely eliminate the possibility and timeliness for the new businesses to enter the market and further affect the competition. (3) Power to Balance: The final trading counterpart of the audiovisual and singing services enterprises is the individual consumer. If the enterprises of the merger in question merged and became a monopolist in the market of Taipei County and Taipei City, the consumer would not be able to balance said enterprises when these enterprises decided to raise service remuneration. According to the enterprises of the merger, the proposed overall economic benefits should include: (1) synergy generated by scale economy and large-scale operations; (2) downstream businesses' ability to negotiate; (3) enhancement of international competitiveness; (4) provision of job opportunities to produce internationalized talents; (5) reallocation of resources to towns and townships developing local economy and increasing taxation income. However, the FTC found it unnecessary to eliminate market competition for the aforesaid benefits to take place. Therefore, the FTC determined that the disadvantage resulting from the competition restraints would outweigh the advantage of overall economic benefits and prohibited the merger report in accordance with Article 12(1) of the Fair Trade Law.

Appendix:
Holiday Entertainment Co., Ltd.'s Uniform Invoice Number: 84256265
Cashbox Partyworld Co., Ltd.'s Uniform Invoice Number: 22327867