LPG Bottling Plants and Distributers in Chiayi City

Case:

Key Words:

bottled gas (liquefied petroleum gas), open exchange of market information, deviation detection

Reference:

Fair Trade Commission Decision of February 8, 2012 (at the 1057th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 101013

Industry:

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

Relevant Laws:

Article 14 of the Fair Trade Law

Summary:

1. As a result of Long Hong LPG Bottling Plant directly retailing LPG at lower prices, the bottled LPG in Chiayi City had been the cheapest in the country between 2008 and 2010. However, the LPG distributers in Chiayi made use of the "Suggested Prices for LPG for Household Use" announced by the Ministry of Economic Affairs on December 7, 2010 for different regions and jointly increased the prices of bottled LPG during the period that the government declared LPG prices should not to be raised. As a consequence, each bottle of LPG, originally selling for NT$750 in December 2010 and lower than the announced suggested price range of NT$778 to NT$841 for southern Taiwan, was increased to NT$840, pushing close to the upper limit of the suggested range, in January 2011. After receiving several complaints, the FTC thought it necessary to find out whether joint price increase was involved and therefore initiated the investigation.
2. On January 2, 2011, Long Hong first posted in a newspapers advertisement about the imminent price increase and also proclaimed that its current customers would be given a three-day buffer period, which was actually designed with the purpose of having the competitors to follow suit. After the public announcement of price increase by Long Hong, 50 other distributers contacted one another to make sure everyone would make a price increase to reduce the risk of competition from any retailer that chose to act against price increase, before they increased the price one after another. Afterwards, the said distributers and Long Hong telephoned other distributers to inquire about their prices and establish their consensus of not to compete for customers in order to strengthen the concerted action. Among the 51 distributers, 41 of them raised the price per bottle to NT$840, while 43 of them admitted having exchanged information and reaching the agreement on price increase and 24 of them confessed to have reached the consensus of not to compete for customers. In addition, among the 41 distributers increasing the price per bottle to NT$840, 37 of them turned out to make better sales whereas 2 of the 10 that did not increase to NT$840 per bottle suffered a sales setback.
3. Grounds for disposition:
   1. When Long Hong publicly announced in a newspapers advertisement its price increase intention, it was already an "open invitation" to solicit the agreement of other distributers. By doing so, Long Hong apparently expected positive response in spite of the illegality of the conduct of single-sided proclamation of price increase. Such expectation could not have been possible without certain degree of consensus established in advance. Otherwise, it was unlikely that over 80% of the local distributers would adjust their price to Long Hong' s target of NT$840 per bottle of LPG and the remaining distributers, close to 20%, also made their price adjustments while there was no significant cost increase of LPG. Furthermore, those making the price adjustment first did not lose any customers whereas the ones not raising the price all the way to NT$840 did not gain any new customers. This was a phenomenon absolutely inconsistent with the principle of market competition. Undoubtedly, it was a concerted action through pre-establishment of consensus and the market mechanism was jeopardized. Consequently, all the businesses involved were given sanctions.
   2. As a result of the aforesaid joint price increase by the LPG distributers in Chiayi City, the retail price became unjustifiably higher in February 2011 than in December 2010 while the LPG purchasing cost in February 2011 was actually lower than in December 2010. There was no doubt that the said 51 businesses made undue profits. Considering the motive and purpose of the unlawful act, the scale and management condition of the businesses involved, the type of the unlawful act, and the level of damage thereof incurred to the order of competition and market structure, the FTC imposed on the said parties administrative fines ranging from NT$50,000 to NT$4,000,000.

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

Appendix:

The Fines Imposed on the 51 LPG Distributers in Chiayi City
for the Joint Price Increase Case