Easycard Corporation & DDPowers Corporation.

Case:

Key Word(s):

Conglomerate merger, bonus points, micro payment

Reference:

Fair Trade Commission Decision of April 2, 2014 (the 1169th Commissioners' Meeting)

Industry:

Other Information Service Activities Not Elsewhere Classified (6399)

Relevant Law(s):

Articles 6,11 and 12 of the Fair Trade Law

Summary:

1. DDPowers Corporation intended to raise capital and 8 companies, including Easycard Corporation, Chunghwa Telecom, Taiwan FamilyMart Co., Ltd., Itochu Taiwan Corporation, Itochu Corporation, Senao International Co., Ltd., MiTAC Information Technology Corporation, and Fubon Financial Holding Co., Ltd., intended to jointly invest in and operate DDPowers Corporation. The intended merger met the description set forth in Article 6(1)(iv) of the Fair Trade Law. Chunghwa Telecom met the description set forth in Article 11(1)(ii) of the Fair Trade Law by having more than one fourth of the telecommunication market share, and did not meet any of the exemptions set forth in Article 11-1 of the same law. Hence, the companies filed a pre-merger notification to the FTC.
2. The companies involved in the merger each provided different products and services, and although they would be jointly operating the bonus points business, it would be within the scope of their respective markets. Since the merger did not involve horizontal or vertical competition, it met the description of a conglomerate merger. The companies were in different markets, including telecom carrier, chain convenience store, micro-payment tools, 3C product distribution, and venture capital, where they each had market competitors. The payback rate of bonus points was currently quite low and could be easily replaced by other methods of competition. Moreover, bonus points did not create an entry barrier to the market. Hence, bonus points would not restrict competition in the telecom, chain convenience store, micro-payment tool, and 3C product distribution markets within the foreseeable future. The companies involved would possibly conduct joint marketing in the future, which would increase efficiency on the supply side and achieve economies of scale in satisfying consumer demand. Also, the companies involved would be expanding the scope of their business through joint investment, and would be sharing research and development and production cost, gaining economies of scope and further increasing their overall economic benefits. However, since the companies would be jointly investing in and operating the bonus points business, a "two-sided market", in which Chunghwa Telecom would be the leader of the telecom market, while Easycard Corporation has issued 42 million Easycards, which would make it the largest issuer of electronic stored value cards, the "network effects" of a "two-sided market" in this case creates the possibility for DDPowers Corporation to gain a monopoly over the bonus points market. In the long-term, the companies involved in the merger and other companies that may join in the future might engage in restrictive or unfair competition, such as concerted action, boycotting, differential treatment, and vertical restriction, which may result in restrictive competition in the telecom, chain convenience store, micro-payment, and 3C product distribution markets.
3. Grounds of disposition:
   

   After careful consideration of the aforementioned factors, the FTC believed that the overall economic benefits of this merger would be greater than the disadvantages from market competition restriction. However, to eliminate potential competition restriction and ensure the overall economic benefits, the FTC acted in line with Article 12(2) of the Fair Trade Law and attached the following conditions but did not prohibit the merger:
   

   (1)	All companies participating in the merger may not impel franchisers to cut off supply, purchase or conduct other transactions to harm a specific company.
   (2)	All companies participating in the merger may not impose improper conditions to restrict franchisers of DDPowers Corporation to deal exclusively with them.
   (3)	When conducting joint marketing, all companies participating in the merger and franchisers may not restrict the freedom of consumers to choose individual products.
   (4)	All companies participating in the merger may not obtain the personal information and transaction records of members of DDPowers Corporation.
   (5)	DDPowers Corporation may not reject the franchise application of companies other than those participating in the merger without proper cause.
   (6)	DDPowers Corporation may not give differential treatment, collect improper management fees, or conduct other transactions in terms of its bonus point services to companies not participating in the merger without proper cause.
   (7)	DDPowers Corporation shall submit its directions for collecting, handling, and using the personal information and transaction records of its members to the FTC one month before recruiting members, and shall announce the directions on its website before the directions take effect.
   (8)	DDPowers Corporation shall submit its directions for recruiting franchisers to operate its bonus points business to the FTC one month before recruiting franchisers, and shall announce the directions on its website before the directions take effect.
   (9)	DDPowers Corporation shall provide the following information to the FTC before the end of March every year within five years after this merger: its revenue in the previous year, number of members, amount of bonus points redeemed and ratio, number and name of franchisers, and new businesses not recorded in the declaration statement.

Appendix:
Easycard Corporation's Uniform Invoice Number: 28988941
DDPowers Corporation's Uniform Invoice Number: 53340231

Summarized by Jan, Lih-Ling; Supervised by Kuo, An-Chi