Jiaxiang Box Lunch Food Processing Plant

921st Commissioners' Meeting (2009)

Case:

Key Words:

box lunch, member certificate, check, bid

Reference:

Fair Trade Commission Decision of July 1, 2009 (the 921st Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 098095

Industry:

Box Lunch Manufacturing (0899)

Relevant Laws:

Article 19(4) of the Fair Trade Law

Summary:

1. Jiaxiang Box Lunch Plant (hereinafter referred to as Jiaxiang) is the Chairman of Taichung County Box Lunch Guild (hereinafter referred to as TCBLG). It requests members to issue a NT$ 400,000 check or sign an affidavit for abiding TCBLG resolution in auctions; otherwise, member certificate will be withheld.
2. Investigation and Result: the FTC consulted with the Taichung County Government, TCBLG and Jiaxiang; the following is the summary result:
   1. Most box lunches in elementary or junior schools in Taichung County are supplied by TCBLG members. During academic year 2008, the price for school meals in Taichung County is between NT$ 40 to NT$ 43; but some schools intend to lower the bid price for school meal in academic year 2009.
   2. Most schools in the Taichung County held auctions for box lunches once every academic year. The auction will be conducted between mid May to late August; more than half of the schools request bidders in the auction to provide member certificate of the Box Lunch Guild in its county or city as a qualification. The member certificate is issued twice a year, each effective for 6 months (one for January 1 to June 30, and the other for July 1 to December 31). Members of TCBLG all apply for member certificates twice a year to qualify for the auction.
   3. When it is time to issue member certificate for the first half of 2009, Jiaxiang requests members to comply with TCBLG's resolution: members may not participate in auctions for school meals if the bid price is lower than NT$ 43 dollars in 3 bids; besides, members must sign a NT$ 400,000 checks or affidavits (warranting that members will not participate in auctions where a bit price is lower than NT$ 43 in 3 bids and members shall comply with TCBLG's resolutions) as a warranty, otherwise they will not receive the member certificate. However, TCBLG has never made such a decision. The FTC found that some TCBLG members were rejected the member certificate by Jiaxiang because they did not sign the NT$ 400,000 check or affidavit; some signed the affidavit just to acquire the member certificate.
3. Grounds for disposition
   1. Subject: TCBLG did not resolve on the following matter: members shall not participate in auctions where a bit price is lower than NT$ 43 in 3 bids; besides, members shall sign a NT$ 400,000 check or affidavit. Jiaxiang obvious exceeds the authority of TCBLG Chairman. Jiaxiang shall account for the action as an individual.
   2. Subjective intent to restrict competition: even though schools specify price for school meals in the auction notice, such price have to be higher than two or more enterprises' “preservation price” (the lowest supply price an enterprise is willing to participate in the auction for school meals.) Otherwise, the bid will fail. Jiaxiang made use of TCBLG's name and notified members that the guild has made the following resolution: members may not participate in auctions with a bid price lower than NT$ 43 dollars in 3 bids; members have to sign a NT$ 400,000 check or affidavit as a warranty. Thus, members will refuse to participate in school meal auctions with a bid price lower than NT$ 43; such auction will fail due to insufficient bidders. By restraining members in auctions, Jiaxhang intends make the school meal auction fail. Schools are thus forced to increase bid price for meals accordingly. The action is a vertical concerted action that indirectly affects the price for school meals. The intention is to restrict price competition.
   3. Means and impacts on market competition:
      1. Restricted by distance (the distance from factory to school) and capacity, only a few enterprises outside Taichung County join the auction; those enterprises supply merely a low percentage of school meals in Taichung County. Most school meals in Taichung County are provided by the 20 TCBLG members.
      2. To qualify for school meal auction, TCBLG members all apply to Jiaxiang for member certificates in the first and second half of the year. School meals are usually auctioned between mid May to late August. If a members does not comply with Jiaxiang's instruction or request (for example, it does not issue a check or sign the affidavit, or it participates in an auction with bid price lower than $43 in May or June), Jiaxiang will withhold the member certificate for the first and second halves of 2009 as a punishment, or the check will be cashed and the affidavit will be reviewed by other members. Members worried that the right to bid may be affected if they do not receive the member certificate, checks may be cashed, or they may be criticized by other members. Therefore, they were forced to comply Jiaxiang's instruction.
      3. As mentioned above, Jiaxiang shall, as chairman of TCBLG, issue member certificate to members. However, it abuses the power of TCBLG chairman, requests members to follow instruction unitarily, determines criteria for issuance of member certificate, and requests members to issue a NT$ 400,000 check or affidavit as warranty for compliance. Members were forced to comply in fear of not receiving the member certificate, criticized by other members, or losing the check. Thus, Jiaxiang uses the member certificate, NT$ 400,000 check and affidavit as means to control TCBLG members in the auctions.
      4. In the disputed case, even though schools determine the price and criteria for school meals (e.g. number of dishes, with or without fruit, the number of bid winners), TCBLG and its members can still indirectly influence the price formation of the school meals. In other words, if members were forced to comply with Jiaxiang's instruction and did not participate in auctions with a bid price lower than NT$ 43 dollars for three bids, then during academic year 2009, auctions for school meal may fail in schools that set a bid price below the said standard, simply because there are no enough bidders. Schools will be forced to increase the bid price to avoid a failed bid resulting the short of school meals. The final price for school meals is thus affected.
   4. In order to eliminate price competition among TCBLG members, Jiaxiang requests compliance as a condition for issuing member certificate. Members are also request to sign a NT$ 400,000 dollar-check or affidavit as warranty. Members are thus threatened and may not bid independently on their own will. Members were restricted to reach a single reservation price (i.e. members will not participate in auctions where a bit price is lower than NT$ 43). As a result, auctions may fail or schools may have to increase bid price, affecting the supply price for school meals. After considering relevant factors, Jiaxiang was ordered to cease the above illegal activities; and an administrative fine of NT$ 600,000 was imposed.

Appendix:
Jiaxiang Box Lunch Plant's Uniform Invoice Number: 18315262
Summarized by Yang, Chung-Lin; Supervised by Hung, Shui-Hsing