Long-hone Corp.

Case:

Key Words:

Bottled liquefied petroleum gas (LPG), bottling plant, direct selling, price squeeze

Reference:

Fair Trade Commission decisions on September 27, 2008 (the 881st Commissioners' Meeting) and on January 13, 2010 (the 949th Commissioners' Meeting)

Industry:

Other fuel retailers (4829)

Relevant Laws:

Subparagraph 3 of Article 19 the Fair Trade Law

Summary:

1. Liquefied petroleum gas (LPG) is indispensable in our everyday life. Normally, the "suppliers" sell it through the "distributors" to bottling plants where it is pumped into steel bottles and distributed to LPG retailers that deliver to end users. The total monthly demand of the 200 LPG retailers in Chiayi County and Chiayi City is approximately 3,500 tons (the 66 LPG retailers need about 1,200 tons per month). Originally there were 4 bottling plants in Chiayi County and Chiayi City. When the fifth bottling plant opened for business in 2007, it brought an impact on the market structure and the market competition. Being the last one to enter the market and having the smallest bottling capacity among the 4 original plants, Long-hone Corp. (hereinafter referred to as the accused) changed its management strategy in October 2007. In addition to refilling LPG for and delivering the bottles to the retailers, it also started to sell bottled LPG directly to consumers. In other words, the accused was using its bottling plant capacity to run retail business and, consequently, this created a price squeeze on the LPG retailers.
2. Before the accused began direct selling of bottled LPG at lower prices, each business-use 20kg bottled LPG was sold for over 630 dollars. Yet the accused was selling it directly to consumers for 500 dollars, lower than the wholesale cost of some LPG retailers and at least 90 dollars cheaper than in Chiayi County. As a result, more than 10 LPG retailers in Chiayi City had to pull out from the market. Longhone was therefore accused of unfair competition out of the intention to control the market.
3. Reasoning:
   1. As prescribed in Article 4 of the Fair Trade Law, the term "competition" means any conduct of one enterprise to contest trading opportunities in the same market with another one or more enterprises by offering more favorable prices, quantities, quality, services or other conditions. Therefore, "competing by offering lower prices" is not considered a violation of the Fair Trade Law. If the conduct involves predatory pricing with the intention of monopolizing the market, Subparagraph 1 of Article 10 of the Fair Trade Law shall apply. On the other hand, if the conduct is not aimed at monopolizing the market but at selling products or services at prices noticeably aberrant from reasonable market price ranges as a means of competition, it is termed enticement with interest and Subparagraph 3 of Article 19 of the Fair Trade Law shall apply. Hence, if an enterprise contests for trading opportunities with lower prices that are still above the costs and the conduct does not lead to elimination of competition on the market, it is considered justifiable price competition and neither Subparagraph 1 of Article 10 nor Subsection 3 of Article 19 shall apply.
   2. When the accused managed a bottling plant and bottled LPG retail business in Chiayi City at the same time, its retail prices of business-use bottled LPG may have been lower than the wholesale prices it sold to the downstream LPG retailers. At the same time, the market shares of the aforementioned 4 bottling plants or market concentration was not significantly affected even though the accused had a 20% share of the LPG distribution market in Chiayi City. Consequently, its price-lowering promotion did not result in any monopoly or jeopardize the market mechanism. Moreover, market competition was still possible under the situation. Consumers could only benefit from the price lowering and direct selling, while, at the same time, no evidences showed that the selling price of the accused was lower than its purchasing cost. Therefore, the strategy of the accused to sell bottled LPG at lower prices did not constitute obstruction to fair market competition and could not lead to monopoly in the bottled LPG distribution market in Chiayi City. It was therefore impossible to establish that the conduct was in violation of of the Fair Trade Law.

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

Long-hone Corp.' Unified Business No.: 12918104