Lian-Hong LPG Bottling Co.

Case:

Key Words:

bottled LPG, bottle inspection, Kinmen

Reference:

Fair Trade Commission Decision of November 23, 2011 (the 1046th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 100228

Industry:

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

Relevant Laws:

Subparagraphs (ii) and (iii), Article 19 of the Fair Trade Law

Summary:

1. When the FTC visited Kinmen County in 2010 to check the local bottled LPG market, certain LPG shops complained that Lian-Hong LPG Bottling Co., Ltd. (hereinafter referred to as Lian-Hong), who operated the only local LPG bottle inspection center, charged LPG shops that did not have their bottles refilled by Lian-Hong a higher bottle inspection fee to force them to turn to Lian-Hong for LPG bottle refilling. Besides restricting the liberty of local LPG shops to choose the plant for refilling, Lian-Hong's conduct also had an effect on the competing bottling plant run by the Farmers' Association. Suspecting the conduct was in violation of the Fair Trade Law, the FTC therefore initiated an ex officio investigation into the matter.
2. Findings of the FTC after investigation:
   (1) In 2002, there were three bottling plants in Kinmen: Lian-Hong, Fujian Bottling Plant, and the Farmers' Association's Bottling Plant. Fujian Bottling Plant closed down in 2003 and this left two competitors in the market. In addition to the bottling business and three LPG shops under its direct management, Lian-Hong also operated the only LPG bottle inspection center and therefore definitely had its market dominance in Kinman.
   (2) When Lian-Hong began to offer the bottle inspection service at the end of 2001, the competent authority approved the company to inspect 2,200 bottles per month. After August 2007, the number was increased to 2,975. However, the utilization rate of Lian-Hong's bottle inspection capacity stayed, on average, below 50%. In recent years, as a result of the fire department's strict demand, the numbers of bottles sent in for inspection went up considerably. LPG shops reflected that Lian-Hong not only delayed the inspection time but also imposed a limit on the number of bottles to be sent in. This put a restriction on the business operations of the LPG shops.
   (3) The average sales made by the three LPG shops directly run by Lian-Hong accounted for about 31.01% of the total market between July 2009 and July 2010, yet the rate of inspection of bottles from them achieved 34.96% whereas two other LPG shops that had turned to Lian-Hong for refilling after Fujian Bottling Plant closed down had sales making up 14.25% and 9.58% of the total market respectively but the average rates of their bottles inspected were merely 9.72% and 7.24%.
   (4) In the past, there was an LPG shop that had its bottles refilled at both Lian-Hong and the Farmers' Association's bottling plant. When Lian-Hong learned about this fact, it immediately warned the said shop not to have any refilling done at the Farmers' Association's bottling plant again, otherwise the bottle inspection fee the said shop was charged would be raised. The shop tried to reason with Lian-Hong but to no avail and the bottle inspection fee went up. Eventually the shop had to sever its business relations with the Farmers' Association's bottling plant and have its refilling done only by Lian-Hong since the bottle inspection fee raise had increased its management cost.
3. Grounds for disposition:
   (1) Normally when an LPG shop makes good sales, the turnover rate of its LPG bottles is high and more LPG bottles will be needed to cope with the market demand. If bottle inspection cannot be conducted in time, the LPG shop will have to purchase more new bottles. This will not only increase its management cost but also have an effect on its business scale. The ratios of bottles from different LPG shops inspected by Lian-Hong and the testimonies made by some LPG shops regarding the quantity of bottles piling up and waiting for inspection at the inspection site showed that Lian-Hong was indeed partial to its own LPG shops and intentionally treated other shops discriminatorily to suppress the bottle turnover rate and business scale of other shops so that the other shops were put in a disadvantageous position in competition on the retail market. The conduct was in violation of Subparagraph 2, Article 19 of the Fair Trade Law and the FTC imposed on Lian-Hong an administrative fine of NT$600,000.
   (2) After finding out that certain LPG shops were going to the Farmers' Association' bottling plant for refilling, Lian-Hong used increase of bottle inspection fee as a threat to force them not to have their bottles refilled at the Farmers' Association's bottling plant again. The conduct indirectly jeopardized the competitiveness of the Farmers' Association's bottling plant in the bottle refilling market and this violated Subparagraph 3, Article 19 of the Fair Trade Law. Accordingly, the Commission imposed an administrative fine of NT$400,000 on Lian-Hong.

Appendix:
Lian-Hong LPG Bottling Co., Ltd.'s Uniform Invoice Number: 97178875

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