Pet Food and Supply Businesses in Tainan City

1248th Commissioners’ Meeting (2015)

Case:

Pet food and supply businesses in Tainan City violated the Fair Trade Law by meeting and jointly deciding not to engage in price competition

Keyword(s):

Pet food and supplies, meeting, price competition

Reference:

Fair Trade Commission Decision of October 7, 2015 (the 1248th Commissioners’ Meeting), Disposition Kung Ch’u Tzu No. 104100

Industry:

Retail Sale of Other New Goods in Specialized Stores (4852)

Relevant Law(s):

Article 14(1) of the Fair Trade Law in effect at the time of the conduct

Summary:

1. The FTC was informed that the large chain pet food supply businesses in Tainan City held meetings in 2013 and jointly decided to request upstream suppliers to impose price control. If the suppliers did not comply, the said businesses would remove their products off the shelves. The informer refused to cooperate and raise prices and was cut off supply as a consequence.

2. Findings of the FTC after investigation:

   (1)

   In 2013, Oscar, FishPet Co., Ltd. and some other large pet food and supply chains offered price markdowns for promotion during the opening periods when they set up new branches in Tainan City. In response, existing stores also reduced prices to compete and the prices of some items were even lower than the wholesale prices of their suppliers. The competition in the market became fiercer and the profit rates were affected. In order to prevent further price competition from reducing profit margins, FishPet Co., Ltd. (hereinafter referred to as FishPet), Ai Nuo Pet Supplies and other pet supply chain operators therefore requested the chairperson of Tainan City Pet Supply Business Association to invite pet supply retailers and upstream suppliers to attend the “Tainan City Pet Supply Business Meeting” on September 9, 2013 in order to reach consensus on stabilizing pet food and supply prices in the Tainan area to ensure reasonable profits for each retailer.

   (2)

   During the “Tainan City Pet Supply Business Meeting” held on September 9, 2013, the attendees discussed and criticized that the price competition practices adopted by Pets Noble Co., Ltd. had affected the price margins of other businesses in Tainan City. FishPet then urged retailers to unify retail prices instead of engaging in price competition while proposing to request upstream suppliers to cut supply on retailers that refused to cooperate. WonderPet Co., Ltd., (hereinafter referred to as WonderPet), Pet Kingdom Co., Ltd. (operator of Oscar Pet and Aquarium Product Hypermarket), Xu Hai Aquarium and Pet Supplies Co., Ltd. (hereinafter referred to as Xu Hai), and Ai Nuo Pet Supplies supported the proposal and expressed one after another that price stability had to be maintained and no one should engage in price competition. The suppliers attending the meeting promised to cooperate to stabilize retail prices of pet food and supplies in the Tainan area. After the meeting, B&W Enterprise Co., Ltd., Blackwood Co., Ltd., VF Pet Products International Co., Ltd. and Hong Miao Pet Products Co., Ltd., some of the largest domestic pet food suppliers, acted in accordance with the above request proposed by FishPet and demanded Pets Noble Co., Ltd. to raise the prices of their products to 85% or 90% of their suggested prices. Pets Noble Co., Ltd. complied and raised the prices of Pro Plan, Nutro and Solution pet food products but did not increase the prices of Royal Canine pet food products. Consequently, its supply was cut off by B&W Enterprise Co., Ltd.

3. Ground for disposition:

   (1)	The pet food and supply retailers, namely FishPet, WonderPet, Pet Kingdom, Xu Hai, Northern Kaohsiung Aquarium Co., Ltd., Ai Nuo Pet Supplies and Mei Zi Dog Beauty Shop, who participated in the concerted action, were horizontal competitors and should have attracted customers with better prices, quantity offers, quality and service. In other words, these retailers should have acted according to their management advantages to determine whether to compete by offering better prices or services. However, in order to prevent Pets Noble Co., Ltd. from continuing to engage in price competition and affecting their profit margins, they held the Tainan City Pet Supply Business Meeting and jointly decided not to engage in price competition as well as request upstream suppliers to impose retail price control and cut supply to those refusing to cooperate with them. The conduct retrained the freedom of retailers in the relevant market to set their own prices and engage in price competition. The interests of consumers were also jeopardized because there was no competition among the retailers and the competition mechanism in the relevant market was affected.
   (2)	FishPet, WonderPet, Pet Kingdom, Xu Hai, Northern Kaohsiung Aquarium Co. Ltd., Ai Nuo Pet Supplies and Mei Zi Dog Beauty Shop together accounted for 17.34% market shares of the pet food and supply in Tainan City. Plus, FishPet, WonderPet and Pet Kingdom were large retail chains operating nationwide while Xu Hai and Northern Kaohsiung Aquarium Co., Ltd. were also chains with outlets in several counties and cities. These businesses had many branches and their sales revenue was high. They were the major trading counterparts of upstream suppliers and they had considerable influence on the suppliers. After the meeting on September 9, 2013, all of the major pet food suppliers, B&W Enterprise Co., Ltd., Hong Miao Pet Products Co., Ltd., VF Pet Products International Co., Ltd. and Blackwood Co., Ltd., demanded Pet Noble Co., Ltd. and other retailers to cooperate and raise their prices. Pets Noble Co., Ltd. complied and raised the prices of Pro Plan, Nutro and Solution pet food products but did not increase the prices of Royal Canine pet food products. Consequently, its supply was cut off by B&W Enterprise Co., Ltd. The concerted action not only stopped retailers from engaging in price competition but also weakened competition in the pet food and supply market in Tainan City and therefore constituted a violation of Article 14(1) of the Fair Trade Law.
   (3)	The motive behind the illegal conduct of the abovementioned businesses to meet and make the decision to prevent one another from engaging in price competition and affecting their profit margins was malicious, causing great harm to the trading order in the relevant market. After assessing the involvement of each enterprise, its business scale and sales, the FTC cited the first section of Article 41(1) of the Fair Trade Law in effect at the time of the above conduct and imposed an administrative fine of NT$4 million on FishPet, NT$3 million on Pet Kingdom, NT$2.5 million on each of WonderPet and Xu Hai, NT$500,000 on Ai Nuo Pet Supplies, NT$300,000 on Northern Kaohsiung Aquarium Co., Ltd. and NT$50,000 on Mei Zi Dog Beauty Shop.