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Restriction of outlet stores location on branded produc

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Restriction of outlet stores location on branded product suppliers (outside a ... 2. satisfy consumers with the need of 'one-stop shopping' ... – PowerPoint PPT presentation

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Title: Restriction of outlet stores location on branded produc


1
Detecting Common Types of Abuses of Dominance
Experience from Taiwan
  • Lin Gin-Lan
  • Section chief of TFTC

2
Abuse of dominance (Misuse of market
powerMonopolisation)Common Types(1)
  • 1. Excessive pricing
  • 2. Predatory pricing selling at below cost for
    the purpose of driving out competitors
  • 3. Refusals to deal

3
Common Types(2)
  • 4. Price discrimination a practice where by a
    firm charges different customers or classes of
    customers different prices for the same good for
    reasons unrelated to costs
  • 5. Exclusive dealing requiring a retailer or
    distributor not to sell products competing with
    the supplier's products
  • 6. Tie-ins

4
Common Types(3)
  • 7. Third line forcing requiring purchasers of
    one product to purchase other products from named
    suppliers
  • 8. Territorial restrictions the retailer or
    distributor may not resell outside of a defined
    territory
  • 9. Customer restrictions the retailer or
    distributor may only deal with specified
    customers
  • 10. Resale price maintenance minimum price at
    which the product may be resold to customers

5
Analysis of abusing dominance
  • Determining the status of firm
  • Evaluating the behavior Economic analysis

6
A case of economic analysis with game theory
  • CPC 70 FPCC 30
  • Abusing of joint dominance of duopoly gasoline
    market
  • mechanism of joint dominance
  • - price leadership
  • - price meeting contract
  • - advance announcement of a price
  • change
  • Static game vs. dynamic game

7
Static game of pricing strategy
  • Simultaneous moves (payoff form)

8
Dynamic game of pricing strategy
  • sequential moves (game tree)
  • CPC( first mover ),FPCC( new comer of gasoline
    market)

9
Newly types of abusing dominance
  • market power evolving from distribution
    orientation
  • upstream anti-competition from industry
  • organization perspective

10
A case of newly type of abusing dominance SoGo
department store vs. branded product suppliers
which operate outlet store in SoGo
  • Restriction of outlet stores location on branded
    product suppliers (outside a radius of 2000
    meters of SoGo)
  • To create an entry barrier and intend to prevent
    potential competitors from entering the same
    geographic market

11
  • 3.Relative market position
  • - 29.54 market share in Taipei Metropolis
  • - NT19.20 billion of sales in 2001
  • - Superb business location
  • - 739 of the 766 ( 96.40 )outlets signed
    the
  • disputed restrictive clause
  • 4. Guidelines on trade practices between
  • department store and branded products
  • suppliers

12
  • Developing Trends in retailing sector (1)
  • 1. scale of chain-store retailing grow rapidly
    and strengthen its relative dominant position
    compared to supplier (low costs low sales prices)
  • 2. satisfy consumers with the need of one-stop
    shopping

13
  • Developing Trends in retailing sector (2)
  • 3. various promotional programs to stimulate
    consumption
  • 4. utilize industrialized information technology
  • e-commerce supply chain management
  • customer relations management
  • 5. increasing spot promotional programs in the
    outlet to stimulate consumption
  • 6. supplier being over-reliant to single retailer

14
Relevant market in retailing sector
  • 1. supermarkets
  • - Wellcome - Fressay
  • 2. volume retailers
  • - Carrefour - Costo
  • 3. convenience stores
  • - 7-11 - Hi-life
  • 4. department stores(shopping center)
  • - Sogo Department - Breeze shopping center

15
Types of abuse of an relative dominance in
retailing sector(1)
  • Improperly charging suppliers additional fees
  • Demanding the "most favored" price
  • Restricting the business area of trading
    counterpart
  • Failing to attribute liability of inventory
    shortfall and improperly calculating penalty
    damage for inventory shortfall

16
Types of abuse of relative dominance in
retailing sector(2)
  • Failing to articulate the conditions or standards
    of products return and improperly returning
    products
  • 1.return a product without due reasons
  • 2.return a product where the pollution,
    damage
  • or expiry is non-fault to the trading
    counterpart
  • 3.purchase large amount of products with low
  • price for the promotion, and return at a
    normal
  • price after the promotion

17
Additional Fees (Slotting allowance) charged
by chain- store retailer being relative
dominant position
  • 1. any kind of fee charged to supplier
  • - secret rebate
  • - business premises rent subsidy
  • - promotion fee
  • - minimum guarantee amount fee
  • 2. any direct deduction from payment account for
    goods according to supplier agreement

18
Improperly Charging Additional Fees
  • Fees are not directly related to promoting the
    sale of the goods
  • Amount exceeding the benefit that suppliers may
    reasonably expect to derive from sale
  • Fees are only for the retailers purpose of
    achieving its own performance target
  • Demanding a reduction of purchasing price for
    already-delivered goods when the supplier is
    under no obligation

19
Carrefour case in the year of 2000
  • 1. The case
  • Complants alleging Carrefour Corporations
  • collection of addition slotting allowance,
    rebates and
  • patronage grants.
  • 2. Dominace position of carrefour
  • a. Carefour was established in 1987 and had
    23
  • outlets at that time the alleged disputes
    occurred.
  • b. Carrefour had revenues of NT 39.77
    million in
  • 1999 accounting for 30.75 of the
    domestic
  • market

20
  • Case summery(1)
  • 1. When suppliers negotiated annual agreements
    with Carrefour, the completed agreement
    consisted of the document drafted unilaterally by
    Carrefour,including a national agreement with
    addendum 1 to 3, and a national supplementary
    agreement. Under the documents, Carrefour was
    entitled to collect various additional fees from
    suppliers.
  • 2. A supplementary fixed rebate (referred to in
    the industry as a secret rebate) introduced by
    Carrefour in 1997 is an example of such
    additional fees and it did not directly benefit
    sales.

21
  • Case summery(2)
  • 3.The additional fees collected by Carrefour over
    1998 and 1999 amounted to NT280 million. Hence
    the dispute clearly involved not just a small but
    large number of Carrefours trading counterparts.
  • 4. Carrefours reliance on its relative market
    position to deny its trading counterparts the
    freedom to decide whether they would like to
    accept the additional fees were culpable in terms
    of commercial ethics, and were sufficient to
    affect trading order.

22
  • Case summery(3)
  • 5. When Carrefour introduced the supplementary
    fixed rebate transaction clause into the
    standard national supplementary agreement drafted
    unilaterally by Carrefour, as most of the small
    and medium-sized suppliers were under the
    pressure to maintain their existing commercial
    relationship with Carrefour, it had used its
    relative market power to force the suppiers to
    accept the additional fees.
  • 6. Carrefours conduct was clearly unfair and
    sufficient to affect trading order in violation
    of the FTA.Therefore, the commission imposed an
    administrative fine of NT4 million on Carrefour.

23
Fair Trade Commission Guidelines on
Additional Fees Charged by
Distribution BusinessesPrescribed by the 470th
Commissioners' Meeting on November 9, 20001.
Purpose of these Principles
  • These Principles have been specially adopted to
    prevent distribution businesses from abusing
    advantageous positions in the market by
    improperly charging suppliers additional fees,
    and thereby to maintain the market trading order
    and ensure fair competition.

24
2. Definition of distribution business
  • The term "distribution business" as used in these
    Principles refers to volume retailers,
    convenience stores, super/hyper markets,
    department stores, cooperative stores, and all
    other businesses engaging in the retail sale of
    assorted goods.

25
3. Definition of additional fees
  • The term "additional fees" as used in these
    Principles, with the exception of amounts payable
    for goods by the distribution businesses, refers
    to fees charged to suppliers by distribution
    businesses, or to deductions made from amounts
    payable for goods, or to all kinds of fees
    demanded of suppliers by distribution businesses
    by other means.

26
4. Factors to be considered in determination
of advantageous market position
  • In determining whether a distribution business
    holds an advantageous position in the market, the
    following factors must be considered the
    comparative scales and market shares of the
    distribution business and supplier the
    supplier's degree of dependence on the
    distribution business the supplier's ability to
    change its sales channel and supply of and
    demand for the goods.

27
5. Entering into written agreements
  • When a distribution business asks a supplier to
    bear additional fees, it should first negotiate
    with the supplier with respect to the type of
    additional fee, its use, and the amount of the
    fee (or the method of its calculation), and enter
    into a written agreement with the supplier.

28
6. Provision of information for direct
debiting of additional fee
  • When a distribution business charges its supplier
    additional fees by directly debiting its account
    payable for goods purchased, it must provide
    information regarding the deduction prior to
    deducting the additional fees.

29
7. Practices constituting improper
charging of additional fees(1)
  • Under anyone of the following circumstances, a
    distribution business shall be deemed to be
    improperly charging additional fees
  • (1) the fees charged are not directly related to
    promoting the
  • sale of the goods
  • (2) the fees charged are contributions to
    equipment, research
  • and development, or promotional activities,
    and while of
  • benefit to the supplier in promoting sale of
    goods or reducing
  • operating costs, the amount of the fees
    exceeds in value the
  • tangible benefit that the supplier may
    reasonably expect to
  • derive from paying such contributions

30
7. Practices constituting improper
charging of additional fees(2)
  • (3) the fees charged are for the sole purpose of
    achieving target
  • figures or other accounting measures at the
    end of a fiscal
  • year
  • (4) when, despite the supplier being under no
    obligation, a
  • reduction in the purchase price is demanded
    by the
  • distributor for already-delivered goods or
  • (5) fees are charged in a manner contrary to
    normal trading
  • principles or commercial ethics.

31
8. Violation of these Principles
  • If a distribution business having an advantageous
    market position charges suppliers additional fees
    in a manner not in accordance with Points 5 and 6
    of these Principles or is found to be in
    violation of Point 7 such that the distribution
    business market order is impacted, the
    distribution business shall possibly deemed to be
    in violation of Article 19(1)(vi) or Article 24
    of the Fair Trade Law.

32
  • Thank You
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