Bottled LPG

Case:

Key Words:

bottled LPG supplier, distributor, bottling plant

Reference:

Fair Trade Commission Decision of September 21, 2010 (the 985th Commissioners' Meeting)

Industry:

Retail Sale of Other Fuel Products in Specialized Stores (4829)

Relevant Laws:

Article 14 and Subparagraph 2 of Article 19 of the FTL

Summary:

1. The media reported in February 2010 that the price difference per LPG bottle among domestic counties or cities could be as high as NT$210, even in the same county or city it could be over NT$100. The FTC therefore initiated an investigation to find out if related LPG businesses had undertaken any conducts in violation of Article 14 and Subparagraph 2 of Article 19 of the Fair Trade Law (FTL).
2. The domestic bottled LPG market structure is basically divided into four levels, namely production and importation (the suppliers), distribution, bottling, and retailing (the LPG shops). The following is a general description of the market:
   1. The suppliers: Currently there are three LPG suppliers in the country. They are China Petroleum Corporation, Taiwan (hereinafter referred to as CPC), Formosa Petrochemical Corporation (hereinafter referred to as FPC), and LCY Chemical Corp. (hereinafter referred to as LCY). As LCY only imports a relatively small amount of LPG and thus CPC and FPC are the two major suppliers.
   2. The distributors: At present, there are ten distributors under the two major suppliers, seven of them belongs to the CPC distribution system and three the FPC system.
   3. The bottling plants: There are 112 LPG bottling plants in the country currently. Market competition among the LPG bottling plants is fierce and most of them run cross-country/city operations.
   4. The LPG shops: The threshold for setting up an LPG shop is low and there are currently over 3,400 of them across the country. Since their trading counterparts are mostly end users (including restaurants, street stands, etc.), high mobility is required. Most shops deliver LPG bottles by motorcycle and normally operate within the radius of 5-10 kilometers.
3. The suppliers, distributors, bottling plants and LPG shops had not conducted any of the concerted action described in Article 14 (1) of the FTL. The explanation is as follows:
   1. The suppliers: CPC has adopted the Floating Gas Price Mechanism since January 2007. Based on the CP prices at the beginning of each month, the company determines and announces the LPG prices according to the calculation measure approved by the government. The prices are public information and apply to all distributors. Since CPC has a larger market share and the prices are information accessible by the public, FPC, not without taking its own production and marketing capacity into account, often follows the LPG price adjustments of CPC but decides the actual prices in accordance with the trading terms with different distributors and the condition of competition in the local market. The synchronized price fluctuations over the years have been the result of CPC's price leadership. The FTC's investigation revealed that both suppliers had been selling LPG to their distributors at different prices and there were no concrete evidences at all showing that the two enterprises had established any contract or agreement that resulted in any joint pricing or other conduct in violation of the FTL.
   2. The distributors: The FTC's investigation showed that the price increases made by the distributors between July 2009 and February 2010 ranged between 27.8% and 31.96%, generally lower than the their cost increases (29.18% to 34.85%) when they purchased from the suppliers. Each distributor had its own pricing strategy and the prices and price increases therefore differed. The evidences available did not point to any joint price increase.
   3. The bottling plants: Most of the bottling plants raised their selling prices between July 2009 and February 2010 by 20% to 28%. Again, these increases were generally lower than the incoming wholesale prices the distributors paid and each bottling plant, due to the pricing policy, sold LPG at rather different prices and price increases. The evidences available did not prove any joint price increase.
   4. The LPG shops: The FTC's investigation revealed that the large retail price differences in various counties and cities had been the consequence of the geographic environment, severity of competition and rents in different retail markets over the years. The retail prices within the same county or city between July 2009 and February 2010 also varied significantly, with the price difference per bottle ranging between NT$15 and NT110 without any consistency at all. The price differences between counties and cities were huge and the difference in price increases was also quite large, falling between 14.1% and 26.36% but still smaller than the cost increases for the shops (20% to 28%.) Moreover, as each county or city had a large number of LPG shops and product homogeneity was high, price competition on the market was fierce and no price or price increase consistency was discovered. The evidences available did not show any joint price increase.
4. It is determined that the suppliers, distributors, bottling plants and LPG shops had made no discriminative treatment described in Article 19 (2) of the FTL. The explanation is as follows:
   1. The suppliers:
      1. CPC had over 60% of the market share and signed a 2-year contract with its distributors for each contract renewal. Each distributor established its pricing policy mainly in accordance with the location where it picked up the supply. CPC supplies at prices decided according to the location where the supply was provided and the prices were public information and applied to all of CPC's distributors. After agreeing on the terms and entering the contract with CPC, each distributor, depending on its business condition, could propose to revise the amount of LPG it was supposed to sell each month. Available evidences at the present time did not show that CPC had taken advantage of its market position to place any competition restrictions on its distributors or undertake any conducts that could have hampered fair market competition in violation of Subparagraph 2 of Article 19 of the FTL.
      2. FPC occupies about 30% of the market share. It signed a 3-year contract with its distributors for each contract renewal. Besides providing the amount of supply the distributor proposed as able to sell, FPC also gave different and even high discounts in accordance with the supply amount and transportation distance to encourage the distributors to work harder and expand the market share and the distributors were aware of the discount policy. Available evidences did not show that FPC had adopted any discriminative treatment against any distributors in violation of Subparagraph 2 of Article 19 of the FTL.
   2. The distributors: Among the ten distributors in the country, only two of them had a market share of more than 10% for the distribution market. Findings of the FTC's investigation showed that these two major distributors had adjusted their price policies in line with the condition of competition in the market and for bottling plants that had to seek supply from different distributors to meet their demand. Bottling plants interviewed by the FTC also acknowledged that they had to seek supply from a single or multiple sources because of their different business considerations. Based on the above, despite the two major distributors had occupied more than 10% of the market share and were in a relatively advantageous market position against the bottling plants, they still had to determine their prices in accordance with market competition, transportation distances, ways of payment from the customers (including factors of cash payment and check clearing period length) and the amount of supply acquired. In other words, the distributors would be unable to determine the prices unilaterally. The available evidences did not show that the two major distributors had imposed any competition restrictions or unjustifiable discriminative treatment that could obstruct fair market competition.
   3. The bottling plants: There were around 120 bottling plants in the country. Market competition was fierce and LPG shops could choose to get supply from a single bottling plant or different bottling plants due to their own business concerns. This broke the past limitation that LPG shops could only get supply from the bottling plant that issued the refill certificate in order to obtain their business permits. In other words, the situation in which LPG shops had to rely on a specific or sole bottling plant for supply no long existed. Since LPG shops could freely decide where to get their supply, the bottling plants had no reason to apply any discriminative treatment without justification.

Summarized by: Wang, Hung-Chu; Supervised by:Sun, Ya-Chuan