4 Major Bottling Plants in Chiayi County

Case:

Key Words:

bottled LPG, bottling plant, vertical competition, agreement

Reference:

Fair Trade Commission Decision of January 13, 2010 (the 949th Commissioners' Meeting)

Industry:

Other Fuel Retailers (4829)

Relevant Laws:

Subparagraph 1 of Article 14 the Fair Trade Law

Summary:

1. The FTC was informed that Long-hone Co., Ltd. (hereinafter referred to as Long-hone Bottling Plant or the 4th largest bottling plant) attempted to control the market by directly selling bottled LPG at lower prices. After investigation, the FTC concluded that the retail prices of bottled LPG in Chiayi County and Chiayi City matched with the supply costs. Although the said bottling plant cut unnecessary expenses by concurrently operating as a bottling plant and LPG retailer and brought in considerable profit, it also had to face competition from other bottling plants and LPG retailers at the same time. From the view of market mechanism, the conduct could actually stimulate both horizontal and vertical competition and bring multiple benefits. During the investigation, the FTC discovered that the impact of the direct selling at lower prices did not spread anywhere beyond Chiayi City and, as a consequence, caused a wider bottled LPG retail price gap between the county and the city. This was against the common sense of market mechanism thus the FTC initiated ex officio investigation.
2. Findings of the FTC after investigation: The bottled LPG markets in Chiayi County and Chiayi City were already saturated. Originally, there were 4 bottling plants, with Long-hone Bottling Plant being the smallest. When the 5th bottling plant was licensed and began its operation, Long-hone Bottling Plant, being the newest and having the smallest capacity among the 4 original ones, fell the impact and decided to change its operating model by retailing at lower prices directly to end users in Chiayi City and Puzih City. The effect of Long-hone's move on the LPG retailers in Chiayi County and Chiayi City was immediate, while the bottling plants also did not escape from the impact. To prevent the competition between the upstream bottling plants from endangering the stability of distribution of bottled LPG, the retail shops in Chiayi City and Chiayi County held frequent meetings and even invited all the 5 bottling plant owners to the meeting, with the intention of talking the 4th bottling plant out of selling directly at lower prices. They requested the bottling plants to coordinate with one another on LPG distribution and not to compete for customers or undercut the price, so that the business of the retail LPG shops would not deteriorate any further. Meanwhile, a number of LPG retailers in Chiayi County expressed their willingness to purchase 50 tons of LPG per month in exchange for termination of expansion of direct sales of bottled LPG to the Puzih area. The FTC's investigation discovered that the owners of Long-hone Bottling Plant and the 5th bottling plant did not get along. Long-hone Bottling Plant was competing with the 5th bottling plant by retailing at lower prices. At the same time, Long-hone, as a bottling plant, also met with the 3 other bottling plants at least twice at Dongsyuanyuan Restaurant in Chiayi City.
3. Reasoning:
   1. Although Article 14 of the Fair Trade Law stipulates that "No enterprise shall have any concerted action unless it has been approved by the central competent authority," sanctions on enterprises participating in concerted actions are based on actual illegal practices proven with evidences. The so-called "evidences" refer to direct or indirect witnesses or proof sufficient to confirm the illegal conduct. In other words, the evidences required to confirm the fact of crime are not limited to direct evidences but also includes indirect evidences. The so-called "indirect evidences" are those gathered to prove directly the existence of anther fact, while through this another fact, based on reasonable rule of thumb, the illegal action in question can be confirmed. In other words, if the direct evidence is not consistent with reasonable rule of thumb, it will not be accepted legally.
   2. When the LPG retailers in Chiayi City invited the 5 bottling plants to discuss and "request the bottling plants to coordinate with one another on LPG distribution and not to compete for customers by price undercutting, so that the business of the LPG retailers would not deteriorate any further," at the meeting, the 4th largest bottling plant demanded the 5th largest bottling plant to pull out from the bottling market and give up its bottling capacity and the clients but was rejected by the 5th largest bottling plant. Therefore, the likelihood of concerted action as a result of the 5 bottling plants' agreement not to compete for customers was eliminated.
   3. The aforesaid expression of willingness of a number of LPG retailers in Chiayi County to purchase 50 tons of LPG from the 4th largest bottling plant instead of from the 1st largest bottling plant in exchange for termination of direct sales of bottled LPG in Chiayi County was proven to be true.
   4. In addition, according to the testimonies and the market situation the FTC acquired, the market shares of the 5 bottling plants in the LPG distribution market of Chiayi County did not change much. In Chiayi City, however, changes did occur. With the exception of the biggest bottling plant, the market shares of the other 4 bottling plants all went up.
   5. There was no proof that the 4 top bottling plant owners had achieved any agreement on restriction of competition such as coordinated LPG bottling distribution, not competing for customers or undercutting each other's prices, or applying strategic blockade on the 5th bottling plant.

Summarized by:Liu, Chin Chih; Supervised by: Sun, Ya Chuan